Airline’s business performance indicators and their impact on operational efficiency

AUTHOR’S CONTRIBUTION

Author 1: Research development, data analysis and final review; Author 2: Orientation, Contribution to the contextualization of the theme, Literature review and Final review; Author 3: Contribution to the contextualization of the theme, Literature Review; Author 4: Research Orientation and Literature Review. Author 1: Research development, Data analysis and Final review; Author 2: Supervision, Contribution to the contextualization of the theme, Literature review and Final review; Author 3: Contribution to the contextualization of the theme, Literature Review; Author 4: Research Guidance and Literature Review.

Airline	Year	Number of aircraft	Manufacturers	Number of serviced location	Staff employed
Avianca	2009	19	Embraer and Fokker	22	1609
	2010	22	Embraer, Fokker, and Airbus	19	1867
	2011	31	Embraer, Fokker, and Airbus	26	2635
	2012	32	Airbus and Fokker	26	3200
	2013	38		29	3664
	2014	48		31	4280
	2015	51		29	4283
	2016	43	Airbus	28	4553
	2017	44	Airbus	28	5354
Azul	2009	14	Embraer	14	1516
	2010	26	Embraer	24	2932
	2011	49	Embraer and ATR	45	4352
	2012	61		61	5000
	2013	56		106	8204
	2014	151	Embraer, ATR, and Airbus	112	10843
	2015	151		107	10467
	2016	124		109	10221
	2017	124		102	11184
Gol	2009	127	Boeing	49	17963
	2010	123		49	18776
	2011	122		56	18781
	2012	126		57	16000
	2013	147		56	16183
	2014	141		60	16186
	2015	139		59	15812
	2016	128		58	15129
	2017	125		57	12181
Latam	2009	132	Airbus and Boeing	43	22414
	2010	146		44	24729
	2011	156		48	28808
	2012	158		46	29000
	2013	203		44	27760
	2014	163		45	27742
	2015	168		48	25627
	2016	165		49	22929
	2017	162		47	21853

Author	Type of efficiency	Variables	Measurement forms
Lozano and Gutiérrez (2011Lozano, S., & Gutiérrez, E. (2011). A multiobjective approach to fleet, fuel and operating cost efficiency of European airlines. Computers & Industrial Engineering, 61(3), 473-481.)	Operational	Fuel Cost	TON x KM
		Flight and Ground assets	n
		Operating Cost	€
		RTK	TON x KM
Joo and Fowler (2014Joo, S. J., & Fowler, K. L. (2014). Exploring comparative efficiency and determinants of efficiency for major world airlines. Benchmarking: An International Journal, 21(4), 675-687. https://doi.org/10.1108/BIJ-09-2012-0054 https://doi.org/10.1108/BIJ-09-2012-0054... )		Revenues	USD
		Passengers	n
		RPK	million x KM
		PLF	percentage
		Expenses	USD
Choi (2017Choi, K. (2017). Multi-period efficiency and productivity changes in US domestic airlines. Journal of Air Transport Management, 59, 18-25. http://doi.org/10.1016/j.jairtraman.2016.11.007 http://doi.org/10.1016/j.jairtraman.2016... )		PLF	%
		CASM	million x mi
		RASM	million x mi
		Passenger yield	million x mi
		Fuel Expense	USD
		Passenger Revenue	USD
		Full-time Employee Equivalents	n
		Total Operating Revenue	USD
Kottas and Madas (2018Kottas, A. T., & Madas, M. A. (2018). Comparative efficiency analysis of major international airlines using Data Envelopment Analysis: Exploring effects of alliance membership and other operational efficiency determinants. Journal of Air Transport Management, 70, 1-17. https://doi.org/10.1016/j.jairtraman.2018.04.014 https://doi.org/10.1016/j.jairtraman.201... )		Employees	n
		Operating costs	USD
		Number of Aircraft	n
		Revenue	USD
		RPK	million x KM
		RTK	million x KM
Yu et al. (2017Yu, M. M., Chen, L. H., & Chiang, H. (2017). The effects of alliances and size on airlines’ dynamic operational performance. Transportation Research Part A: Policy and Practice, 106, 197-214. http://doi.org/10.1016/j.tra.2017.09.015 http://doi.org/10.1016/j.tra.2017.09.015... )	Dynamic operational	Size of Leased Fleet	n
		Labor Expenses	US$
		Fuel Expenses	US$
		Other Operational Expenses	US$
		RPK	million x KM
		FRTK	million x KM
		ASK	million x KM
		FATK	million x KM
		Size of Self-Owned Fleet	n
		Flight Waypoints	n
Singh et al. (2019Singh, J., Sharma, S. K., & Srivastava, R. (2019). What drives Indian Airlines operational expense: An econometric model. Journal of Air Transport Management, 77, 32-38. https://doi.org/10.1016/j.jairtraman.2019.03.003 https://doi.org/10.1016/j.jairtraman.201... )	Operational cost	RPK	million x KM
		Payload	KG
		Stage Length	KM
		ASK	million x KM
		Aviation Fuel Price	USD / gallon
		Ownership	N/A
Babikian et al. (2002Babikian, R., Lukachko, S. P., & Waitz, I. A. (2002). The historical fuel efficiency characteristics of regional aircraft from technological, operational, and cost perspectives. Journal of Air Transport Management, 8(6), 389-400. https://doi.org/10.1016/S0969-6997(02)00020-0 https://doi.org/10.1016/S0969-6997(02)00... )	Energy	ASK	million x KM
		RPK	million x KM
		Stage Length	KM
		Energy Consumed per ASK	joules / ASK
		Energy Consumed per RPK	joules / RPK
Merkert and Hensher (2011Merkert, R., & Hensher, D. A. (2011). The impact of strategic management and fleet planning on airline efficiency - A random effects Tobit model based on DEA efficiency scores. Transportation Research Part A: Policy and Practice, 45(7), 686-695. http://doi.org/10.1016/j.tra.2011.04.015 http://doi.org/10.1016/j.tra.2011.04.015... )	Technical, allocative, and cost-efficiency	RPK	million x KM
		RTK	million x KM
		Labour	n
		ATK	million x KM
		Freight Price	USD/FTE
		ATK Price	USD/ATK
		Airline Size (ASK)	million x KM
		Aircraft Size	n
		Stage Length	KM
		Fleet Age	n
		Aircraft Families	N/A
		Aircraft Manufacturers	N/A
Barros et al. (2013Barros, C. P., Liang, Q. B., & Peypoch, N. (2013). The technical efficiency of US Airlines. Transportation Research Part A: Policy and Practice, 50, 139-148. http://doi.org/10.1016/j.tra.2013.01.019 http://doi.org/10.1016/j.tra.2013.01.019... )	Technical	Total Cost	log
		Number of Employees	n
		Number of Gallons	n
		Total Revenue	n
		RPM	million x KM
		PLF	percentage
Sakthidharan and Sivaraman (2018Sakthidharan, V., & Sivaraman, S. (2018). Impact of operating cost components on airline efficiency in India: A DEA approach. Asia Pacific Management Review, 23(4), 258-267. https://doi.org/10.1016/j.apmrv.2017.12.001 https://doi.org/10.1016/j.apmrv.2017.12.... )	Technical and scale	RPKM	million x KM
		FTKM	million x KM
		ATKM	million x KM
		CASK	million x KM
		Fuel per ASK	log
		CASK ex-fuel	log
		Maintenance per ASK	log
		Ownership per ASK	log
		Employees	n

Characteristic	Latam	Gol	Azul	Avianca
Revenues
Total revenue (billion USD)	4.7	3.2	2.5	1.2
Revenue: domestic (%)	59.0	83.8	84.3	96.2
Revenue: international (%)	41.0	15.1	15.7	3.8
Costs
Total operating costs (billion USD)	3.8	2.3	1.9	0.9
Costs: fuel (%)	28.9%	39.3%	30.3%	36.5%
Cost per available seat-kilometer (CASK) (cents USD)	5.6	4.9	7.5	6.2
Profitability
Total operating profits (billion USD)	0.9	0.9	0.6	0.2
Gross margin (%)	18.2	27.0	24.8	19.3
Market share (RPK) (%)	32.6	36.2	17.8	12.9
Average PLF (%)	83	80	80	85
Average aircraft size (seats)	173	168	109	151
Average aircraft age (years)	9	9	5	5
Aircraft flight hours per day	11.5	9.9	10.1	11.3
Average stage length (km)	984	1,014	700	1,036
Number of served cities	43	54	101	25

Variable	Description	Symbol	Expected Sign	Authors
PLF	Passenger Load Factor, also called utilization rate, is the ratio between demand and supply of air transport.	Yt	(+)	Barros et al. (2013Barros, C. P., Liang, Q. B., & Peypoch, N. (2013). The technical efficiency of US Airlines. Transportation Research Part A: Policy and Practice, 50, 139-148. http://doi.org/10.1016/j.tra.2013.01.019 http://doi.org/10.1016/j.tra.2013.01.019... ); Joo and Fowler (2014Joo, S. J., & Fowler, K. L. (2014). Exploring comparative efficiency and determinants of efficiency for major world airlines. Benchmarking: An International Journal, 21(4), 675-687. https://doi.org/10.1108/BIJ-09-2012-0054 https://doi.org/10.1108/BIJ-09-2012-0054... ); Choi (2017Choi, K. (2017). Multi-period efficiency and productivity changes in US domestic airlines. Journal of Air Transport Management, 59, 18-25. http://doi.org/10.1016/j.jairtraman.2016.11.007 http://doi.org/10.1016/j.jairtraman.2016... )
RPK	Revenue Passenger Kilometers, which describes the number of seats sold on a given route, in kilometers.	Wi	(-)	Joo and Fowler (2014Joo, S. J., & Fowler, K. L. (2014). Exploring comparative efficiency and determinants of efficiency for major world airlines. Benchmarking: An International Journal, 21(4), 675-687. https://doi.org/10.1108/BIJ-09-2012-0054 https://doi.org/10.1108/BIJ-09-2012-0054... ); Singh et al. (2019Singh, J., Sharma, S. K., & Srivastava, R. (2019). What drives Indian Airlines operational expense: An econometric model. Journal of Air Transport Management, 77, 32-38. https://doi.org/10.1016/j.jairtraman.2019.03.003 https://doi.org/10.1016/j.jairtraman.201... )
ASK	Available Seat Kilometers, identifying the total passenger capacity of an airline on a given route, in kilometers.	Wj	(-)	Kottas and Madas (2018Kottas, A. T., & Madas, M. A. (2018). Comparative efficiency analysis of major international airlines using Data Envelopment Analysis: Exploring effects of alliance membership and other operational efficiency determinants. Journal of Air Transport Management, 70, 1-17. https://doi.org/10.1016/j.jairtraman.2018.04.014 https://doi.org/10.1016/j.jairtraman.201... )
ROL	Net Operating Flight Revenue is the income that a company receives for sales of airline tickets and other products after operating expenses are deducted.	Wk	(+)	Joo and Fowler (2014Joo, S. J., & Fowler, K. L. (2014). Exploring comparative efficiency and determinants of efficiency for major world airlines. Benchmarking: An International Journal, 21(4), 675-687. https://doi.org/10.1108/BIJ-09-2012-0054 https://doi.org/10.1108/BIJ-09-2012-0054... )
TRO	Total offered routes by airlines.	Wl	(+)	Yu et al. (2017Yu, M. M., Chen, L. H., & Chiang, H. (2017). The effects of alliances and size on airlines’ dynamic operational performance. Transportation Research Part A: Policy and Practice, 106, 197-214. http://doi.org/10.1016/j.tra.2017.09.015 http://doi.org/10.1016/j.tra.2017.09.015... )
Stage Length	Stage Length indicates the distance from takeoff to landing stage in kilometers.	Wm	(-)	Babikian et al. (2002Babikian, R., Lukachko, S. P., & Waitz, I. A. (2002). The historical fuel efficiency characteristics of regional aircraft from technological, operational, and cost perspectives. Journal of Air Transport Management, 8(6), 389-400. https://doi.org/10.1016/S0969-6997(02)00020-0 https://doi.org/10.1016/S0969-6997(02)00... ); Merkert and Hensher (2011Merkert, R., & Hensher, D. A. (2011). The impact of strategic management and fleet planning on airline efficiency - A random effects Tobit model based on DEA efficiency scores. Transportation Research Part A: Policy and Practice, 45(7), 686-695. http://doi.org/10.1016/j.tra.2011.04.015 http://doi.org/10.1016/j.tra.2011.04.015... ); Singh et al. (2019Singh, J., Sharma, S. K., & Srivastava, R. (2019). What drives Indian Airlines operational expense: An econometric model. Journal of Air Transport Management, 77, 32-38. https://doi.org/10.1016/j.jairtraman.2019.03.003 https://doi.org/10.1016/j.jairtraman.201... )
CustDesp	Flight cost and expense. Expenses are directly linked to a company's air transport operation.	Wn	(-)	Joo and Fowler (2014Joo, S. J., & Fowler, K. L. (2014). Exploring comparative efficiency and determinants of efficiency for major world airlines. Benchmarking: An International Journal, 21(4), 675-687. https://doi.org/10.1108/BIJ-09-2012-0054 https://doi.org/10.1108/BIJ-09-2012-0054... ); Singh et al. (2019Singh, J., Sharma, S. K., & Srivastava, R. (2019). What drives Indian Airlines operational expense: An econometric model. Journal of Air Transport Management, 77, 32-38. https://doi.org/10.1016/j.jairtraman.2019.03.003 https://doi.org/10.1016/j.jairtraman.201... )
Fuel	Total fuel consumption (in liters).	Wo	(-)	Babikian et al. (2002Babikian, R., Lukachko, S. P., & Waitz, I. A. (2002). The historical fuel efficiency characteristics of regional aircraft from technological, operational, and cost perspectives. Journal of Air Transport Management, 8(6), 389-400. https://doi.org/10.1016/S0969-6997(02)00020-0 https://doi.org/10.1016/S0969-6997(02)00... ); Lozano and Gutiérrez (2011Lozano, S., & Gutiérrez, E. (2011). A multiobjective approach to fleet, fuel and operating cost efficiency of European airlines. Computers & Industrial Engineering, 61(3), 473-481.); Sakthidharan and Sivaraman (2018Sakthidharan, V., & Sivaraman, S. (2018). Impact of operating cost components on airline efficiency in India: A DEA approach. Asia Pacific Management Review, 23(4), 258-267. https://doi.org/10.1016/j.apmrv.2017.12.001 https://doi.org/10.1016/j.apmrv.2017.12.... )
TOF	Indicates the number of takeoffs per route on domestic and international flights.	Wp	(-)	Babikian et al. (2002Babikian, R., Lukachko, S. P., & Waitz, I. A. (2002). The historical fuel efficiency characteristics of regional aircraft from technological, operational, and cost perspectives. Journal of Air Transport Management, 8(6), 389-400. https://doi.org/10.1016/S0969-6997(02)00020-0 https://doi.org/10.1016/S0969-6997(02)00... )
TFH	Total hours flew by aircraft, calculated by flight time.	Wq	(+)	Babikian et al. (2002Babikian, R., Lukachko, S. P., & Waitz, I. A. (2002). The historical fuel efficiency characteristics of regional aircraft from technological, operational, and cost perspectives. Journal of Air Transport Management, 8(6), 389-400. https://doi.org/10.1016/S0969-6997(02)00020-0 https://doi.org/10.1016/S0969-6997(02)00... )
ACFT	The number of aircraft in operation. Air fleet size.	Wr	(-)	Kottas and Madas (2018Kottas, A. T., & Madas, M. A. (2018). Comparative efficiency analysis of major international airlines using Data Envelopment Analysis: Exploring effects of alliance membership and other operational efficiency determinants. Journal of Air Transport Management, 70, 1-17. https://doi.org/10.1016/j.jairtraman.2018.04.014 https://doi.org/10.1016/j.jairtraman.201... )
FAB	Distribution of aircraft by manufacturers, such as Airbus, Boeing, and Embraer.	Ws	(-)	Merkert and Hensher (2011Merkert, R., & Hensher, D. A. (2011). The impact of strategic management and fleet planning on airline efficiency - A random effects Tobit model based on DEA efficiency scores. Transportation Research Part A: Policy and Practice, 45(7), 686-695. http://doi.org/10.1016/j.tra.2011.04.015 http://doi.org/10.1016/j.tra.2011.04.015... ); Sakthidharan and Sivaraman (2018Sakthidharan, V., & Sivaraman, S. (2018). Impact of operating cost components on airline efficiency in India: A DEA approach. Asia Pacific Management Review, 23(4), 258-267. https://doi.org/10.1016/j.apmrv.2017.12.001 https://doi.org/10.1016/j.apmrv.2017.12.... )

Number of obs: 36
Number of groups: 04
R-sq: Within = 0.9992
Between = 1.0000
Overall = 0.9994
PLF	Coef.	Std. Err	z
LRPK	1.768203***	.0256692	68.88
LASK	-1.684093***	.0161259	-104.43
LROL	-.0043833***	.0023062	-1.90
TRO	1.77e-07**	4.54e-07	0.39
Stage_Length	-.2632301***	.0565904	-4.65
LCustDesp	-.0146038	.0145112	-1.01
LFuel	.0017885	.0040727	0.44
LTOF	-.0507439**	.0202314	-2.51
LTFH	.2402087***	.0549988	4.37
ACFT	-.0000179	.0000192	-0.93
FAB	-.0000627	.0008451	-0.07
_cons	1.366688***	.1022241	13.37
Breusch - Pagan Test
Chi² = 42527.74
Prob > Chi² = 0.0000

Variable	Mean	Std Dev.	Min	Max
PLF	0,774468056	0,055441272	0,636194667	0,845162654
RPK	27.024.038.688	20.518.815.984	1.429.108.604	60.633.042.188
ASK	35.256.112.582	26510726104	2.008.865.973	76.700.855.192
ROL	8.492.025,56	11694737,27	376.590	71.182.091
TRO	4.122,722	2.339,04	369	8143
Stage_Length	204.598.204	126593547,8	20.251.378	401.489.433
CustDesp	6.746.135.514	4.799.928.027	490.821.693	14.962.691.500
Fuel	1.255.085.297	968610674,1	146.931.998	4.010.290.000
TOF	198.620	108715,97	23.820	316.967
TFH	364.029	208719,4979	41.247	650.794
ACFT	103,19	55,66	14	203
FAB	1,805556	0,7099072	1	3

Ano	Avianca	Azul	Gol	Latam
2009	0,7114	0,7541	0,6361	0,6812
2010	0,7394	0,792	0,6683	0,7204
2011	0,786	0,811	0,6812	0,7369
2012	0,7937	0,7924	0,6990	0,7657
2013	0,8211	0,8021	0,6991	0,7970
2014	0,8274	0,7936	0,7695	0,8285
2015	0,8338	0,7957	0,7724	0,8213
2016	0,8380	0,7974	0,7756	0,8344
2017	0,8451	0,8205	0,7975	0,8406

Acronyms/Abbreviations	Nomenclature / symbols
ANAC = National Civil Aviation Agency	Yt = operational efficiency
ASK = Available Seat Kilometers	α = intercept of the regression line (constant)
ATK = Available Tonne Kilometres	∑βn (n = 1,2,...,n) = sum of the coefficients of each variable (angular coefficients)
CASM = Cost per Available Seat Miles	Wzt (z = i,j,...,u) = explanatory variables: PLF (Yt), RPK (Wi), ASK (Wj), REV (Wk), TRO (Wl), Stage Length (Wm), CostExp (Wn), Fuel (Wo), TOF (Wp), TFH (Wq), ACFT (Wr), MAN (Ws)
CASK = Cost per ASK
DOC = Direct Operating Cost	εt = error term (difference between the actual value of Y and the predicted value of Y through the model for each observation).
DEA = Data Envelopment Analysis
FATK = Freight Available Tonne Kilometers
FRTK = Freight Revenue Tonne Kilometers
FTKM = Freight Tonne Kilometers
ICAO = International Civil Aviation Organization
KM = Kilometer
LCC = Low Cost Carriers
PLF = Passenger Load Factor
RASM = Revenue per Available Seat Miles
RPK = Revenue Passenger Kilometres
RPM = Revenue Passenger Miles
RTK = Revenue Tonne Kilometres
TON = Tonne

[1] alexandreintl@hotmail.com

Brasil

Brasil

Airline’s business performance indicators and their impact on operational efficiency

Abstract