An application of DEA to measure the efficiency of Spanish airports prior to

privatization

指導教授 : 林燦煌 博士 學 生 : 陳 珍 妮 2004/11/15

An application of DEA to measure the efficiency of Spanish airports prior to

privatization Juan Carlos Martín Department of Applied Economic Analysis University of Las Palmas de Gran, Spain Concepción Román Institute Of Transportation Studies University of California Berkeley,USA

Journal of Air Transport Management 7 (2001) 149-157

An application of DEA to measure the efficiency of Spanish airports prior to privatization Abstract Introduction Provision and performance of

airport infrastructure The Spanish airport system A DEA model The data Conclusions

Abstract

Applying DEA to analyze the technical efficiency and performance of each individual Spanish airport

Be used to extract some policy considerations before the process of privatization of the Spanish airport system

Introduction

Deregulation of air markets: 1. The United States deregulated its domestic airline market in 1970. 2. In Europe, they have observed a conceptual change in the provision of transport infrastructure of liberalization. . A gradual approach . Commercial orientation . Evaluate the infrastructure with enough capacity to accommodate future demand

Introduction

3. Contributing the steady growth of demand in aviation markets

4. The members of air industry need to

be more efficient in order to survive

in the market

Introduction

5. In other words, the existence of some X- inefficiencies, associated with public owner- ship or price policies, needs to be reconsidered.

6. Results of the DEA analysis are useful to establish some policy consideration and to analyze some possible implications which

can be predicted from a future privatization of the Spanish airport system.

Provision and performance of airport infrastructureAirport before 1980s Be a public goods Contributing the economic development

of regions Be a monopoly . A loss of service . High fares . Poor level of maintenance and under- investments in the facilities . A gain in efficiency is been dubious

Provision and performance of airport infrastructure Evans and Kessides (1993) . The bulk of any deviation from competitiveness in the airline industry . Controlling of scarce airport facilities . Controlling of airports by the most

important groups of incumbent airlines . Be difficult to determine how these local monopoly rents are shared between airport operators and airlines

Provision and performance of airport infrastructureAirport after 1980s The strong movements have been made in many

countries in order to privatize or deregulate their airports. (Ashfor and Wright 1992)

Privatization appears as follow: . Creation of airports efficiency and profitability

. Revising the financial issues to guarantee an adequate level of maintenance and investment (Pino 1995)

Provision and performance of airport infrastructure

. The policies of airport operators effect on

the airlines profitability and network choice (Pels et al. 1997 )

. The price competition between airports has little effect on the demand serviced by

each airport (Pels et.al 1997)

Provision and performance of airport infrastructure The best performance in the airport industry

could help to improve the efficiency. Performance studies can be highly informative

in the following questions: . Are private airports more efficient than their public counterparts? . Is contracting out a good plan to improve performance? . Are multi-airport systems more efficient than individual airports?

Provision and performance of airport infrastructure Airports are heterogeneous in relation to

the services provided.(Doganis1992) For this reason comparisons between different airports are not common.

Doganis and Graham(1987) found that most airports only use partial financial indicators to estimate performance, but the methodology is related with the degree of activity satisfied the goal.

Provision and performance of airport infrastructure Partial performance ratios compare one

or more basic variables have shortcoming and can be misleading indicators, as a consequence of market power that existed.

For example, Monopolistic airports might be able to make substantial profits even if they were inefficient.

Provision and performance of airport infrastructure Comparing 25 European airports with the

average performance, using different partial ratios: unit costs, productivity and revenue ratios (Doganis 1995)

Hebsger and Waters(1993), the main

methods to generate comprehensive performance measures are the following:

. Non-parametric index number . Parametric model estimation (econometric approach) . Non-parametric DEA

The Spanish airport system Aeropuertos Españoles y Navegación

Aérea (AENA) . 42 airports with more than 116 million of passengers in 1998 . Five air traffic control centers with more than 1.8 million air traffic movements . Three flight information . 9181 employees . The revenue were around 1120 million of euros.

The Spanish airport system AENA is not subsidized by the State. the absence of subsidies has promoted the development

of commercial activities carried out within airport facilities.

Towards a more commercial orientation and partnerships

AENAs role needs to be revise . A reform of Spanish legislation on air transportation is required urgently . A liberalized market be created . The elimination of some administrative and managerial ambiguities in AENAs role

The Spanish airport system Although some benefits have been

obtained in the European air industry by the processes of liberalization.

The principal constraint to obtain the optimal gains from deregulation:

. The lack of adequate capacity of airports . The lack of air traffic control systems

The Spanish airport system The lack of adequate capacity of airports Because the facilities are clearly

insufficient to attend a market growing at an annual rate of 6%

The lack of air traffic control systems . 31 different national systems . More than 49 centers with different

program languages and operating systems

A DEA model

DEA methodology have been presented and involve a wide area of contexts:

. Education . Health care . Banking . Armed forces . Sports . Transportation . Agriculture . Retail stores . Electricity suppliers

A DEA model

Data Envelopment analysis (DEA) Charnes, Cooper & Rhodes

(1978)described the “ Measuring the Efficiency of Decision Making Units” in DEA.

Three basic DEA models: . Variable returns to scaled (VRS) . Constant returns to scaled (CRS) . Additive model

A DEA model

Determining the measurement of the efficiency Three basic orientations: . Input : focuses on proportional decrease of the input vector . Output: focuses on proportional increase of the output vector . Output/input: does not discriminate the importance of possible increase of output or decrease of input

A DEA model

CCR input orientation

決策單位 投入 產出

X1 X2 Y

ABCDE

64421

1.23124

11111

X2

X10

B

A

E

D

B*

C A*

A DEA model CCR output orientation

決策單位 投入 產出

X Y1 Y2

ABCDE

11111

42542

0.83245

B

A

E

D

B*

C

A*

Y2

Y10

A DEA model

The data Using data of the Spanish airports for 1997

to evaluate airports efficiency using the DEA model

All information has been obtained from the annual reports of AENA.

Output . Air traffic movements . Number of passengers . Number of tons of cargo transported in

each airport Input . Labor , capital and materials

Conclusions

Selecting DEA model evaluate the performance of Spanish airports to demonstrate the private ownership that the solution of providing services under capacity constraints.

The true value of the airport must be corrected some inefficiencies( due to the public ownership) are present in the system.

Conclusions

Madrid, Baleares, Cataluña, Canarias and Euskadi have some airports performing in the frontier. It’s hard to find a balanced bargaining process between the national and regional governments.

The role of government needs to be revised: . A regulatory agency has to correct the possible abuse of monopoly power . An efficient provider of infrastructure under a tight performance scrutiny and with adequate instruments needs to be

envisaged.