Measuring the efficiency of European airlines: an application of DEA and Tobit Analysis

The liberalisation movement in European airlines industry was initiated in the late 1980s to create a more competitive environment. This has aimed to result in an increase in efficiency and productivity of the industry. The radical changes which have occurred since then have given risen to the need to evaluate the efficiency in the early phases of the liberalisation process. This study utilises Data Envelopment Analysis (DEA) to assess the efficiency of airlines. The Tobit model applied to the second stage is conducted in an effort to identify the effects of various explanatory variables on efficiency. Applying DEA with Tobit models to detect the efficiency and the determinants of (in)efficiency serves a variety of policy purposes and aimed at improving performance. Our analysis is based on a panel data set of 17 airlines European airlines over the period of 1991-1995.