The impact of recession on airports' cost efficiency

Abstract

The recent economic downturn took a severe toll on the aviation industry, leading to a significant contraction in air transport demand. In spite of that, airports' operating costs did not mirror the declining traffic trends and continued to increase during the same period. This paper sought to estimate the impact of the recession on airports' cost efficiency and financial performance. This is achieved by estimating the industry's short-run cost frontier over a balanced pool database of 194 airports observed between 2007 and 2009. Results show that airports struggled to control operating costs during the recession. Efficiency losses were estimated to be in excess of USD 5.5 billion, contributing to a significant reduction in industry operating margin. Results also suggest that airports that are corporatised and have not pursued extensive out-sourcing of activities are better able to manage their costs during periods of economic recession.