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

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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.

8. Provision and performance of airport infrastructure Airport 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

9. 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

10. Provision and performance of airport infrastructure Airport 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)

11. 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)

12. 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?

13. 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.

14. 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.

15. 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

16. 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.

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. X2 E B D A B* C A* X1 0 A DEA model • CCR input orientation

24. Y2 E B* D B C A A* Y1 0 A DEA model • CCR output orientation

25. A DEA model

26. 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

30. 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.

31. 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.