The Relative Efficiency of Germ an and British Airports An Application of Partial Factor Methodology and Data Envelopm ent Analysis Presented by: Gerry Abdesaken Berlin School of Economics Wenjuan Chen Humboldt University Berlin Astrid Cullman German Institute for Economic Research (DIW Berlin) INFRADAY Berlin October 7, 2006 Supported by
Introduction � Productivity analysis of German and British airports using partial productivity methodology � Ratio analysis depicting capital, labor and financial performance � Sample: 18 German international airports from 1998-2004 and 14 British international airports from fiscal years 1995-2005 � Data Envelopment Analysis as a verification method (in progress) INFRADAY Berlin – October 7, 2006 2
Methodology Source: von Hirschhausen (2005) INFRADAY Berlin – October 7, 2006 3
Methodology: Partial Indicators Area of Measurement Indicator Real Costs per WLU Real Revenues per WLU Real Aeronautical Revenues per WLU Financial Performance Real Commercial Revenues per WLU Aeronautical/Total Revenue (%) Revenue/Expenses Ratio PAX(000) per Gate Terminal Capacity PAX per M 2 (Terminal Side) Capital Productivity Runway Capacity Movements(000) per Runway PAX per Employee Labor Productivity Movements per Employee WLU(000) per Employee INFRADAY Berlin – October 7, 2006 4
Methodology: Partial Indicators � e.g. PAX per Employee � Advantages � Can derive simple comparisons between separate input and output factors � Provide for comparisons in specific areas � Ease of computation � Disadvantages � Comparisons could be invalid when comparing observations that have different input mixes � Do not take into account factor prices � Cannot handle multiple outputs and inputs INFRADAY Berlin – October 7, 2006 5
Methodology: Criticisms of Partial Indicators PAX per Employee 1998, 2001, 2004 25000 20000 1998 15000 PAX 2001 10000 2004 5000 0 TXL SXF STR DTM MUC CGN LEJ ERF HAJ FMO THF SCN BRE DUS FRA HAM NUE DRS Labor productivity indicators at Berlin Airport Tegel are extremely high in comparison to other German int’l airports INFRADAY Berlin – October 7, 2006 6
Methodology: Criticisms of Partial Indicators ATM per Employee 1998-2004: Germany vs UK 300,0 250,0 200,0 150,0 100,0 50,0 0,0 1998 1999 2000 2001 2002 2003 2004 UK Germany Degree of vertical integration is imperative in regards to labor productivity comparability INFRADAY Berlin – October 7, 2006 7
Methodology: DEA � Non-parametric statistical method which provides overall relative efficiency scores through formulation of efficient frontier � Advantages � Multiple inputs and outputs � Overall efficiency measurement to verify partial productivity indicators � Disadvantages � Depicts firm inefficiencies, but does not explain why INFRADAY Berlin – October 7, 2006 8
Data Set � Usage of Panel Data from 1998 to 2004 � Financial Data: � Published data from financial reports � Sample = 9 German airports (Aggregated data from Berlin and Fraport), 14 British airports � Capacity Data: � Sample = 18 German Airports, Capacity data for British airports still being ascertained INFRADAY Berlin – October 7, 2006 9
Financial Performance 1999 – 2004 Germany and the UK % Annual Growth in Revenue per WLU based on 1998 4% 2% 0% -2% -4% -6% -8% -10% 1999 2000 2001 2002 2003 2004 % Annual Growth based on 1998 UK % Annual Growth based on 1998 Germany INFRADAY Berlin – October 7, 2006 10
Financial Performance 1999 – 2004 Germany and the UK Revenue Expense Ratio 1998-2004: Germany vs UK 1,50 1,45 1,40 1,35 1,30 1,25 1,20 1,15 1,10 1,05 1,00 1998 1999 2000 2001 2002 2003 2004 UK Germany INFRADAY Berlin – October 7, 2006 11
Financial Performance 1999 – 2004 Germany and the UK % Annual Growth in Costs per WLU 15,0% 10,0% 5,0% 0,0% 1999 2000 2001 2002 2003 2004 -5,0% -10,0% Annual Growth based on 1998 UK Annual Growth based on 1998 Germany Cost efficiency has been improving for both groups of airports INFRADAY Berlin – October 7, 2006 12
Average Performance - Germany Average Performance of German Airports 98-04 Indicator FY 1998 FY 2004 WLU per Employee 4,76 5,11 Real Costs per WLU 17,61 € 19,51 € Real Revenues per WLU 19,85 € 18,67 € Real Aeronautical Revenues per WLU 12,78 € 11,28 € Real Commercial Revenues per WLU 6,07 € 5,64 € Aeronautical/Total Revenue (%) 63,85% 60,50% Rev:Ex Ratio 1,16 1,06 PAX per Employee 4279,23 5000,34 Movements per Employee 113,58 93,51 Movements (000)/ Runway 65,48 63,58 PAX(000) per Gate 257,50 201,95 PAX/ SqM (Terminal Side) 110,04 90,44 INFRADAY Berlin – October 7, 2006 13
Average Performance (Capacity) Germany Comparative Average Productivity of German Airports 1998-2004 1,20 1,10 Performance Index 1,00 (1998=1) 0,90 0,80 0,70 0,60 1998 1999 2000 2001 2002 2003 2004 WLU per Employee PAX per Employee Movements/ Employee Movements (000)/ Runway PAX(000) per Gate PAX per SqM (Terminal Side) INFRADAY Berlin – October 7, 2006 14
Average Productivity by Size Germany Average Productivity of German Airports by Size 1998-2004 Indicator Small* Other WLU(000) per Employee 4,10 5,24 PAX per Employee 4158,78 5175,09 Movements per Employee 127,31 84,73 Movements(000) per Runway 33,02 95,77 PAX(000) per Gate 173,07 260,46 PAX per SqM (Terminal Side) 78,07 116,47 What is the * Small < 3.000.000 PAX in 2001 reason for ATM labor efficiency discrepancy? INFRADAY Berlin – October 7, 2006 15
Financial Performance Growth in Real Revenues per WLU for German Airports from 1998 to 2004 3,00% 2,00% 1,00% CAGR 0,00% Düsseldorf Bremen Berlin Hamburg München Dortmund Stuttgart Nürnberg Frankfurt -1,00% -2,00% -3,00% -4,00% INFRADAY Berlin – October 7, 2006 16
Commercial Performance 1998-2004 Real Non-Aeronautical Revenues per WLU in 1998, 2001, 2004 14 12 10 Euro 8 6 4 2 0 Berlin Bremen Dortmund Düsseldorf Frankfurt Hamburg München Nürnberg Stuttgart 1998 2001 2004 INFRADAY Berlin – October 7, 2006 17
Labor Productivity Movements per Employee for German Airports in 1998, 2001, 2004 450,00 400,00 350,00 300,00 1998 250,00 2001 200,00 2004 150,00 100,00 50,00 0,00 TXL SXF STR DTM MUC CGN LEJ ERF HAJ FMO THF SCN BRE DUS FRA HAM NUE DRS INFRADAY Berlin – October 7, 2006 18
Capital Productivity: Runway Capacity Movements(000) per Runway for German Airports in 1998, 2001, 2004 250,00 200,00 Movements(000) 1998 150,00 2001 100,00 2004 50,00 0,00 B C D D D F F H H L M N S S S T T E M R H X R C T X G R T U A A U U J R L M A F F E J M N S S O E N C INFRADAY Berlin – October 7, 2006 19
Capital Productivity: Terminal Capacity PAX per SqM (Terminal Side) for German Airports in 1998, 2001, 2004 450,00 400,00 350,00 300,00 1998 250,00 PAX 2001 200,00 2004 150,00 100,00 50,00 0,00 TXL SXF DTM STR THF MUC CGN LEJ HAJ FMO SCN BRE DUS FRA HAM NUE DRS INFRADAY Berlin – October 7, 2006 20
Financial Performance: British Airports Percentage of aeronautical profits( U.K.) 66,00 64,00 62,00 60,00 58,00 56,00 54,00 9 0 4 5 6 7 8 1 2 3 4 / / / / / 9 0 / / / / 5 6 7 8 9 2 3 4 5 / / 9 9 9 9 9 0 1 0 0 0 0 9 9 9 9 9 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 INFRADAY Berlin – October 7, 2006 21
Financial Performance: British Airports An individualized comparison of revenue structure shows a substantial improvement in average commercial performance Aeronautical Revenue per WLU Commercial Revenue per WLU 7,60 5,50 7,40 5,00 7,20 4,50 7,00 4,00 3,50 6,80 3,00 6,60 4 5 6 7 8 9 0 1 2 3 4 4 5 6 7 8 9 0 1 2 3 4 / / / / / 9 0 / / / / / / / / / 9 0 / / / / 5 6 7 8 9 2 3 4 5 5 6 7 8 9 2 3 4 5 / / / / 9 9 9 9 9 0 1 0 0 0 0 9 9 9 9 9 0 1 0 0 0 0 9 9 9 9 9 0 0 0 0 0 0 9 9 9 9 9 0 0 0 0 0 0 1 1 1 1 1 0 0 2 2 2 2 1 1 1 1 1 0 0 2 2 2 2 2 2 2 2 INFRADAY Berlin – October 7, 2006 22
Financial Performance: British Airports Revenue efficiency decreased sharply after 2001, while cost efficiency remained fairly stagnant (slight decrease) Total costs per WLU Total Revenue per WLU 12,00 11,00 11,80 10,00 11,60 9,00 11,40 8,00 11,20 11,00 7,00 10,80 6,00 10,60 4 5 6 7 8 9 0 1 2 3 4 / / / / / / / / / 9 0 1995/4 1996/5 1997/6 1998/7 1999/8 2000/99 2001/00 2002/1 2003/2 2004/3 2005/4 5 6 7 8 9 2 3 4 5 / / 9 9 9 9 9 0 1 0 0 0 0 9 9 9 9 9 0 0 0 0 0 0 1 1 1 1 1 0 0 2 2 2 2 2 2 INFRADAY Berlin – October 7, 2006 23
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