Presentation on theme: "Jürgen Müller, Tolga Ülkü,"— Presentation transcript:
1Jürgen Müller, Tolga Ülkü, Privatization, restructuring and its effects on performance: a comparison between German and British airport sectorJürgen Müller, Tolga Ülkü,Jelena Živanović
2Outline Introduction Privatization in Germany and the UK Methodology DataEmpirical Analysis(1) Partial Factor Productivityi - Financial Analysisii - Labor Productivityiii - Capital Productivity(2) Financial Ratio Analysis(3) Data Envelopment AnalysisSummary AnalysisConclusion
3Introduction Some sales of state-owned airports Flows of money to public sectorIncreasing profit motive of private sectorAgainst this background, we aim at an effective benchmarking analysis to identify first effects .The main issue is to identify the organizational structure that leads to more efficiency and better performance.
4IntroductionDifferences between performance and efficiency may arise from different ownership structures:UK vs GermanyOur analysis differentiates betweenfully and partially privatized, as well aspublic airports7 British, 6 German airports which have been exposed to similar market and economic conditions.Econometric methods to identify the effects of ownership structure on productivity: PFP, DEA, FRA and SFA
5Effects of Privatisation? The greater inefficiency of public utilities comes as a result of the lack of incentive and sanction mechanism.Privatized or partially privatized airports are likely to aim at higher productivity and cost efficiencies, better capacity utilization and the expansion of the non-aviation sector.The change of the ownership structure should result in cost efficiencies and higher profit-orientation.
6Privatization in Germany 06 AIRPORTOPERATING COMPANYSHAREHOLDERSSHAREDüsseldorf International (DUS)Flughafen Düsseldorf GmbHCity of Düsseldorf50%Airport Partners GmbHFrankfurt/Main (FRA)Fraport AGFederal Republic of Germany18,38%Federal State of Hessen32,13%Stadtwerke Frankfurt Holding20,52%Portfolio Investments28,97%Hamburg (HAM)Flughafen Hamburg GmbHCity of Hamburg51%Hamburg Airport Partners GmbH Co KG49%Hanover (HAJ)Flughafen Hannover Langenhagen GmbHHannoversche Beteiligung GmbH35%City of HannoverFraport AG and Nord LB30%Munich (MUN)Public AirportFederal State of Bavaria51 %26 %City of Munich23 %Stuttgart (STR)Federal State of Baden-WuerttembergCity of Stuttgart
7Privatization in the UK 06 AirportStatusPrincipal OwnerAberdeenprivateADI(BAA)GlasgowLondon CityMarketspurLondon GatwickBAALondon HeathrowLondon StanstedManchesterpublic
8Privatization in the UK Three types of airport ownership predominate in the United Kingdom:Fully privatized airports (managed and owned by a private company; examples include Liverpool and the BAA airports)Partially privatized airports (under joint local government and private ownership; examples include Birmingham and Newcastle)Public airports (owned and often managed by local governments, e.g. Manchester)
9Data Britain Germany Years : 1998 – 2005 Aberdeen (ABE)Düsseldorf (DUS)Glasgow (GLA)Frankfurt (FRA)London City (LCY)Hamburg (HAM)London Gatwick (LGW)Hanover (HAJ)London Heathrow (LHR)Munich (MUN)London Stansted (STN)Stuttgart (STR)Manchester (MAN)Years : 1998 – 2005Financial, Capacity and Traffic data
10Methodology 1-Partial Factor Productivity (PFP): Focus of Measurement IndicatorFinancial PerformanceReal Costs per PAXReal Revenues per PAXRevenue/Expenses RatioLabor ProductivityPAX per EmployeeMovements per EmployeeCapital ProductivityRunway CapacityMovements/Runway LengthTerminal CapacityPAX(000) per GatePAX/Terminal Area(m2)
11Methodology Indicators Profitability Liquidity Debt Management Inputs 2-Financial Ratio Analysis (FRA):3-Econometric Approaches:3.1. Data Envelopment Analysis (DEA)3.2. Stochastic Frontier Analysis (SFA)IndicatorsProfitabilityLiquidityDebt ManagementInputsOutputTerminal Area (m2)Number of PassengersNumber of Check-in CountersNumber of Gates
12Size of Airports (1998-2005) measured in mill. Passengers DataA General Look at the Airports in the SampleSize of Airports ( ) measured in mill. PassengersAirports with different scale chosen. These figures are important, because they play an important role on partial indicators, e.g. PAX/EmployeeStansed increasing, almost tripled..MUN and FRA also..
13Financial Comparison Averages, Growth Rates and Yearly Figures: Real Costs per PAXReal Revenues per PAXRevenues / Expenses
14Average Values for Financial Indicators 1998-05 Partial Productivity AnalysisAverage Values for Financial IndicatorsBoth costs and revenues are larger for British airportsEffect of vertical integration dominateBritish airports have a higher revenues/expenses ratio
15Growth Rates for Financial Indicators 1998-2005 Partial Productivity AnalysisGrowth Rates for Financial IndicatorsFor British airports both costs and revenues decreased(revenues by almost 10%)Interestingly revenue/expenses ratio also decreased by almost 6%
16Financial Indicators for each Airport Partial Productivity AnalysisFinancial Indicators for each AirportCosts and Revenues per PAX, 8-year average
17Partial Productivity Analysis Real Costs per PAXFrankfurt incurs the highest costsPartially privatized airports, Hamburg and Hanover, run lower costsInteresting time trend: Frankfurt rising, Hamburg fallingBritish airports have higher cost efficiencyThe lower degree of vertical integration and the greater degree of outsourcingLondon City generates the highest costsReal costs show a significant drop for Manchester and an increase for AberdeenStansted and Glasgow have the lowest ratio of all airports, possibly due to pressure from low cost carriersAfter 2001 a gradual growth in costs due to higher security measures
18Financial Performance Higher cost efficiency at British airportsHigher revenues at German airportsBUT: The effects of vertical integration and market power lead to biased results!Should only do within group comparisons!
19Partial Productivity Analysis Real revenues per PAXFrankfurt generates the highest revenuesHamburg and Düsseldorf generated the lowest revenues, followed by HanoverThe effects of market power at Frankfurt are evidentBritish airports have lower revenuesLondon City generates the highest revenues most probably due to market powerStansted has the lowest ratio of all airports, possibly due to pressure from low cost carriers
21Partial Productivity Analysis: Financial comparison of Revenues and ExpendituresThe ratio is not affected by VI, but effects of market power and regulation (more important for monetary indicators than for physical indicators)The large differences between German and UK airports have disappearedHeathrow had the best performance, closely followed by the partially privatized HamburgManchester does well, but is a public airportOther British airports score very well, whereas Stuttgart, Munich and Frankfurt are bad performers
22LABOR PRODUCTIVITY Data: Number of Employees Averages, Growth Rates and Yearly Figures:PAX per EmployeeMovements per Employee
23Number of Employees at airports in the sample DataAverage employee number : Germany: Britain: 1290Number of Employees at airports in the sample
24Vertical Integration and Number of Employees As a result of high vertical integration, employee numbers in German airports are more than double those of Britain‘s....which do not allow us to compare the labor productivities directly.- Number of Employees
25Labor Productivity : effects of VI Main finding of a rough analysis of graphs:-UK Airports that outsource many activitiesachieve higher labor productivity.But, looking at employment levels reveals that VI leads to biased results about labor productivity.Large differences in labor productivity come from large differences in vertical integration!What to do? TRL adjustments of VI next task
26Labor ProductivityAverage and Growth Rate of Labor Productivity Indicators btwAverages:Growth Rates:
27PAX/Employee, 8-year-average Labor ProductivityThis picture depicts a high labor productivity in British airports, but we can not draw a strong conclusion because of different VI levels, hence we are going to look at the labor productivity indicators within countries and try to understand the different figures.PAX/Employee, 8-year-average
29Aircraft Movement per Employee, 8-year-average Labor ProductivityAberdeen gets small aircraftsAircraft Movement per Employee, 8-year-average
30Aircraft Movement per Employee Labor ProductivityAircraft Movement per Employee
31Labor Productivity vs. Aircraft Size PAX per Aircraft MovementAircraft size (bigger airplanes and fewer movements) affects labor productivity by changing the level of outsourcing!
32CAPITAL PRODUCTIVITY Data: Runway Length,Number of Gates, Terminal Area (m2)Averages, Growth Rates and Yearly Figures:Aircraft Movements / Runway LengthPAX (000) per GatePAX / Terminal Area (m2)
33Data DUS 5.700 FRA 12.000 HAM 6.916 HAJ 6.920 MUN 8.000 STR 3.345 ABE Airport(2005)Length of Runway(m)DUS5.700FRA12.000HAM6.916HAJ6.920MUN8.000STR3.345ABE1.829GLA3.762LCY1.319LHR3.098LGW9.511STN3.048MAN6.095Number of GatesAirport19982005DUS3484FRA174HAM4355HAJ20MUN103218STR1570ABE11GLA38LCY10LHR58LGW62STN99MAN57
34Frankfurt AirportThe new landing runway will be some 2,800 meters long. The centerline separation from the existing North runway will be approx. 1,400 meters. This will allow for simultaneous landing operations on these two runways, which are not possible on the existing parallel runways because they are not far enough apart.
35Terminal Area (m2, in thousands) DataTerminal Area (m2, in thousands)
36Capital productivity or Capacity utilization? Length of runways, gates and terminal size are measures for capital, but not perfect measuresbut measure also capacity utilization instead of capital productivityHow to measure capacity? Problems with no of runways : example of FrankfurtAdjustment: Runway length instead of runwaysUsing declared capacity? Data?
37Capital ProductivityAverages and Growth Rates of Capital Productivity Indicators btwVertical integration does not matterBritish airports, however, perform better than German airports in terms ofcapacity utilizationIn Germany, decreasing growth due to investments in capital
38Aircraft Movement/Runway Length, 8-year Average Capital ProductivityAircraft Movement/Runway Length, 8-year Average
39Aircraft Movement/Runway Length Capital ProductivityAircraft Movement/Runway Length
40PAX (000) per Gate, 8-year Average Capital ProductivityPAX (000) per Gate, 8-year Average
41Capital ProductivityPAX (000) per Gate*Dusseldorf, Stuttgart
42PAX / Terminal Area (m2) , 8-year Average Capital ProductivityPAX / Terminal Area (m2) , 8-year Average
43Capital ProductivityPAX / Terminal Area (m2)Stansted vs. Dusseldorf
44Capital productivity or Capacity utilization? Problem of lumpy investmentGates: they represent a less lumpy investment than terminals and runways(e.g. Stansted built a terminal and increased capacity utilization.) Düsseldorf reduced gates with fire?still, are there indications of excessive investment, overcapacity?
46Profitability Effect of market power and of regulation The average operating margin was 24.3%, in 2005, down from 26.3%UK airports achieved higher marginsHeathrow had the highest ratio at 39.1% Frankfurt had the lowest at 14.6%The margin for Düsseldorf decreased from 31.4% in 2002 to 21.1% in 2005 due to large investment program
47Financial Ratio Analysis (FRA) LiquidityRatio of current assets to current liabilities
48Financial Ratio Analysis (FRA) Debt ManagementPercentage of total funds provided by creditors
49Data Envelopment Analysis (DEA) Following Pels, Nijkamp and Rietveld (2001) and Kamp (2004), the most appropriate input-output combination for the DEA seemed to be the following:Output:Number of PassengersInputs:Terminal AreaNumber of Check-in CountersNumber of Gates
50Data Envelopment Analysis DEA Scores More powerful efficiency measure since it gives the whole picture:It confirms some of the previous findingsFrankfurt performs best because it has high number of passengers and high capacityHanover could have had twice as many passengers as it has given the capacity (small airport effect)
51Stochastic Frontier Analysis (SFA) Results of the SFA analysisSFA Estimation ResultsCoefficientStandart Errort-ratioßo2.26447.0339Terminal Area0.1511Check-in Counters0.57000.29911.9058Gates0.1833Sigma-Squared1.37890.95531.4434Gamma0.98900.0087
53Summary AnalysisEvaluation of each airport according to each indicatorRanking them according to their pointsSumming up all of the partial indicatorse.g.Results19981999200020012002200320042005DUS52534939384035FRA464744HAM41433736HAJ3332MUN4851504245STR58595456ABE76717074726978GLA65555760LCY61LGW77818075LHR848582STN6373MAN6264WorstBestTotal Scores according to the rankings
54Summary Analysis Heathrow is leading, whereas Hanover is at the bottom British airports clearly outperforms their German counterpartsFrom a benchmarking point of viewDusseldorf can collect only half of the points in 2005 compared to 1998, Stuttgart also loses a lotStansted and Manchester are performingthe best in 8 yearsFrankfurt and Munich are the only 2 German airports who have been developing their scores
55SummaryDifferences resulting from privatization are difficult to proveNot many observations for privatization inDNot enough public airports in the UK and private airports in GermanyComparisons across the 2 countries are difficult
56Results revisited (1)Strong evidence that the British airports were more efficient in terms of costs and labour productivity.The picture of the overall performance of privatized airports in the sample is less conclusive.Mixed results on German airports:Partially privatized German airports tend to achieve lower labor and capital productivity (e.g. Frankfurt, Hanover) while Stuttgart has the best labor productivity.
57Results revisited (2)Higher traffic volume and better capacity utilization are characteristics of British airports, whereas more overcapacities are encountered at the German airports.Some ratios in the PFP analysis supported the hypothesis for higher efficiency of privatized airports, but sometimes this trend is subtle.Partial indicators are dramatically affected by the changes in capacity.
58Need for Further Research Longer time series and more observationsVI biases some measures: TRL adjustment may helpCapacity- Big driver is capacity rather than privatizationNever-ending story58