Presentation is loading. Please wait.

Presentation is loading. Please wait.

Jürgen Müller, Tolga Ülkü,

Similar presentations

Presentation on theme: "Jürgen Müller, Tolga Ülkü,"— Presentation transcript:

1 Jürgen Müller, Tolga Ülkü,
Privatization, restructuring and its effects on performance: a comparison between German and British airport sector Jürgen Müller, Tolga Ülkü, Jelena Živanović

2 Outline Introduction Privatization in Germany and the UK Methodology
Data Empirical Analysis (1) Partial Factor Productivity i - Financial Analysis ii - Labor Productivity iii - Capital Productivity (2) Financial Ratio Analysis (3) Data Envelopment Analysis Summary Analysis Conclusion

3 Introduction Some sales of state-owned airports
Flows of money to public sector Increasing profit motive of private sector Against 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.

4 Introduction Differences between performance and efficiency may arise from different ownership structures: UK vs Germany Our analysis differentiates between fully and partially privatized, as well as public airports 7 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

5 Effects 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.

6 Privatization in Germany 06
AIRPORT OPERATING COMPANY SHAREHOLDERS SHARE Düsseldorf International (DUS) Flughafen Düsseldorf GmbH City of Düsseldorf 50% Airport Partners GmbH Frankfurt/Main (FRA) Fraport AG Federal Republic of Germany 18,38% Federal State of Hessen 32,13% Stadtwerke Frankfurt Holding 20,52% Portfolio Investments 28,97% Hamburg (HAM) Flughafen Hamburg GmbH City of Hamburg 51% Hamburg Airport Partners GmbH Co KG 49% Hanover (HAJ) Flughafen Hannover Langenhagen GmbH Hannoversche Beteiligung GmbH 35% City of Hannover Fraport AG and Nord LB 30% Munich (MUN) Public Airport Federal State of Bavaria 51 % 26 % City of Munich 23 % Stuttgart (STR) Federal State of Baden-Wuerttemberg City of Stuttgart

7 Privatization in the UK 06
Airport Status Principal Owner Aberdeen private ADI(BAA) Glasgow London City Marketspur London Gatwick BAA London Heathrow London Stansted Manchester public

8 Privatization 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)

9 Data 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 – 2005 Financial, Capacity and Traffic data

10 Methodology 1-Partial Factor Productivity (PFP): Focus of Measurement
Indicator Financial Performance Real Costs per PAX Real Revenues per PAX Revenue/Expenses Ratio Labor Productivity PAX per Employee Movements per Employee Capital Productivity Runway Capacity Movements/Runway Length Terminal Capacity PAX(000) per Gate PAX/Terminal Area(m2)

11 Methodology 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) Indicators Profitability Liquidity Debt Management Inputs Output Terminal Area (m2) Number of Passengers Number of Check-in Counters Number of Gates

12 Size of Airports (1998-2005) measured in mill. Passengers
Data A General Look at the Airports in the Sample Size of Airports ( ) measured in mill. Passengers Airports with different scale chosen. These figures are important, because they play an important role on partial indicators, e.g. PAX/Employee Stansed increasing, almost tripled..MUN and FRA also..

13 Financial Comparison Averages, Growth Rates and Yearly Figures:
Real Costs per PAX Real Revenues per PAX Revenues / Expenses

14 Average Values for Financial Indicators 1998-05
Partial Productivity Analysis Average Values for Financial Indicators Both costs and revenues are larger for British airports Effect of vertical integration dominate British airports have a higher revenues/expenses ratio

15 Growth Rates for Financial Indicators 1998-2005
Partial Productivity Analysis Growth Rates for Financial Indicators For British airports both costs and revenues decreased (revenues by almost 10%) Interestingly revenue/expenses ratio also decreased by almost 6%

16 Financial Indicators for each Airport
Partial Productivity Analysis Financial Indicators for each Airport Costs and Revenues per PAX, 8-year average

17 Partial Productivity Analysis
Real Costs per PAX Frankfurt incurs the highest costs Partially privatized airports, Hamburg and Hanover, run lower costs Interesting time trend: Frankfurt rising, Hamburg falling British airports have higher cost efficiency The lower degree of vertical integration and the greater degree of outsourcing London City generates the highest costs Real costs show a significant drop for Manchester and an increase for Aberdeen Stansted and Glasgow have the lowest ratio of all airports, possibly due to pressure from low cost carriers After 2001 a gradual growth in costs due to higher security measures

18 Financial Performance
Higher cost efficiency at British airports Higher revenues at German airports BUT: The effects of vertical integration and market power lead to biased results! Should only do within group comparisons!

19 Partial Productivity Analysis
Real revenues per PAX Frankfurt generates the highest revenues Hamburg and Düsseldorf generated the lowest revenues, followed by Hanover The effects of market power at Frankfurt are evident British airports have lower revenues London City generates the highest revenues most probably due to market power Stansted has the lowest ratio of all airports, possibly due to pressure from low cost carriers

20 Partial Productivity Analysis
Revenues / Expenses

21 Partial Productivity Analysis:
Financial comparison of Revenues and Expenditures The 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 disappeared Heathrow had the best performance, closely followed by the partially privatized Hamburg Manchester does well, but is a public airport Other British airports score very well, whereas Stuttgart, Munich and Frankfurt are bad performers

22 LABOR PRODUCTIVITY Data: Number of Employees
Averages, Growth Rates and Yearly Figures: PAX per Employee Movements per Employee

23 Number of Employees at airports in the sample
Data Average employee number : Germany: Britain: 1290 Number of Employees at airports in the sample

24 Vertical 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

25 Labor Productivity : effects of VI
Main finding of a rough analysis of graphs: -UK Airports that outsource many activities achieve 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

26 Labor Productivity Average and Growth Rate of Labor Productivity Indicators btw Averages: Growth Rates:

27 PAX/Employee, 8-year-average
Labor Productivity This 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

28 Labor Productivity PAX per Employee

29 Aircraft Movement per Employee, 8-year-average
Labor Productivity Aberdeen gets small aircrafts Aircraft Movement per Employee, 8-year-average

30 Aircraft Movement per Employee
Labor Productivity Aircraft Movement per Employee

31 Labor Productivity vs. Aircraft Size
PAX per Aircraft Movement Aircraft size (bigger airplanes and fewer movements) affects labor productivity by changing the level of outsourcing!

32 CAPITAL PRODUCTIVITY Data: Runway Length,Number of Gates,
Terminal Area (m2) Averages, Growth Rates and Yearly Figures: Aircraft Movements / Runway Length PAX (000) per Gate PAX / Terminal Area (m2)

33 Data 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) DUS 5.700 FRA 12.000 HAM 6.916 HAJ 6.920 MUN 8.000 STR 3.345 ABE 1.829 GLA 3.762 LCY 1.319 LHR 3.098 LGW 9.511 STN 3.048 MAN 6.095 Number of Gates Airport 1998 2005 DUS 34 84 FRA 174 HAM 43 55 HAJ 20 MUN 103 218 STR 15 70 ABE 11 GLA 38 LCY 10 LHR 58 LGW 62 STN 99 MAN 57

34 Frankfurt Airport The 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.

35 Terminal Area (m2, in thousands)
Data Terminal Area (m2, in thousands)

36 Capital productivity or Capacity utilization?
Length of runways, gates and terminal size are measures for capital, but not perfect measures but measure also capacity utilization instead of capital productivity How to measure capacity? Problems with no of runways : example of Frankfurt Adjustment: Runway length instead of runways Using declared capacity? Data?

37 Capital Productivity Averages and Growth Rates of Capital Productivity Indicators btw Vertical integration does not matter British airports, however, perform better than German airports in terms of capacity utilization In Germany, decreasing growth due to investments in capital

38 Aircraft Movement/Runway Length, 8-year Average
Capital Productivity Aircraft Movement/Runway Length, 8-year Average

39 Aircraft Movement/Runway Length
Capital Productivity Aircraft Movement/Runway Length

40 PAX (000) per Gate, 8-year Average
Capital Productivity PAX (000) per Gate, 8-year Average

41 Capital Productivity PAX (000) per Gate *Dusseldorf, Stuttgart

42 PAX / Terminal Area (m2) , 8-year Average
Capital Productivity PAX / Terminal Area (m2) , 8-year Average

43 Capital Productivity PAX / Terminal Area (m2) Stansted vs. Dusseldorf

44 Capital productivity or Capacity utilization?
Problem of lumpy investment Gates: 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?

45 Financial Ratio Analysis (FRA)

46 Profitability Effect of market power and of regulation
The average operating margin was 24.3%, in 2005, down from 26.3% UK airports achieved higher margins Heathrow 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

47 Financial Ratio Analysis (FRA)
Liquidity Ratio of current assets to current liabilities

48 Financial Ratio Analysis (FRA)
Debt Management Percentage of total funds provided by creditors

49 Data 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 Passengers Inputs: Terminal Area Number of Check-in Counters Number of Gates

50 Data Envelopment Analysis
DEA Scores  More powerful efficiency measure since it gives the whole picture: It confirms some of the previous findings Frankfurt performs best because it has high number of passengers and high capacity Hanover could have had twice as many passengers as it has given the capacity (small airport effect)‏

51 Stochastic Frontier Analysis (SFA)
Results of the SFA analysis SFA Estimation Results Coefficient Standart Error t-ratio ßo 2.2644 7.0339 Terminal Area 0.1511 Check-in Counters 0.5700 0.2991 1.9058 Gates 0.1833 Sigma-Squared 1.3789 0.9553 1.4434 Gamma 0.9890 0.0087

52 Stochastic Frontier Analysis (SFA)
SFA Scores

53 Summary Analysis Evaluation of each airport according to each indicator Ranking them according to their points Summing up all of the partial indicators e.g. Results 1998 1999 2000 2001 2002 2003 2004 2005 DUS 52 53 49 39 38 40 35 FRA 46 47 44 HAM 41 43 37 36 HAJ 33 32 MUN 48 51 50 42 45 STR 58 59 54 56 ABE 76 71 70 74 72 69 78 GLA 65 55 57 60 LCY 61 LGW 77 81 80 75 LHR 84 85 82 STN 63 73 MAN 62 64 Worst Best Total Scores according to the rankings

54 Summary Analysis Heathrow is leading, whereas Hanover is at the bottom
British airports clearly outperforms their German counterparts From a benchmarking point of view Dusseldorf can collect only half of the points in 2005 compared to 1998, Stuttgart also loses a lot Stansted and Manchester are performing the best in 8 years Frankfurt and Munich are the only 2 German airports who have been developing their scores

55 Summary Differences resulting from privatization are difficult to prove Not many observations for privatization inD Not enough public airports in the UK and private airports in Germany Comparisons across the 2 countries are difficult

56 Results 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.

57 Results 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.

58 Need for Further Research
Longer time series and more observations VI biases some measures: TRL adjustment may help Capacity- Big driver is capacity rather than privatization Never-ending story 58

59 Thank you for your Attention...

Download ppt "Jürgen Müller, Tolga Ülkü,"

Similar presentations

Ads by Google