Chapter 5: Modeling Airline Efficiency – A Comparison of International Airlines Using Data Envelopment Analysis

This paper aims to develop and test a new way of modeling airline operations and apply it to measure and compare the efficiency of international airlines, with a special focus on deregulation effects. The paper elaborates on the choice of variables, following the early work of Schefczyk (1993) and Scheraga (2004). The value chain of the airlines determines the variables included in three different models. Using data envelopment analysis, the efficiency scores show that North American airlines are more efficient in producing services offered to customers. Few differences are found between regions in allocating service output to match demand. One plausible explanation for this difference is that airlines operate within competitive environments. In a highly competitive market, management decisions focus on productive actions and cost reduction. In a less competitive environment, there is a higher degree of adjustments of the services produced. Using the Malmquist productivity index, measurements reveal that there is a catch-up effect for the European and Asian/South American airlines service production during the studied time period, which was from 1990 to 2003.