Accounting for technological differences in modelling the performance of airports: a Bayesian approach

This article uses the innovative Bayesian random coefficient frontier model to account for technological differences in the efficiency measurement of UK airports. In separating cost efficiency from technological differences, the model provides more accurate efficiency measures for airports' policy makers. The input/output data used in testing the model reflect on recent figures from the UK airport industry, and as a result link the efficiency measures with the current industry trends such as the increase in oil price, airport capital investments and market expansion. Results from the model estimation showed that the model fits the data well with all coefficients correctly signed and in line with the theoretical requirements. The average cost efficiency for 2007 was around 73.73%, indicating that UK airports are not operating close to a full efficiency level. This article attributed the sources of inefficiencies to the current industry trends and discussed the importance of heterogeneity in future policy formulations at UK airports.