Efficiency and effectiveness of airline companies in Taiwan and Mainland China

Abstract

Previous studies have estimated the efficiency of airline companies by the traditional data envelopment analysis (DEA) model. However, the production capacity produced by airline companies differs from that of manufacturing industry companies. Once the passenger-kilometers and ton-kilometers have been supplied, they will be wasted if they are not consumed. Thus, this study introduces a relational network DEA model to evaluate the cost efficiency, cost effectiveness and service effectiveness of airline companies. In addition, studies that estimate airline company efficiency typically ignore the naturally occurring heterogeneity. Such treatments do not reflect true integrated efficiency. Thus, this study proposes a combined network DEA model and a directional distance function to estimate the cost efficiency, cost effectiveness and service effectiveness of airline companies in a manner that considers both heterogeneous technologies and production effectiveness. In this study, we assess eight airline companies in Taiwan and China. The results reveal that the service effectiveness of most of the companies is better than their cost efficiency. We also estimate the cost efficiency, service effectiveness and cost effectiveness of these airline companies. Based on the metatechnology ratio (MTR), we observe that the cost efficiency and cost effectiveness of the Chinese companies are significantly higher than those of the Taiwanese companies. The main reason for this difference is that the Chinese airline companies control their costs effectively.