Role of Freight Transportation Services and Reduction of Delayed Flights on Productivity of US Airports

Annually million tons of freight and mail are being transported through US airports. The air freight transportation services reportedly result in millions of jobs, activities and dollars which in effect stimulate economic development of regions and the nation as a whole. Beyond passengers and aircraft movements, freight volume nowadays is another major target of opportunity for an airport manager to expand the airport’s revenue base and its productivity. This paper analyzes the contribution of freight transportation on airport productivity. The paper also takes into consideration an undesirable output from airport operation i.e., number of delayed flights. As a result, the evaluation of airport productivity should be more comprehensive and fairer in the sense that it regards quantity as well as crediting quality of outputs. High efficiency can be accomplished by increasing desirable outputs and/or decreasing undesirable outputs simultaneously. This characteristic limits the applicability of the traditional Data Envelopment Analysis (DEA) model. This study uses a directional output distance function approach. We applied the approach to assess productivity of 56 US airports operating during 2000 – 2003. The results indicate that freight movements and reduction of delayed flights do contribute to more efficient use of many airports. US airports are actually being operated more efficiently than one might think otherwise. INTRODUCTION Besides passengers and movement of aircrafts, freight transportation service is another target market in which an airport manager may be interested. There were more than 23 million tons of freight and mail transported through US airports during 2003. Recently, Bureau of Transportation Statistics (BTS) released a report that John F. Kennedy International airport (JFK) was the top international freight gateway by value in 2004 (1). Freight services have increasingly become an important target of opportunity for airport management. They generates job opportunities and more revenue to an airport. Unlike previous airport productivity studies in the US, this paper will consider both desirable (good) and undesirable (bad) outputs while assessing the productivity of an airport. Due to the nature of airport operations, some desirable outputs are always produced, notably delay and noise. As shown in Figure 1, when passengers increase, we should expect to see higher number of delayed flights. The externalities are a major concern in aviation industry. Taking the undesirable outputs into consideration is therefore making a perfect sense. Such inclusion will lead to meaningful and practical results. The paper will analyze the effect of considering reduction of delays on airport productivity. In addition, the paper aims to show that the provision of freight transportation services may improve productivity of an airport significantly as well. LITERATURE REVIEW There is a good number of airport productivity studies carried out around the world (2 13). These studies typically model an airport as a decision making unit (DMU) taking multiple inputs and producing multiple outputs. Inputs may include production factors such as land area, runway, terminal area, operating expense, and labor units. Major outputs are passengers, aircraft movements and cargo throughput. We observe from previous studies that the results tend to Pathomsiri, Haghani, Dresner and Windle identify busy airports as efficient. Frequently, these efficient airports signal congestion. This is mainly because the chosen set of outputs overemphasizes on quantity of traffic, but none on its quality. Therefore it should be no surprise. Such results may never be acceptable in practice. As we know, there are always externalities from accommodating very high traffic volume, notably delay and noise. They are also outputs from production, though undesirable (bad). Perhaps, we should not ignore the downside of facilities and give credit to airports that keep delays at low levels. The results may become more meaningful, yet practical for the industry. Although Data Envelopment Analysis (DEA) seems to be a prevailing technique for analyzing productivity of airports (2 – 12), it may not be fully applicable where there is joint production of desirable and undesirable outputs (14 – 17). The reason lies in its mathematical mechanism in determining whether an airport is on the efficient frontier. For output-oriented DEA models, they would typically seek to maximize the expansion of both types of outputs, rather than expand only the desirable and contract the undesirable. In reality, an airport manager never wishes to expand both number of passengers and delay simultaneously. To account for joint production characteristic, we resort to the directional output distance function which will be described next. To the best of the authors’ knowledge, this approach has been applied to study airport productivity only once (13). In that study, the author considered aircraft noise (in 1000 New Taiwan dollars) as lone undesirable output. DIRECTIONAL OUTPUT DISTANCE FUNCTION Let + ∈ M R y denote a vector of desirable outputs, + ∈ J R b denote a vector of undesirable outputs, and + ∈ N R x denote a vector of inputs. In our context, we examine production of K airports with ) , , ( k k k b y x . We define the production possibility set as the set of desirable and undesirable outputs that can be produced from a given level of inputs which is represented by: )} , ( produce can : ) , {( ) ( b y x b y x P = (1) We assume the following fairly general conditions: Null-jointness: If . 0 then , 0 and ), ( ) , ( = = ∈ y b x P b y In other words, if an output vector ) , ( b y is feasible and there are no undesirable outputs produced, then under the null jointness only zero desirable output can be produced. Equivalently, if some positive amount of the desirable output is produced then undesirable output must also be produced. Weak disposability between desirable and undesirable outputs: If ). ( ) , ( then , 1 0 and ) ( ) , ( x P b y x P b y ∈ ≤ ≤ ∈ θ θ θ This assumption implies that if undesirables are to be decreased then the desirable outputs must also be decreased, holding inputs x constant. In other words, both desirable and undesirable outputs may be proportionally contracted, but undesirable outputs cannot, in general, be freely disposed. It models the idea that there is a cost to ‘cleaning up’ undesirable outputs. Strong disposability of desirable outputs and of inputs: If ) ( ) , ( x P b y ∈ then for ), ( ) , ( , ' ' x P b y y y ∈ ≤ and for ) ( ) ( ) , ( , ' ' ' x P x P b y x x ⊆ ∈ ≥ . Strong disposability of desirable outputs implies that it is possible to freely dispose of desirable outputs and Pathomsiri, Haghani, Dresner and Windle still remain in ). (x P Strong disposability of inputs implies that an increase in any one input does not reduce the size of ). (x P ) (x P is convex and compact and the condition of no free lunch is satisfied. That says ). 0 , 0 ( ) 0 ( = P Based on the above assumptions, we can construct the production technology for an individual airport, represented by the following output set: : ) , {( ) ( b y x P k = (2) } ., ,......... 1 , 0 , ....., ,......... 1 , , ..., ,......... 1 , , .., ,......... 1 , K k N n x x J j b b M m y y k kn K k kn k kj K k kj k km K k km k