In its second annual airport benchmarking survey the Air Transport Research Society has produced a refined set of measures to help compare the productivity between the world's leading hubs

The question of airport cost efficiency has been a deep and perennial source of contention between airports and their airline customers. With the airline world facing financial crisis and in desperate need to reduce their costs, the debate has edged closer to outright warfare. However, one fundamental problem still remains: how to make meaningful comparisons between airports in different regions around the world, with a divergent mix of operations and a wide variety of different business models.

It was a challenge taken up two years ago by a group of distinguished academics, working under the banner of the Air Transport Research Society (ATRS). In May 2002, the group published an ambitious report, Global Standards for Airport Excellence. It represented one of the first attempts to produce an annual, comprehensive benchmark of the operational and financial performance of airports across the globe. Now in its second year, those measures have been further refined.

Over the last year the ATRS team has taken on board comments from the airports sector, not least the complaints of commercialised airports that they were being penalised compared with those that receive cheap capital from state owners.

One of the basic tasks of the initial project was to calculate a total factor productivity (TFP) measure. That is essentially a weighted average of labour productivity together with the efficient use of capital, as well as a "soft-cost productivity" element mainly designed to take into account the costs of buying in outsourced services. In fact, those airports that contract out services most extensively, in particular in the USA, do appear to perform well in the ranking.

However, that still leaves some major operational differences between airports that would skew the benchmark. For example, an airport focused on shorter regional services would tend to lose out in a direct comparison with the productivity at a huge international hub catering for large, long-haul aircraft. So the ATRS takes these differences into account, together with the percentage of non-aeronautical revenues from concessions and similar, to arrive at a net Residual Total Factor Productivity (RTFP).

Capital inputs

One of the criticisms of the original survey, however, was that the RTFP measure still left in place some questionmarks over how the benchmark factored in the productivity of capital. "Airport capital input is very difficult to measure consistently, and every country has its own different accounting standards for depreciation and investment," says Prof Tae Oum, head of the Transportation and Logistics department at Canada's University of British Columbia, and leader of the benchmarking exercise.

"In addition, not all investment is paid for by the airports themselves, with many receiving direct or indirect state subsidies. So the inclusion of capital productivity may bias our results in favour of heavily subsidised airports," says Oum. "Commercialised and privatised airports complained that, as they do not get any subsidies, the full picture was not being seen."

To correct this imbalance, ATRS has revisited its methodology to produce another measure it calls Variable Factor Productivity (VFP). This strips out the less accurate capital inputs, and puts emphasis on the labour and "soft-cost" inputs. As with TFP, this new measure is affected by several external business environment and internal business strategies. As some of these too are beyond the control of airports managers - airport size, average passengers per movement, number of international passengers, proportion of cargo traffic handled and capacity constraints - ATRS computes a Residual VFP (RVFP).

For its latest report, ATRS collected data from some 90 international airports (up from 76 last time) and has calculated an RVFP rating for most of those for which there was sufficient data. All figures are based on the latest available figures which are for the 2001/2 financial year. Overall, the report studies 43 North American airports; 26 European and 21 from the Asia-Pacific region. The academic team is already being assembled to include Latin America in future, adds Oum. Also note that this time round ATRS has separated the results of some airports from their groupings. For example, London Gatwick and Heathrow are split out from BAA.

The ranking opposite shows the world league of productivity for the 50 leading passenger hubs for which the study was able to calculate an RVFP ranking. Major absences include Rome Fiumicino and Tokyo Haneda, while figures for Narita are for 2000. Also note that the RVFP numbers and regional averages have been rebased around the leading 50 airports shown in this table. The ATRS report figures are based on the entire sample.

A glance across the rankings shows that the North American airports remain strongly in the lead, taking the top 10 positions. Atlanta Hartsfield and Charlotte Douglas are the North American performers in both 2001 and 2000. Asia-Pacific leaders Sydney Kingsford Smith and Singapore Changi also make it into the top half of the ranking, while Europe's leading performers are Copenhagen and Amsterdam Schiphol. "These airports are considered as the consistent top performers in terms of operating efficiency, that is the efficient use of labour and soft-cost input resources including outsourcing activities," says ATRS.

Perhaps unsurprisingly, the expensive Japanese hubs at Tokyo and Osaka help prop up the bottom of the table. German airports too performed poorly, with Frankfurt and Munich low in the list. In fact, Hamburg emerged with the lowest RVFP rating across the whole ATRS study. Chicago's second airport at Midway is perhaps a surprise laggard, given its position as a low-cost base for Southwest Airlines.

However, to get an overall picture of performance, Oum cautions that both RTFP and RVFP factors need to be taken into account. ATRS has not attempted to combine the two measures because there is no satisfactory way to weigh them. Yet when comparing these results, there is a clear correlation among the best US airports.

Atlanta has topped the results in both categories for 2000 and 2001, while Raleigh-Durham, Auckland, Sydney, Copenhagen and Amsterdam all scored highly. Those that have performed well in both years use labour and outsourcing efficiently, says Oum. "Managers at these airports are very aware of the fact that they need to serve the travelling public and airlines efficiently, and regard them as the real customers, rather than adopting a monopolistic attitude."

Another effect that has been corrected for in the latest report centres on the level of congestion. A congested hub, with all the accompanying levels and costs of delay, would normally be marked down by its customers. However, since a congested hub is, almost by definition, handling high volumes with inadequate resources, its productivity would receive an artificial boost. "We have removed this effect this year," says Oum Tae. "You cannot have productivity going up for airports that are causing lots of inconvenience, with passengers and airlines bearing the cost."

Cost competitiveness

A trend that Oum has seen emerging over the past two surveys is that airports perform better when governments allow managers freedom to manage the airports as a commercial business. In addition, privatised airports are rising to the top of the pack too.

The ATRS results enable observers to judge the efficiency of a wide range of airports with a high degree of confidence. Another new measure has been added this year to enable a cost competitiveness comparison to be made between airports, says Oum, using a combination of input prices (the aggregate of labour and outsourced services) and RVFP productivity.

On the surface, it is Asia-Pacific's airports that seem to fare the best in terms of cost competitiveness, coming out on average around twice as high as those in North America, and just over three times that of European hubs. However, ATRS warns that comparisons between regions with very different cost levels should be treated with caution.

Within the Asia-Pacific, Bangkok, Auckland and Beijing are the most cost-competitive airports, while Hong Kong, together with the Japanese duo of Narita and Kansai, trails. Copenhagen, the Paris airports and Vienna rank as the most competitive in Europe, with Geneva, Manchester and Zürich bringing up the rear. In North America, New York Kennedy and LaGuardia fare poorly in the competition stakes, while once again Atlanta, Raleigh-Durham and Charlotte come top. Full findings will be presented by ATRS at its World Conference in Toulouse on 10-12 July.

Underlying productivity for 50 leading airports - 2001

Rank

City

Airport

Index

2001

(2000)

1

-1

Atlanta

Hartsfield Int'l

328.00%

2

-2

Charlotte

Douglas

276.00%

3

-6

Honolulu

International

172.00%

4

-4

Minneapolis

International

169.00%

5

-5

Houston

George Bush

156.00%

6

-8

Phoenix

Sky Harbor

152.00%

7

-9

Cincinnati

Northern Kentucky

150.00%

8

-3

Vancouver

International

150.00%

9

-11

St Louis

Lambert

138.00%

10

-10

Las Vegas

McCarran

135.00%

11

-7

Sydney

Kingsford Smith

132.00%

12

-12

Fort Lauderdale

Hollywood Int'l

131.00%

13

-37

Pittsburgh

International

122.00%

14

-21

Washington

Dulles Int'l

122.00%

15

-18

Philadelphia

Int'l

121.00%

16

-19

Detroit

Wayne Country

120.00%

17

-24

Copenhagen

1.11

18

-13

Dallas/Fort Worth International

1.09

19

-26

Salt Lake City

International

1.09

20

-15

Tampa

International

1.03

21

-22

Baltimore Washington International

1.03

22

-27

Chicago

O'Hare Int'l

0.99

23

-34

Miami

International

0.96

24

-25

Orlando

International

0.94

25

-14

Singapore

Changi

0.9

26

-17

Amsterdam

Schiphol

0.88

27

-28

Seattle/Tacoma

International

0.85

28

-29

London

Heathrow

0.85

29

-36

Thai Airports Authority (inc Bangkok)

0.81

30

-16

Los Angeles

International

0.8

31

-31

Paris

CDG/Orly

0.78

32

-20

Toronto

Lester B Pearson

0.76

33

-33

Boston

Logan Int'l

0.74

34

-23

Zurich

Unique Zurich

0.71

35

-40

New York

Newark

0.7

36

-32

London

Gatwick

0.62

37

-30

San Francisco

International

0.61

38

n/a

Seoul

Incheon Int'l

0.59

39

-38

Denver

International

0.58

40

-39

New York

La Guardia

0.58

41

-42

New York

JFK

0.56

42

-41

Hong Kong

Chek Lap Kok

0.52

43

-47

Beijing

Capital

0.46

44

-43

Munich

Franz Jos Strauss

0.37

45

-45

Manchester

International

0.34

46

-35

Seattle/Tacoma

International

0.33

47

-44

Frankfurt

International

0.32

48

-46

Osaka

Kansai Int'l

0.29

49

-48

Tokyo

Narita

0.23

50

-49

Chicago

Midway

0.15

Average of leading Asia-Pacific airports

0.69

Average of leading European airports

0.66

Average of leading North American airports

1.16

Average of leading 50 airports

1

NOTES: Residual variable factor productivity calculated by ATRS benchmarking group, based on labour and "soft cost" inputs. Figures are for the leading 50 airports, by passenger traffic for which data was available. Indexed against average. Narita=based on 2000. Incheon opened in 2001.

 

REPORT BY MARK PILLING IN LONDON

Benchmarking team

The Air Transport Research Society was formed in 1995 and consists of over 500 international academics, policy makers and industry experts.

The team for the airport benchmarking project was led by Prof Tae Oum of the University of British Columbia in Canada and included the following academics:

North America: Prof David Gillen, Wilfred Laurier University and University of California at Berkeley: Prof Bijan Vasign, Embry-Riddle Aeronautical University, USA; Dr Chunyan Yu, University of British Columbia, Canada

Asia Pacific: Prof Peter Forsyth, Monash University, Australia; Prof Yuichiro Yoshida, University of Japan; Prof Yeong-Heok Lee, Hankuk Aviation University, South Korea

Europe: Prof Jaap de Wit, University of Amsterdam, The Netherlands; Dr Eric Pels, Free University of Amsterdam, The Netherlands; Dr Keith Mason, Cranfield University, UK; Prof Nicole Adler, Hebrew University of Jerusalem, Israel

Obtaining the report

Airline Business has joined with the Air Transport Research Society to make the current report available for purchase at a price of $300. For details please contact Airline Business on: Fax: +44 (20) 8652 8914 e-mail: airline.business@rbi.co.uk

Source: Airline Business