Cost efficiency of African airports using a finite mixture model

Abstract

This paper evaluates the operational activities of African airports using a finite mixture model that allows us to control for unobserved heterogeneity. In doing so, a stochastic frontier latent class model, which allows for the existence of different technologies, is adopted to estimate cost frontiers. This procedure not only enables us to identify different groups of African airports analysed from Angola and Mozambique, but also permits the analysis of their cost efficiency. The main result is that three groups are identified in the sample, each equipped with completely different “technologies”, suggesting that distinct business strategies need to be adapted to the characteristics of the airports. Some managerial implications are developed.