Efficiency and Profitability of Spanish Airports: a Composite Non-standard Profit Function Approach

Using recent financial and traffic data on a large sample of airports worldwide, we develop a composite non-standard profit function approach to estimate cost and revenue efficiencies of Spanish airports. Results show that, while profit margins under cost-efficient conditions are consistent with the existing literature, the important losses experienced by small airports in Spain are largely due to revenue inefficiency. This can be partially explained by a strict regulation of aeronautical revenues and an insufficient promotion of retail activities. Eliminating both cost and revenue inefficiencies would eventually move the threshold of profitability well below the traditional one million passenger mark. This result is expected to improve the prospects of individualized airport management as it is common in most of European and North American countries.