Airports' public infrastructure and sources of inefficiency.
| Autor | Ripoll-Zarraga, Ane Elixabete |
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Introduction
Government-owned airports are perceived as utilities which provide public services. Globalisation requires a rapid response market according to national and global needs and relies on a flexible decision-making process to make commercial decisions. The European Commission Flightpath established for 2050 (European Commission, 2011) requires connecting within 4 h door-to-door, as air connectivity contributes to economic development. Airports are essential players to the extent that the government becomes a facilitator (driver).
The Spanish airports are government-owned and managed through a public operator named [AENA] (https://www.aena.es). AENA's board of directors comprises politicians who may not have the industrial experience, skills and competencies necessary for efficiency (Ripoll-Zarraga and Huderek-Glapska, 2021). In addition, the board generally is renewed every four years with political elections; therefore, regulatory policies are also changed. Consequently, airport operators do not have flexibility, which is crucial to adapt to the changing global demand. Within this context, AENA controls the whole network with centralised management regarding pricing, investment and other decisions, including accounting policies. For example, prices are more related to the amount of traffic than the service's quality (Council of Ministers, 2011), which leads to questioning whether centralised management is better than a decentralised one (regional or municipal) in terms of efficiency. In addition, individual financial statements are not accessible or published, requested by industry stakeholders (Cambra de Comerc de Barcelona, 2010). In 2018, the national accounting and financial audit body Instituto de Contabilidad y Auditoria de Cuentas [ICAC] (https://www.icac.gob.es/en) fined 10.49 million euros in PriceWaterhouseCoopers (PwC). PwC breached its independence recurrently when auditing AENAs financial statements (BOE-A-2018-3940, resolution 13th of February 2018, published 20th of March 2018). The fine represented 5.25% of the audit fees collected. Citizens were not informed, and politicians did not question or request other audits from previous years. To date, there are no other data except from 2009 to 2014.
The European Court of Auditors (2014) determined an excess of wasted infrastructure in the past decade and a growing public deficit in Europe. For example, white elephants such as Ciudad Real Airport (which opened in 2008 forecast 2.5 million passengers and closed in 2012 after reaching 100,000 passengers in 2011) or fake high-speed aid requirements (European Commission, 2016). Except for airports located in the islands (Balearic and Canary Islands), which are public service obligation (PSO) routes and regional airports within an amenity distance of hubs and large airports, required to avoid congestion, the Spanish network contains too many regional airports under-used. Yet, the Spanish government is keen on keeping all airports operating. However, according to AENA, in 2013, out of 43, only 13 (large) airports were profitable, including four general aviation airports (Madrid Cuatro Vientos, Sabadell, Son Bonet and Madrid Torrejon) (GAs) and two heliports (Algeciras and Ceuta). The overall system is profitable (i.e. per the consolidated financial statements) per large airports cross-subsidising non-profitable airports. Cross-subsidisation is often used in transport, for example, to help regional development enhance economic prosperity. However, airport operators do not decide on commercial policies, reducing the attractiveness for airlines to operate in Spain (Comision Nacional de los Mercados y la Competencia--National Commission of Markets and Competition--CNMC, for its Spanish acronym, 2014). Thus, cross-subsidisation cannot be a permanent solution for regional and secondary airports' sustainability. Airports are public investments. Unless operating efficiently, their fixed costs (overheads) are not absorbed. Inefficient public investments or mistaken public investment and managerial decisions--per not searching for reliable sources of inefficiency--increase the public deficit and taxpayers' contribution (i.e. 98.10% of gross government debt in 2017) (European Council, 2019).
Previous research in Spanish airports on efficiency relates to sources of inefficiency per the number of passengers (Martin et al, 2009) and cargo (Coto-Millan et al, 2016; Ripoll-Zarraga and Lozano, 2019). Few studies address other factors explaining efficiency, for example, outsourcing activities (Tovar and Martin-Cejas, 2009), low-cost carrier (LCC) (Coto-Millan et al, 2014) and airports' physical infrastructure (Lozano and Gutierrez, 2009; Ripoll-Zarraga and Mar-Molinero, 2020). However, in the case of Spain, these are governmental decisions which may not relate to the regional needs in terms of air demand or connectivity and account for certain endogeneity. Overall, studies do not account for airports' environment and its specific characteristics influencing the number of passenger, cargo and aircraft movements. Indeed, references to the airports' context refer to the strict geographical location (for example, Martin and Roman, 2001,2006; Tovar and Martin-Cejas, 2010). However, it does not explain the influence on traffic robustly. The lack of individual public data and AENA's strong centralised management not enhancing competition, along with a board of politicians rather than professionals, ends with a high number of regional airports without traffic, questioning the requirement of public investment for connectivity purposes, as per having alternative travel modes (high-speed train and motorways) and per increasing public deficit. Indeed, Ripoll-Zarraga (2018) and Ripoll-Zarraga and Mar-Molinero (2020) used Data Envelopment Analysis (DEA) and demonstrated that the AENA depreciation-published data does not correspond to the use of capacity in developing traffic. Consequently, the previous findings may be biased, i.e. unreliable for benchmarking purposes and managerial and policymakers recommendations.
The peculiarities of the Spanish airports' environment, where for example, the airport's owner is the operator seems not to attract airlines to satisfy the current and future global demand. The situation requires a critical assessment of the Spanish airports' performance and reliable sources of efficiency. An efficiency benchmarked analysis is performed with stochastic frontier analysis (SFA) accounting for the airport environment determined by the Spanish government's investing decisions and geographical specifications. The SFA allows the inclusion of external non-managerial factors, no-controlled by the management and firm-fixed effects (Greene, 2003), to capture potential airports' features. Section 2 reviews the literature on air transport efficiency. Section 3 presents the model specification and data. The results are shown in Section 4, while a discussion and the conclusions are carried out in Sections 5 and 6, respectively.
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Literature review
The evaluation of the efficiency of aviation service providers has extensive literature on airlines and airports, which compares, for example, private and public companies. However, these studies do not provide strong evidence that privatisation improves efficiency (Gallegos-Monteagudo, 1992). Privatisation is often encouraged to obtain financing resources when governments cannot provide further capital infrastructure (International Air Transport Association [IATA], 2018). Likewise, companies' performance studies have increased in relevance in the past 10 years (Salcedo, 2021). For a comprehensive view of airports' performance, see, for example, Bezerra and Gomes (2016). Airports efficiency studies generally use distance functional approaches to evaluate the relative technical efficiency of each decision-making unit. Within non-parametric methods, DEA, per a functional specification, is not required. Hence, it has become a popular technique (for a review of studies, see Emrouznejad and Yang, 2018). However, stochastic disturbance factors are not enclosed, i.e. efficiency estimates can be biased. Airports are multi-input output organisations. Therefore, efficiency analysis is adequate using stochastic frontier functions for estimation (Coelli and Perelman, 1999; Kumbhakar and Lovell, 2000), which are parametric methods. Efficiency analysis assumes that the inputs and outputs are decisional variables controlled by airports' management, but these may not be. Indeed, the SFA allows the inclusion of variables as external factors (not controlled). These are understood as external factors, usually as a proxy of airports' environment that affects airports' efficiencies. However, the management is unlikely to change, at least in the short-term such as terminals and runways (Pels et al., 2003; Oum et al., 2008). However, DEA does not search for sources of inefficiency, which is more commonly used in aviation, starting with Gillen and Lall (1997), compared to SFA. SFA models progress from homogenous assumptions (Pels et al., 2003; Kumbhakar et al., 2013) to unobserved heterogeneity (Barros, 2008b; Barros et al., 2017) per airports behaving differently (i.e. residuals individual behaviour) and neglecting heterogeneity leads to inconsistent parameter estimates (Chesher, 1984). Within SFA, reasons to explain inefficiency often refer to ownership and governance forms (see Table 1).
Efficiency studies in Spain show that higher efficiencies correspond to more traffic (i.e. passengers). Again, only some studies seek sources of individual inefficiency beyond traffic. In Spain, this is essential as per airports operators' inability to decide inputs and outputs, prices, etc., since the Spanish government manages all government-owned airports (through AENA). Restrictions to operate freely and laws affect and determine the traffic since the inability to adjust production...
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