Efficiency and productivity growth in the European airlines industry : applications of data envelopment analysis, Malmquist productivity index and Tobit analysis

In its early phase of liberalisation process along with some privatisation experiences, the European airlines industry provides a fascinating case study to investigate the recent performance record and assess the determinants of performance. We aim to analyse the performance of 17 European airlines over the period 1991 to 1995. We utilise the DEA Windows analysis to capture efficiency changes over time and the DEA based Malmquist productivity index to measure the productivity change and decompose any change into efficiency and frontier shift effects. Further we use Tobit analysis to determine the potential determinants of airline efficiency. We find that results from windows analysis reveal an increasing trend in the efficiency scores for most airlines in the sample whereas Malmquist analysis shows a decline in the first two periods, but some evidence of turnaround in 1993-1994, probably with the introduction of the third liberalisation package. The Tobit results show no significant role for state ownership, but indicate the importance of subsidy and concentration policies in explaining the inefficiency differences among airlines.