Chunyan Yu

A comparative analysis of productivity performance of the world's major airports: summary report of the ATRS global airport benchmarking research report—2002

This paper compares productive efficiency for 50 major airports in Asia Pacific, Europe and North America by computing gross total factor productivity (TFP), further analysing TFP by regression models, and then computing ‘residual’ TFP after removing the effects of the factors largely beyond managerial control. The results reveal: larger airports are expected to achieve higher gross TFP because of the economies of scale in airport operations, not necessarily because they are more efficient than smaller airports; airports with a larger percentage of international traffic are expected to have lower gross TFP levels; an airports ownership structure does not appear to have any statistically significant effect on its productivity performance; airports with higher passenger satisfaction level does not appear to have lower productivity; an airport that diversify and expand their non-aeronautical activities such as concessions and other commercial services are likely to achieve a higher TFP level; airports with capacity constraints are expected to have a higher TFP level although it will impose delays on aircraft and passengers.

A productivity comparison of the world's major airlines

This paper examines the cost and productivity performance of 23 major international airlines during the 1986-1993 time period. A reliable database using yearly panel data is first constructed, and the data is then used to measure and compare cost per unit of aggregate output. The effects of input changes on the unit costs are also examined. The gross Total Factor Productivity (TFP) is also measured and compared. In order to compare true productive efficiency across airlines and over time, a residual TFP index is computed after removing effects of the variables beyond managerial control, such as average stage length and composition of outputs. Log-linear TFP level and TFP growth rate regressions are used to accomplish this task. Results show that carriers in newly industrialized countries (NICs) in Asia enjoy unit cost advantages over other major carriers, while European carriers have noticeably higher costs than the North American carriers. Findings also show that during the sample period, the major European carriers and carriers in Asian NICs achieved significantly higher productivity growth than their North American counterparts. Although the North American carriers still enjoy higher productivity efficiency than the Asian NICs and European carriers, the productivity gap has diminished significantly. European aviation liberalization, which began in 1987, appears to have produced substantial productivity gains. Average stage length and output mix have substantial effects on productivity, and changes in these variables account for a large portion of the observed TFP growth. In another finding, productivity efficiency of carriers competing in the same or similar markets tend to converge over time.

The effect of horizontal alliances on firm productivity and profitability: evidence from the global airline industry

Abstract This study examines the effect of horizontal alliances on firm performance in terms of productivity and profitability. Based on panel data from 22 international airline companies, which formed alliances during the period 1986–1995, the study reveals that horizontal alliances make a significant contribution to productivity gains, whereas they have no overall significant and positive impact on profitability. The study further shows that the level of cooperation in horizontal alliances influences the strength of the alliance effect on productivity and profitability. That is, alliances involving high-level cooperation are found to have a stronger significant and positive effect on both productivity and profitability than alliances involving low-level cooperation. Implications of the results are discussed.

Cost competitiveness of major airlines: an international comparison

This paper compares unit cost competitiveness of the worlds 22 major airlines over the 1986-93 period. First, a unit cost index for aggregate output is computed via a multilateral index procedure. A translog variable cost function is estimated and used to decompose the unit cost differentials into potential sources: input prices, network and output attributes, and efficiency. The results of the unit cost decomposition are used to construct a cost competitiveness indicator after removing the effects of network and output attributes. Our results for 1993 are: (a) Asian carriers (except Japan Airlines and All Nippon Airways) were generally more cost competitive than the major U.S. carriers, mostly due to their substantially lower input prices; (b) Japan Airlines and All Nippon Airways were over 50% less cost competitive than American Airlines mainly because of their high input prices; (c) major European carriers were 7% (British Airways)-42% (Scandinavian Airlines Systems) less cost competitive than American Airlines, because of higher input prices and lower efficiency; (d) among the U.S. carriers, American Airlines, United Airlines and Delta were similar in cost competitiveness, while Northwest and Continental enjoyed, respectively, 5 and 12% cost competitiveness over American Airlines; (e) exchange rate fluctuation has had considerable effects on the cost competitive position of Japan Airlines and Lufthansa.

Global airline alliances: international regulatory issues

The air transport industry has remained one of the most regulated and restrictive industries in international trade. Domestic deregulation and liberalization have been progressing at an uneven pace across countries, and liberalization of the international markets has yet to overcome numerous obstacles. Air carriers, on the other hand, need to build up an extensive global network to realize economies of scope and density and to meet consumer demands. To accomplish this, they need to have foreign partners. However, ownership restrictions do not allow for cross-country mergers or takeovers. As a result, alliances have become, and will remain in the near future, the primary means for expanding and strengthening airline global service networks. Alliances have provided a way for carriers to mitigate the limitations of bilateral agreements, ownership restrictions, and licensing and control regulations. In effect, both airlines and governments consider international alliances to be the second best solution to achieve free trade in world aviation. This paper discusses regulatory issues related to international airline alliances. Section 1 provides an overview of the current regulations surrounding alliance frameworks, and Section 2 contains a synthesis of economic analysis of regulatory concerns for international airline alliances. Section 3 discusses international coordination in regulations of airline alliances, and Section 4 provides a summary and conclusion.

An analysis of profitability of the world’s major airlines

This paper analyses airline profitability through an examination of the changes in their productivity growth and the ability to markup prices above costs. A yearly panel data of 22 major airlines over the 1986–1995 period is used. Despite the fact that the European carriers were subjected to a more rapid rise in input prices and a faster decline in airfares than their North American counterparts, they achieved a faster growth in profitability since the early 1990s thanks to their higher productivity growth caused largely by the increased competition in Europe. Although overall profitability of the industry has improved during the 1990s, there are significant variations across airlines because of their differential capabilities to deal with the increasing competition and input prices.

Operating Environment and Input Prices

This chapter gives a brief overview of selected airlines. It examines airline network characteristics and changes in input prices in order to provide a context for analysing changes in airline productivity, efficiency, and cost structures. It also examines the relationship between exchange rate fluctuations and input factor prices, as well as the growing practice of global sourcing of input factors.

Partial Factor Productivities and Input Efficiency Indices

This chapter first describes airline output and input variables which are required for performance analysis. It then presents and discusses results of airline partial factor productivity and input efficiency measurement.

Airline Productivity and Efficiency

This chapter examines airline overall productive efficiency using such methods as Total Factor Productivity (TFP), residual TFP, and Stochastic frontier method. These concepts and methodologies are also described briefly.

Preliminary Cost Analysis

This chapter examines airline cost structures and its changes over time. It provides a preliminary analysis of the effects of network and operating characteristics, and exchange rate fluctuations on airline costs. Thus, it prepares ground for further analysis of airline cost competitiveness.