Efficiency in Latin American airlines: A two-stage approach combining Virtual Frontier Dynamic DEA and Simplex Regression

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Efficiency in Latin American airlines: A two-stage approach combining Virtual Frontier Dynamic DEA and Simplex Regression

Wanke, Peter / Barros, C.P.

Abstract This paper presents an efficiency assessment of Latin American airlines, using VDRAM-DEA (Virtual Frontier Dynamic Range Adjusted Model - Data Envelopment Analysis). In VDRAM, the reference and DMU evaluation sets are different, thus allowing higher discrimination of scoring. In this research, the VDRAM model is used first in a two-stage approach. In the second stage, Simplex Regression is adopted to handle skewed and asymmetrical efficiency scores. The results corroborate previous studies and reveal that the impact of fleet mix and public ownership cannot be overlooked in Latin American airlines, which seem to be affected by insufficient load factors and hub and spoke systems. For the same reasons, although low cost carriers are an emerging trend in the region, it was not possible to confirm their higher efficiency levels. Besides, to some extent, these findings also show the absence of a learning curve in Latin American airlines.

Highlights • This paper presents an efficiency assessment of Latin American airlines. • The Virtual Frontier Dynamic Range Adjusted Model is used in a two-stage approach. • Simplex Regression results corroborate previous studies. • The impact of fleet mix and public ownership cannot be neglected. • To some extent, the findings also show the inexistence of a learning curve.