ASSESSMENT OF EFFICIENCY OF GREEK AIRPORTS

ASSESSMENT OF EFFICIENCY OF GREEK AIRPORTS Voula Psaraki -Kalouptsidi Sofia Kalakou Faculty of Civil Engineering, National Technical University of Athens, 5 Iroon Polytechniou Street, Zografou Campus, 15773 Athens, Greece *Corresponding author, Tel.: +30 2107721204; E-mail address: vpsaraki@civil.ntua.gr (V. Psaraki). Abstract In this paper the efficiency of Greek airports is assessed using Data Envelopment Analysis (DEA). Appropriate inputs and outputs describing primary airport functions are identified. First, the landside and airside infrastructure of the airports are evaluated in terms of the movements served during the period 2004-2007. In contrast to previous studies, special emphasis is focused on the passenger building and its potential to serve passenger traffic. Then economic efficiency is assessed. The paper reports on pure technical efficiency, scale efficiency, airport potential and peer airports. Keywords: Data Envelopment Analysis, Airport efficiency, Benchmarking INTRODUCTION In the last 20 years, benchmarking has received increased attention as a useful management tool for airports. Before that, there were no commercial pressures on the aviation sector as all airports were under state control with strictly regulated operations. Furthermore, the benchmarking process was complex because of the variety and diversity of input and output data as well as the operating environment. In recent years many airports have adopted an entrepreneurial management philosophy. The change in perception resulted in the need to evaluate the profitability between similar airports. In some cases, the commercialization of airports has led to the division of management and even ownership among public and private companies and marked the beginning of a period of "globalization" of airports. A distinct characteristic of these new conditions is the emergence of global companies that have acquired several airports 1. Airports are no longer considered by their managers as mere infrastructure that is a part of the wider transport system and serves the citizens needs. Instead, they are viewed as a mix of individual segments which strive to constantly improve performance. 1

Recent developments are characterized by the dynamic presence of low cost carriers, an increase in air movements and the privatization of many airports. New technologies and other innovations resulting from the competition between airports require that airport managers and planners develop dynamic strategies and adapt flexible detailed plans that allow them to control the latent risks and uncertainties. Thus, there is a need for continuous evaluation of the effectiveness of airports operation. Evaluation helps to identify the changes needed to achieve efficiency of operation. Such changes may involve upgrade or expansion of existing infrastructure, management of operations in passenger buildings, adjustment of labor levels etc. These planning issues need to be viewed in a broader systemic process that can accommodate changing demand and volumes 2. Many regional airports such as the airports in the Greek islands are characterized by strong tourist traffic with seasonal demand. The efficiency of these airports directly affects the quality of service offered to passengers who use it as a basic means of transport to reach their destination. Airport services affect the overall attitude of travelers toward their tourist destination as they provide the first and last point of contact. The satisfaction of tourists helps the airport to effectively compete with airports serving alternate touring destinations 3. Moreover, when privatization is under consideration, investors and bankers interested in ownership and control issues want to identify potential business opportunities and latent risks. Airport efficiency has been studied by a variety of econometric methods, both parametric and nonparametric. Parametric methods employ regression techniques to estimate a relevant production or cost function, Pets et al. (2001 4, 2003 5 ), Oum et al. (2003) 6, Yoshida (2004) 7 and Yoshida and Fujimoto (2004) 8. DEA is a popular non parametric method that was initially employed in airport studies by Doganis et al. (1978) 9 and since then applied to several settings, Gillen and Lall (1997 10, 2001 11 ), Parker (1999) 12, Fernandes and Pacheco (2002 13, 2003 14 ),Pels et al (2001, 2003) a, Barros and Sampaio (2004) 15, Murillo-Melchor (1999) 16, Abbott and Wu (2002) 17, Sarkis (2000) 18, Sarkis and Talluri (2004) 19, Martin and Roman (2001) 20, Barros and Dieke (2007 21, 2008 22 ), Tsekeris (2010) 23. The Data Envelopment Analysis (DEA) estimates the efficiency of decision-making units (DMU) such as a company or a public service. Each DMU unit uses a set of resources called inputs. These resources are transformed by the operation of the unit into a set of outputs. Efficiency of the DMU is assessed by the capability of the DMU to maintain or increase the outputs. In this paper the efficiency of Greek airports is assessed using Data Envelopment Analysis (DEA). Both the ability of infrastructures to serve passengers and aircraft and the economic efficiency are examined. Appropriate inputs and outputs describing primary airport functions are identified. The infrastructure characteristics of the airports are assessed in terms of the movements served during the period 2004-2007. Two functional areas are considered: the landside and the airside. In each case, different inputs and outputs are used and alternative a These papers correspond to references 4,5 2

DEA models are applied. In contrast to previous studies, special emphasis is focused on the passenger building and its potential to serve passenger traffic, and on peer networks for benchmarking comparisons and identification of best practice. DEA MODEL TERMINOLOGY In this paper, efficiency of airports is determined by two main DEA models: the BCC model 24 and the CCR model 25. The BCC model expresses the (local) pure technical efficiency (PTE) under variable returns to scale circumstances. The CCR model computes the (global) technical efficiency (TE) score that takes no account of the scale effect and thus assumes constant returns to scale. Both models can be expressed as linear programs and solved by standard linear programming methods 26. Consider a set of organizational units (airports in our case) which are termed Decision Making Units (DMUs). The performance of DMUs is assessed using the concept of efficiency which is the ratio of total outputs to total inputs. Efficiencies are relative to the best performing DMU assigned an efficient score of unity. (In DEA multiple inputs and outputs are linearly aggregated using weights (multipliers)). Then the weights of each DMU are determined as those weights that maximize its efficiency subject to the conditions that the efficiencies of other DMUs calculated using the same weights are restricted to values between 0 and 1. The optimization process is carried out for all DMUs. The resulting ratio of weighted output to weighted input under the optimal weights defines the DMU technical efficiency score. It turns out that the above fractional mathematical program can be converted into an equivalent linear program by normalizing either the numerator or the denominator of the objective function. The so called output oriented models that we shall employ in this paper result when the denominator is normalized. The preceding discussion summarizes the original DEA model introduced by Charnes, Cooper, and Rhodes and called the CCR model. The CCR model is built upon the assumption of constant returns to scale. DMUs of different sizes usually involve variable returns to scale of activities. This more general feature is captured by the BCC model. The excesses of the input and output variables are known as slacks variables. They quantify the potential of the DMUs to exploit their inputs in order to produce the maximum quantity of outputs. A DMU is considered to be BCC-efficient (or CCR-efficient) when its efficiency score is 1, and has zero slacks. If a DMU is fully efficient in both TE and PTE scores, it is operating in the most productive scale size. If a DMU has full PTE efficiency but low TE score, then it is operating locally efficiently but not globally due to the scale size of the DMU. Thus, it is reasonable to characterize the scale efficiency SE of a DMU by the ratio of the two scores: SE = This decomposition, explains whether the inefficiency is caused by inefficient operation (PTE) or by disadvantageous conditions displayed by the scale efficiency (SE) or both. 3

THE DMU STRUCTURE OF THE GREEK AIRPORT SYSTEM Air transport is a key pillar of economic growth in the Greek economy since the vast majority of tourism movements (approximately 75%) take place by air. The air transport network of Greece includes 60 airports of different types (state owned, military and private). 39 airports are state owned and are classified by the Hellenic Civil Aviation Authority (HCAA) to International airports, Designated Points of Entry-Exit, Ad Hoc Designated Points of Entry- Exit and Domestic Airports according to traffic type. According to EU classification b, airports are designated in response to their annual passenger traffic as follows: International Association points: airports with annual traffic of more than 5,000,000 passengers, category (1) Community connecting points: airports with annual traffic of more than 1,000,000 passengers, category (2) Regional Access Points: airports with annual traffic of more than 250,000 passengers, category (3) Airports with annual traffic of more than 100,000 passengers and airports with annual traffic of less than 100,000, serving mostly domestic flights because of the limited available runway length, category (4). Greek airports serve traffic with significant variations in traffic volumes. One airport (Athens) belongs to the first category, 7 to the second, 9 to the third and 22 to the fourth. In this paper, a comparative assessment of 27 Greek airports serving both domestic and international flights is undertaken using the DEA method and the models presented above. The airports of Athens and Thessaloniki are not included in the analysis. Compared to other airports, the Athens airport is new, serving more than half of the total traffic. The remaining airports are small size airports serving domestic traffic only. All airport categories are represented in the sample. The study period was 2004-2007 and the reference year was 2007. Annual traffic data are considered. Assessment of airport efficiency based on seasonal data only (May October) was also performed but no significant differences were noticed. This could be attributed to the fact that the majority of airports serve more than 75% of the annual traffic during the period May-October. Data were collected by the HCAA. Table I summarizes some basic characteristics of the airports under consideration. b Article 13 of the Decision No 1692/96/EC of the European Parliament and of the Council of 23 July 1996 on Community guidelines for the development of the trans-european transport network 4

Table I Sample of Greek Airports and their characteristics (Source: HCAA) Airports ICAO Code Aircraft Movements Passenger Movements Category Heraklio HER 46.012 5.438.369 2 Rhodes RHO 32.776 3.625.962 2 Corfu CFU 15.638 1.999.457 2 Chania CHQ 15.430 1.882.834 2 Kos KAW 14.524 1.641.681 2 Zakynthos ZTH 7.046 988.947 2 Santorini JTR 8.966 746.674 3 Mytilene MJT 8.876 550.594 3 Samos KASM 7.480 481.987 3 Mykonos JMK 6.874 427.458 3 Kefalonia EFL 4.108 369.702 3 Kavala KVA 4.196 344.575 3 Aktio PVK 3.260 321.761 3 Alexandroupolis AXD 3.512 305.143 3 Skiathos JSI 2.526 255.664 3 Chios JKH 5.266 248.543 4 Karpathos AOK 3.588 178.853 4 Ioannina IOA 2.308 140.874 4 Araxos GPA 1.344 127.536 4 Limnos KALM 3.572 123.318 4 Kalamata KLX 980 111.198 4 Paros PAS 1.664 37.072 4 Sitia KASD 1.806 35.232 4 Milos MLO 1.320 33.557 4 Naxos JNX 884 28.957 4 Aghialos VOL 206 14.053 4 Kastoria KSO 208 3.806 4 ASSESSMENT OF INFRASTRUCTURE EFFICIENCY Selection of variables Given the differences in traffic levels, the output oriented BCC model is chosen to analyze the dynamic view of airports infrastructure. The effectiveness of airport operations is examined from two different perspectives: landside and airside. In each case a different combination of inputs was used based on their impact on aircraft movements and passenger traffic. 5

The selection of inputs and outputs needs to take into account several requirements. The inputs should cover all resources utilized by the DMUs to produce outputs and they should be well correlated with the outputs. The number of DMUs must be at least three times the sum of the inputs and outputs 27. Finally the outputs should reflect the type of performance under study. The total numbers of passenger and aircraft movements are chosen as outputs because they represent the major outcome resulted from airport operations. The total number of passengers includes the passengers arrived and departed from the airport by scheduled or charter flights serving international and domestic destinations. The total number of aircraft movements consists of the number of aircraft movements arrived and departed from the airport, scheduled or non that served both international and domestic destinations. The input variables employed for landside operations are the following: 1. Total area (m 2 ) of the passenger building 2. Ground floor area 3. Departure area 4. Arrival area 5. Check-in area 6. Number of employees c The above variables reflect, to a large extent, the ability of the airport to use the passenger building infrastructure to provide adequate level of service to passengers. The choice of the ground floor differentiates terminal buildings with more than one level and characterizes the space that is available to serve passengers. The remaining areas assess whether the space allocation to check-in, departure and arrival services is adequate. The number of employees shows the need of airports to have sufficient personnel to accommodate operating needs. All input variables correlate well with the output variable (number of passengers). The correlation coefficient was higher than 0.75. The input variables associated with airside operations are the apron area and the number of employees, excluding ground handling staff and employees of other parties performing functions at the airport. The output is the annual number of aircraft movements that landed and took off, serving international, domestic scheduled and charter flights. The total area of the airport was rejected as an input variable because it has very low correlation with the number of aircraft movements (0.04). The chosen input variables are well correlated with a correlation coefficient greater than 0.7 c Ground handling staff and employees of other organizations performing functions at the airport are not included 6

The specification of the DMU s and the associated variables are indicated in Table II together with some statistical parameters across the ensemble of airports. Table II Statistical characteristics of input and output variables LANDSIDE Max Min Average SD Correlation Terminal area 41.800 265 6.830 9.177 0.921 Ground floor area 20.753 214 4.152 4.640 0.864 Departure area 3.973 26 1.014 1.168 0.868 Arrival area 5.020 24 1.157 1.204 0.862 Check-in area 5.959 55 838 1.174 0.772 No of employees 152 4 33 33 0.994 No of passengers 5.438.369 3.806 757.919 1.223.004 AIRSIDE Max Min Average SD Correlation Apron area 140.000 4.000 42.505 34.415 0.794 No of employees 152 4 33 33 0.949 No of aircraft movements 46.012 206 7.569 10.154 Assessment of landside operations during the period 2004-2007 The results of the BCC output-oriented DEA model for the period 2004-2007 are shown in Figure 1. The airports are divided into three groups according to the Category they belong to. The next two Figures depict the changes in the number of passengers. Due to significant differences in traffic volumes between large and small airports, large airports are separately illustrated in Figure 2. Figures 2 and 3 indicate that efficiency in most cases evolves the same way as traffic does. Since no infrastructure expansions took place in the above period, it is assumed that the efficiency of airports was contingent upon traffic evolution. The superiority of large airports is evident. These airports operated efficiently during almost the entire period. No general conclusion can be made for mid and small size airports as scores vary with no clear trend. In general, average efficiency slightly increased over time, θ 2004 = 0.619, θ 2005 = 0.631, θ 2006 = 0.623 and θ 2007 = 0.635. 7

Figure 1 - Evolution of Landside Efficiency during 2004-2007 Figure 2 - Traffic of large airports Figure 3 - Traffic of mid and small size airports Assessment of landside operations in 2007 The efficiency of landside operations in 2007 is pictorially shown in Figure 4. The x axis represents values of the pure technical efficiency score (PTE) and the y axis represents values of the technical efficiency score (TE). The airports in the sample are designated by the codes displayed in Table I and are indicated in Figure 4 as points. Their coordinates are the respective PTE and TE scores. Thus the airport of Rhodes (RHO) has PTE 1 and TE 0.936. The average PTE over the airport sample is 0.635 and the average TE is 0,571. The first value is indicated by the vertical line in Figure 4. The scale efficiency is computed by the ratio TE/PTE. The average scale efficiency is 0.891. The line with average scale efficiency, TE=0.891*PTE is also depicted in Figure 4. The two average efficiency lines divide the square into 4 regions. Inspection of Figure 4 leads to the following observations. 8

Figure 4 Classification of airports in terms of Landside Efficiency 1. Five out of the 27 airports are located on the point (1,1) and thus operate in the efficient frontier as far as the passenger building infrastructure is concerned: Chania (CHQ), Zakynthos (ZTH), Heraklio (HER), Kos (KAW), Karpathos (AOK). These DMUs were efficient under the assumption of both constant and variable returns to scale and consequently fulfilled the expectations of their designers. Somewhat more generally, Chios (JKH), Rhodes (RHO), Corfu (CFU), Mytilene (MJT) and Santorini (JTR) airports are located in the high PTE-high SE region. These airports have exploited well their landside infrastructure and at the same time served a large number of passengers. 2. The second region consists of airports with high pure technical efficiency and low scale efficiency (compared to average value). Paros (PAS), Sitia (KASD), Naxos (JNX) and Aktio (PVK) belong to this category. These small size airports exploit well their resources but may encounter problems with the traffic volumes served. 3. The third region consists of airports with low pure technical efficiency and high scale efficiency. It includes Limnos (KAKM), Kalamata (KLX), Ioannina (IOA), Skiathos (JSI), Mykonos (JMK), Samos (KASM), Kavala (KVA), Alexandroupolis (AXD) and Kefalonia 9

(EFL). These airports serve a large number of passengers with limited performance. There is clearly a need for more efficient use of resources. 4. The fourth region encompasses airports serving low passenger traffic with low operational efficiency in terms of passenger building facilities. It includes Kastoria (KSO), Aghialos (VOL), Araxos (GPA) and Milos (MLO). These airports need to attract more passengers in order to improve their efficiency. The BCC model and its dual formulation enable us to calculate the so called slack variables. The slacks of the outputs describe the potential of the airport during the reference year to serve the demand expressed in total passenger volumes. Concerning the slacks of the inputs, they indicate the capacity excess with respect to each particular input. If airports perform the adjustments indicated by the slack values, they will operate efficiently. Thus the slack of a variable constitutes a quantitative form of the DMU inefficiency. Slack variable information is summarized in Table III. Airports are grouped according to their location in the four regions of Figure 4. The airports with PTE and TE equal to 1 are not included as the slack variables are 0 in this case. The meaning and significance of slack variables is further clarified by considering the airport of Skiathos. This airport was found to operate inefficiently. The slack variables imply that the airport could serve 130% more passengers as its terminal building is bigger than required by 43%, the ground floor area by 22%, the departure area by 11% and the check-in area by 38%.The airports with significant output slacks are: Kalamata, Limnos, Aghialos and Kastoria. Airports like Limnos and Aghialos serve more military than civilian movements. Aghialos is also an intermediate stop for refueling purposes. Thus the passenger movements are not as many as the airport could serve. Furthermore, the wider catchment area is also served by the airport of Skiathos. The airport of Kastoria used to have more traffic in the past when the trade of fur was flourishing in the area. Later the trade declined and airport operations shrunk. Sixteen airports show slacks in the floor area, twelve in the departure area, fourteen in the arrival area and fourteen in the check-in area. In many cases, these slacks represent over 30% of the existing areas. Overall, no significant slacks show up for the total area of the terminal. The airports however that experience slacks in the total terminal area have high slack values. More specifically, Aktio, Mykonos and Kavala could serve the same number of passengers with less than 70% of their total area. The allocation of the floor surface in these airports is also excessive. It is noted that all big airports have zero slacks and thus fully exploit their potential. A smaller size airport with zero slacks is Karpathos. 10

Table III Slack variables and airport potential Airports Passengers Total Area of terminal building Groung floor Area Departure Area Arrival Area Check-in Area No of employees Chios 22% 0% -4% -13% -17% -32% -59% Santorini 16% 0% -49% 0% -54% -41% -14% Mytilene 10% 0% -29% -53% -21% 0% -55% Naxos 55% -15% 0% -40% -40% -25% -10% Aktio 11% -57% -61% -38% -73% -64% 0% Limnos 536% 0% 0% 0% 0% 0% 0% Kalamata 361% 0% -56% -56% -67% -43% 0% Ioannina 279% 0% -10% -14% 0% -26% -9% Samos 181% -11% -4% 0% -19% -4% 0% Kavala 177% -38% -61% -12% -70% -55% -12% Kefalonia 162% -30% -24% 0% -34% -13% 0% Skiathos 130% -43% -22% -11% -38% 0% 0% Alexandroupolis 110% 0% -25% -64% 0% -25% -53% Mykonos 82% -41% -15% -1% -45% 0% 0% Kastoria 1000% 0% -50% -49% -57% -32% 0% Aghialos 684% 0% -4% -53% -7% 0% -14% Milos 273% -23% -44% -42% -63% 0% 0% Araxos 152% 0% -29% -34% 0% -31% 0% The results regarding returns to scale are summarized in Table IV. Eleven airports operate under constant returns to scale, fourteen under increasing and two under decreasing returns to scale. The airports found to operate under constant returns to scale will maintain the level of operation they currently offer. Airports with increasing returns to scale will improve their efficiency scores in the future, as their outputs are expected to increase. The airports featuring decreasing returns to scale may encounter operational problems in the future. 11

Table IV- Returns to scale DMU Efficiency score RTS Chania 1 CRS Sitia 1 IRS Rhodes 1 DRS Paros 1 IRS Zakynthos 1 CRS Heraklio 1 CRS Kos 1 CRS Corfu 1 DRS Karpathos 1 CRS Mytilene 0,913 CRS Aktio 0,897 IRS Santorini 0,86 CRS Chios 0,82 IRS Naxos 0,644 IRS Mykonos 0,55 IRS Alexandroupolis 0,477 CRS Skiathos 0,434 IRS Araxos 0,397 IRS Kefalonia 0,381 IRS Kavala 0,361 CRS Samos 0,355 CRS Milos 0,268 IRS Ioannina 0,264 CRS Kalamata 0,217 IRS Limnos 0,157 IRS Aghialos 0,128 IRS Kastoria 0,014 IRS Assessment of airside operations during the period 2004-2007 Examination of airside proved that only ten airports were efficient during the whole period: Heraklio, Rhodes and Chania (large size), Mykonos (mid size) and Milos, Naxos, Paros, Sitia and Chios (small size). The airside efficiency is higher than the landside efficiency in all years, θ 2004 = 0.718, θ 2005 = 0.705, θ 2006 = 0.700 and θ 2007 = 0.687. As with landside operations, efficiency variations follow the rate of traffic evolution. Thus traffic shapes efficiency scores as no changes in infrastructure have taken place. 12

Figure 5 - Evolution of Landside Efficiency during 2004-2007 Assessment of airside operations in 2007 The efficiency of airside operations is shown in Figure 6. The average PTE over the airport sample is 0.687 and the average TE is 0,656. The average scale efficiency is 0.96. Six out the 29 airports are located on the point (1,1) and thus operate in the efficient frontier as far as the airside infrastructure is concerned: Chania (CHQ), Sitia (KASD), Paros (PAS), Mykonos (JMK), Heraklio(HER) and Chios(JKH). Rhodes (RHO), Zakynthos (ZTH), Skiathos (JSI), Aktio (PVK), Mytilene (MJT), Kos (KAW) and Santorini (JTR) airports are located in the high PTE-high SE region. These airports have exploited well their airside infrastructure and at the same time served a large number of aircraft movements. Naxos (JNX), Milos (MLO) and Karpathos (AOK) have high PTE and below the average SE. Limnos (KALM), Kalamata (KLX), Kastoria (KSO), Ioannina (IOA), Araxos (GPA), Samos (KASM), Alexandroupolis (AXD), Kefalonia (EFL) and Corfu (CFU) serve a large number of aircrafts with limited performance. Aghialos (VOL) and Kavala (KVL) serve low aircraft traffic with low operational efficiency. 13

Figure 6 - Classification of airports in terms of airside efficiency Slack variable information is summarized in Table V. Airports in the third and fourth region (low PTE score) can serve more aircraft movements with the available facilities. Most airports demonstrate balanced use of employees. 14

Table IV Slack variables and airport potential Airports Aircrat movements Apron Area No of employees Zakynthos 42% -6% 0% Skiathos 38% 0% 0% Aktio 28% 0% 0% Kos 14% 0% 0% Santorini 13% 0% 0% Karpathos 18% 0% 0% Mytilene 7% 0% -5% Kastoria 1000% 0% 0% Kalamata 437% 0% 0% Araxos 256% 0% 0% Alexandroupolis 208% 0% 0% Ioannina 187% 0% 0% Kefalonia 135% -4% 0% Limnos 122% -20% 0% Samos 59% 0% 0% Cortu 56% 0% 0% Aghialos 1000% -42% 0% Kavala 162% -41% 0% Peer airports Peer airports have similar infrastructure characteristics. This means that they use inputs of the same scale in order to produce outputs. Each cluster of airports includes both efficient and less efficient airports. Then the efficient airports of the cluster can serve as best practice for the inefficient airports in the group. They can be viewed as a benchmark of operations for the airports that have not achieved yet the best performance because either they did not exploit appropriately their resources or they did not serve the movements they could afford. DEA modeling and its BCC implementation provide the inefficient airports with a set of peers. Each peer is considered to be more or less important for the inefficient airport according to the weight it receives by the linear programming procedure. In the BCC model this weight is expressed through the λ value. For example, the airport of Limnos is an inefficient airport and the set of its peer airports consists of Zakynthos (λ 1 =0.533), Sitia (λ 2 =0.337) and Chania (λ 3 =0.130). The airports that are assigned a higher value of λ dictate the ways that will help the inefficient airport improve its performance. Thus Limnos airport could analyze Zakynthos and Sitia airports and adopt successful practices. It should be noted that the mere adaptation of the characteristics of the peer airports is not enough for the improvement of the performance of inefficient airports. 15

Table VI indicates the peer airports for the two operation areas, landside and airside. The number next to each airport shows the number of times that each airport appears as peer for inefficient airports. For instance, Zakynthos is a peer to 15 other airports and can serve as best practice for less efficient DMUs. Table VI Peer airports LANDSIDE AIRSIDE Zakynthos 15 Chania 10 Sitia 9 Mykonos 9 Kos 8 Sitia 9 Chania 8 Paros 7 Karpathos 6 Heraklio 6 Paros 4 Chios 4 Heraklio 1 Rhodos 3 Corfu 0 Naxos 0 Rhodos 0 Milos 0 ASSESSMENT OF AIRPORT ECONOMIC EFFICIENCY In this section, DEA is employed to benchmark the 27 Greek airports in terms of economic efficiency. The following input variables are selected: 1. Payroll 2. Operating expenses Operating expenses include expenses for power and telecommunications. The output variables are defined as follows: 1. Aeronautical revenues 2. Commercial revenues Aeronautical revenues include aircraft parking and landing fees and infrastructure upgrading fees. Commercial revenues come from concessions. All monetary variables are deflated by the GDP deflator at constant 2007 prices 28. The chosen input variables are well correlated with the output variables. The correlation coefficients and some statistical characteristics for the ensemble of airports are analytically presented in Table VII and Table VIII respectively. Table VII - Correlation coefficients Aeronautical revenues Commercial revenues Payroll 0,934 0,938 16

Operating expenses 0,976 0,980 Table VIII Statistical characteristics of variables Max Min Average SD Payroll 7.315.597 268.595 1.527.654,64 1.621.437,97 Operating expenses 990.000 24.000 164.333,33 232.157,03 Aeronautical revenues 33.480.390 7.321 4.278.559,88 7.419.010,07 Commercial revenues 4.272.105 2.947 611.111,11 958.890,16 Although efficiency refers to economic efficiency, we shall retain the term pure technical efficiency throughout the section in line with the standard practice. The average PTE is 0.779. The average TE is 0.558 and the average SE is 0.718. In Figure 7, the vertical line demonstrates the value of average PTE and the oblique line the average SE. Figure 7 Efficiency Categories 17

The two average efficiency lines divide the square into 4 regions. The following remarks can be made: 1. Only one airport, Chania (CHQ), is located on the point (1,1) and thus operates in the efficient frontier. Eight airports are located in the high PTE-high SE region under the assumption of both constant and variable returns to scale: Zakynthos (ZTH), Heraklio (HER), Aktio (PVK), Kos (KAW), Corfu (CFU), Samos (KASM), Mytilene (MJT) and Rhodes (RHO). These DMUs have successfully utilized their financial resources. 2. The second region consists of airports with high pure technical efficiency and low scale efficiency (compared to average values). Ioannina (IOA), Karpathos (AOK), Kalamata (KLX), Paros (PAS), Aghialos (VOL) and Kastoria (KSO) airports belong to this category. 3. The third region consists of airports with low pure technical efficiency and high scale efficiency. It includes Limnos (KALM), Kavala (KVA), Chios (JKH), Alexandroupolis (AXD), Kefalonia (EFL) and Mykonos (JMK). 4. The fourth region encompasses: Skiathos (JSI), Araxos (GPA), Milos (MLO), Naxos (JNX) and Sitia (KASD) airports. These airports need to increase their revenues in order to improve their efficiency. Slack variable information is summarized in Table IX. The majority of airports demonstrate no slacks for inputs. Only three airports, Rhodes, Zakynthos and Sitia have excess in Table IX- Slacks of inputs and outputs Payroll Operating expenses Aeronautical revenues Commercial revenues Corfu -30% 0% 15% 17% Mytilene -44% 0% 82% 12% Rhodes 0% -18% 16% 10% Samos -13% 0% 72% 19% Zakynthos 0% 20% 5% 13% Kalamata -24% 0% 21% 33% Kastoria 0% 0% 0% 0% Alexandroupolis -49% 0% 223% 55% Chios -24% 0% 221% 110% Kavala -0% 0 % 296% 213% Kefalonia 0% 0% 64% 38% Limnos 0% 0% 1000% 411% Mykonos 0% 0% 56% 31% Araxos 0% 0% 114% 151% Milos 0% 0% 1000% 87% Naxos 0% 0% 245% 97% Sitia 0% -16% 1000% 167% Skiathos 0% 0% 91% 69% 18

operating expenses. The payroll of the airports that had better performance, were higher than the airports which demonstrated lower performance. In these cases, specific policies regarding the number of employees and the payroll need to be implemented. The airports that had zero input slacks should find ways to increase their outputs. The impact of aeronautical and commercial revenues needs to be assessed against the observed inefficiency. Airports with higher efficiency scores had smaller slacks than airports with low scores. Limnos, Milos and Sitia should change their current inefficient operation by increasing their aeronautical revenues by 1000%. Peer airports Table X indicates peer membership. Table X Peer airports PEER AIRPORTS Santorini 12 Chania 7 Ioannina 7 Paros 7 Aktio 4 Heraklio 2 Kos 1 Aghialos 1 Karpathos 1 Comparison of the airports designated as peers in both the technical and the economic analysis leads to 5 out of nine efficient airports, Kos, Karpathos, Chania, Paros and Heraklio. Economic efficiency is next combined with landside infrastructure efficiency. Figure 8 depicts the two types of efficiency. The airports are clustered according to traffic level. The average efficiency values are plotted as horizontal lines (average economic PTE=0.635, average landside PTE=0.779). Six airports are efficient both in terms of landside operations and economic performance: Heraklio, Kos, Chania, Karpathos, Paros and Sitia. The above airports exploit optimally their infrastructure and financial resources. Despite their current satisfactory performance, these airports are likely to face capacity problems in the future as demand grows. Furthermore, the need for investments might arise in order to maintain the high performance presently experienced. Large airports have good combined performance. Zakynthos, Corfu and Rhodes exploit well their infrastructure in order to serve their passengers but their economic performance could be improved. 19

In contrast to large airports, the majority of mid size airports show higher economic efficiency, rather than infrastructure utilization. However, the score differences are not the same for all airports. Aktio, Mytilene and Santorini score high in both cases. This indicates the need to take actions that will increase traffic levels and plan investments accordingly. In contrast, Kavala and Skiathos are less efficient. They score low in both cases, thus they do not exploit their capacity and do not utilize their investments properly. There is also a group of airports (Alexandroupolis, Kefalonia, Mykonos and Samos) that are efficient as far as the operation and management are concerned but they do not make optimal use of infrastructure. They make efficient use of their financial resources but their infrastructure could serve higher volumes of traffic. The score difference in the small size category is significant for: Ioannina, Kalamata, Kastoria and Aghialos. These airports make good use of their financial resources but they do not exploit their capacity adequately. Araxos, Limnos and Milos were attributed efficiencies lower than average, indicating the need for management improvements and higher traffic volumes. Figure 8 - Technical and economic efficiency CONCLUSIONS In this paper the efficiency of Greek airports is assessed using Data Envelopment Analysis (DEA). First, the efficiency of infrastructure was examined in terms of the movements served during the period 2004-2007. Landside and airside were studied separately. Airside operations were found to be more efficient on average than landside. No significant changes in efficiency levels were observed during the study period but the airports that serve more aircraft and passenger movements were found to be more efficient than those that serve fewer movements. As some of the large airports are located near mid and small size airports, 20

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