In this paper a two-phase data envelopment analysis approach is proposed in order to examine in a separated way the operational and financial performances for airlines. Empirical results are based on panel data from Brazilian and American airlines, using data from 34 observations (within the period from 1997 to 2006), and shows that for the emergent market, operational performance is always much better than the financial one, showing that the resources optimization has been the main concern for these companies. Also, results for this market show that improving the operational efficiency does not necessarily generate an improvement in financial efficiency. Future research should ascertain whether or not these results replicate in companies other than airlines.
The airline sector has been greatly affected by economic challenges, mainly by the recent world-wide financial crisis of 2008 and 2009. During this period, even the most lucrative companies lost money and, even now with the sector recovering, the current margins in the Brazilian airline sector are still very low, 2% on average. Due to the current financial climate, performance measurement studies have given the sector an opportunity to identify and enhance their economic indicators.
The economic indicators that authors usually consider in evaluating the overall performance of airlines can be obtained by operational and/or financial measures. But, especially in this sector, some attention must be taken when choosing the information that reflects the financial performance. Schefczyk (1993) explained the difficulty in using financial information of international airlines, since different accounting and taxation rules in various countries result in different impacts of leased assets on profit and balance-sheet information. After that, Scheraga (2004), using the model from Schefczyk (1993), investigated the structural drivers of operation efficiency as well as the financial posture of airlines on the eve of September 11th. They also found that relative operational efficiency did not inherently imply superior financial mobility, i.e., airlines that had chosen relatively efficient operational strategies also suffered the consequences of the post-September 11th environment.
Other authors investigated airline performance, for example, Feng and Wang (2000) showed that performance evaluation for airlines can be more comprehensive if financial ratios are considered. Wang (2008) applied a fuzzy multi-criteria decision-making (FMCDM) method using financial indicators and evaluated financial performance of airlines. More recent, Barros and Peypoch (2009) analyzed the operational performance of a sample of AEA from 2000 to 2005, combining operational and financial variables.
But, as can be noted, operational and financial variables are frequently used in conjunction, even in the airline sector where both indicators are of concern.
The aim of this paper consists of analyzing operational and financial efficiencies in a separate way, i.e., using only operational variables to evaluate the operational efficiency and only using financial variables to find the financial efficiency. In this way, the contribution of this paper consists of: (i) modeling a two-phase data envelopment analysis approach separating the operational and financial indicators, but taking into account that reducing the costs (operational performance) leads to an increase in the results (financial performance); (ii) place side by side the results of operational and financial performances for airlines in a data panel; and (iii) verify the efficiency and advantages of decomposition methodology.
The rest of the paper is organized as follows. The next section presents a recent literature review of the uses of a two-phase data envelopment analysis approach. After that, we present the data set and variables used in the proposed model. Section 4 shows the methodology applied, followed by the empirical results. Finally, we present some concluding remarks.
This paper presented a two-phase data envelopment analysis model that evaluates in a separate way the operational and financial performances. For this, in the first stage, only variables that reflect the operational aspects were considered and the second stage combines variables that focus on the financial values. Obviously the operational efficiency has an influence on the financial performance, so the score obtained in the first stage is used as an input to the second stage.
The results showed that the operational and financial efficiencies do not always have the same tendencies mainly in an emergent market. In fact, the correlation between the score obtained in the first phase (that uses only operational indicators) and the financial efficiency is positive, reflecting that the better the operational performance, the better the financial one, therefore, the correlation is not very high and lower for Brazilian airlines (0.600 for American companies and 0.497 for Brazilian airlines). Also, the operational performance results are often higher than the financial one, confirming that a good operational performance is not sufficient to improve the financial results.
Although the proposed two-phase methodology is typified using the airlines, this methodology could be applied to other sectors, since operational and financial indices are relevant in every organization.
