International Journal of Recent Technology and Engineering (IJRTE) ISSN: 2277-3878, Volume-8 Issue-6, March 2020 Measurement of Total Factor Productivity in Commercial Airlines Sector using Malmquist Index and Data Envelopment Model AbhijeetAgashe, Gayathri Band, RupeshPais Abstract: This study attempts to measure productivity change enhancing its productivity. In other words organization gets of Airlines companies in private and public sector in India for a its competitive edge when it produces more value with same period of four years (2011-2016). In this study the nature and level of resources or produces same level of value using productivity change is probed using the Malmquist Productivity lesser resources. Productivity driven growth leads to the Index. This index has the constituents which are used to measure economic growth of the organization. Organizations can the performance in terms of change in Scale Efficiency, change in Technical Efficiency, change in Technological Change and envisage productivity growth through efficient use of human Total Factor Productivity. The paper compares efficiencies for and non-human resources. At the same time technology and the companies in public and private commercial airlines sector in knowledge can be used as catalyst for multiplying the India. Five Airlines companies are included in the study. The growth in productivity. research includes Total Annual Income as an output variable and Total Expenditure, Employee Compensation, Sales & II. AIRLINE INDUSTRY IN INDIA Distribution Expenditure and Marketing expenses as Input variables. A panel data with 30 observations has been used for Tata Airlines, India's first scheduled airlines, was started in analysis. The panel data is used to arrive to MPI estimates, with a 1932 by J. R. D. Tata. Later in 1945, Nizam of Hyderabad total of five commercial airlines companies in India. The Total partnered Tata Sons to start Deccan Airways. In the next Factor Productivity change in the airlines sector depends upon couple of years few airlines started operating in India viz. the change in the efficiency and productivity of the companies. Airways India, Bharat Airways, Himalayan Aviation, From the study it is evident that the Total Factor Productivity Kalinga Air Lines etc. In 1953 almost 6 years after India's change has not changed significantly over the last six years for Independence Government of India nationalized and merged all the companies under study. The Technical Efficiency was the all the existing airlines in two state owned national carriers highest in the year 2013-14 which then dropped in the subsequent year. The Total Factor Productivity change is mainly viz. Air India and Indian Airlines. Air India was intended due to change in scale efficiency of the companies since the pure for international travel while Indian Airlines was for efficiency has shown no significant change during the period domestic travel. Since then onwards, upto mid-nineties, under study. The Total Factor Efficiency dropped by almost 50% these two airlines constituted Indian Airline industry and in the case of Air India in the year 2015-16. This drop is enjoyed full monopoly. attributed to the deterioration in the technical efficiency of the In mid 90s Government of India adopted the Liberalisation, company. The overall Total Factor Productivity of Air India is Privatisation and Globalisation (LPG) Policy. And with this the highest. This can be attributed to positive change in the the country opened its aviation sector to new private airline company’s Technical Efficiency especially in the year 2013-14. operators. With the several new airlines started operating in It is evident that all the airlines companies under study have not emphasized on improving scale efficiency as well as pure India. Though airline industry is a highly capital intensive, efficiency. These companies can improve their overall still these new airlines were not started by big corporates of productivity by bringing in efficiency in the scale of operations as India but by small time entrepreneurs. The newly started well as focus on improving efficiency on factors other than scale airlines include included include Damania, East West, Jet, of operations. The commercial airlines companies in India need Sahara Modiluft, NPC and few more. Unfortunately many to improve their scale efficiency and pure efficiency to improve of these airlines could not continue their services because of their total factor productivity. huge losses they made. Some of the reasons for the losses are high fuel cost, route restrictions by Government and Keywords : Airlines sector; Malmquist Index; Efficiency poor infrastructure. Change; Technical Efficiency Change; Scale Efficiency Change; Pure Technical Efficiency Change; Total Productivity Change; With the decline of Indian airline industry Indian Government did several changes to its aviation regulatory I. INTRODUCTION policy. Because of this a new era of Indian airline industry started form the year 2000 onwards. Air Deccan entered into Every organization can achieve its competitiveness by the industry as a Low Cost Carrier (LCC). This was followed by other LLC viz. Spice Jet, Indigo and Go Air. New entrant Kingfisher Airline chose to be a luxurious Full Revised Manuscript Received on March 15, 2020. Service Carrier (FCC) and competed with existing FSC Dr. AbhijeetAgashe, Shri Ramdeobaba College of Engineering and Indian Airlines and Jet. Later Kingfisher Airlines acquired Management, Nagpur Dr. Gayathri Band**, Shri Ramdeobaba College of Engineering and Management, Nagpur Dr. RupeshPais,Shri Ramdeobaba College of Engineering and Management, Nagpur Retrieval Number: F7320038620 /2020©BEIESP Published By: DOI:10.35940/ijrte.F7320.038620 Blue Eyes Intelligence Engineering 2168 & Sciences Publication Measurement of Total Factor Productivity in Commercial Airlines Sector using Malmquist Index and Data Envelopment Model Deccan and rechristened it as Kingfisher Express. As on level of inputs used to generate an output. Allocative date Kingfisher has stopped plying its services because huge efficiency, on the other hand, refers to the involvement of debt and Jet Airways has made temporary suspension of its choosing the mix of inputs in order to generate a specified operations due to lack of cash since April, 2019. Air India is level of outputs at the lowest cost (Battese et al., 2000). The struggling with financial crisis. Indigo, Spice Jet and Go Air combination of both technical and allocative efficiency is are performing well and many of them are making profits. then known as cost efficiency (Assaf and Josiassen, 2012). The relatively high fixed costs in the aviation industry and III. PRODUCTIVITY MEASUREMENT economies of scale have left a great impact on airlines efficiency (Spurling, 2009). In order to enhance the airline Total Factor Productivity (TFP) measurement, which is efficiency, it is extremely important that the airline defined as ratio of aggregate output produced in relation to companies take initiatives to maximize their employment cumulative inputs utilized to produce that output, is one of and fleet utilization as well as to serve more passengers the effective tools of performance measurement. TFP is used globally as to achieve load factor at the highest possible to measure performance of a firm during a given period of level. Based on the reviews of the literature, the economy of time (Coelli et. al., 2005). It may also be used to measure density (Vasigh et al., 2008), economy of scope (Ben, the performance across various firms for a comparison. 2008), economies of scale (Button, 2010) and capacity Earlier, organizations were achieving growth in productivity utilization (Jara-Díaz et al., 2013) could have benefited through efficiency improvement but today, growth in airlines significantly in term of efficiency. productivity is achieved by technological changes also. Thus Barbot et al. (2008) have measured the productivity and productivity enhancement resulted because of efficiency efficiency of 41 international airlines. Labor (number of improvement and technological developments. TFP measure core business workers), fuel (in gallons consumed) and fleet the technological change and correlate it with the (number of operating aircraft) were used as measures of externalities and effects of scale (Jorgensen &Griliches, inputs. RPK, ASK and revenue tonne kilometer (RTK), on 1997). Other studies done by Law (2002) and Young (1992) the other hand, were used as measures of outputs. presents the FTP measure the Productivity and efficiency comparison between low-cost There are two approaches for measuring TFP growth i.e. carriers and full-service carriers was made in their research frontier approach and the non-frontier approach. In frontier paper. DEA and TFP were the two methodologies used for approach the best obtainable position is estimated based on the purpose of empirical analysis. the estimation of the boundary function for a given set of The research by Greer (2009) examined the technical inputs and outputs. The role of technical efficiency in the efficiencies of US airlines with the application of DEA too. overall performance of the firm can be identified by frontier Greer transformed inputs such as fuel, fleet-wide seating approach establishes the technical soundness of the firm. capacity and labor into ASK. Instead of analyzing airline efficiency in developed countries, Hu et al. (2017) have IV. AIM OF THE STUDY turned their attention to Southeast