A fresh look at the productivity and efficiency changes of UK airlines

Abstract

This article uses the bootstrapped Malmquist index methodology to measure and test the extent of efficiency and productivity changes in the UK airline sector. The aim of the bootstrap method is to overcome the statistical limitations of the Data Envelopment Analysis (DEA) method, generally used to measure the distance functions of the Malmquist index. In applying the method we use input/output data on a sample of major UK airlines for the period 2004–2007. Results showed that most airlines have witnessed significant decrease in their productivity, efficiency, scale and technology measures. Using a second stage Tobit regression, this article attributed the sources of productivity and efficiency changes to factors such as stage length, load factor and airline size. This article also discussed the negative impacts of oil price using illustrations from the UK and other international airlines.