Target Setting for Airlines : A DEA Bargaining Approach with Network Production Structure

The objective of this study is to find out how airlines can reduce their inputs and provide appropriate passenger and cargo capacity, thereby increasing passenger and cargo traffic and reducing CO2 emissions. This will help the industry operate sustainably and safeguard the environment. A network data envelopment analysis (DEA)-based Nash bargaining model is developed incorporating intermediate products and weakly disposable undesirable outputs and is applied on a dataset of 33 airline companies to obtain the bargaining solution. The proposed method, which is a bottom-up one, allows different input and output dimensions to attain a justifiable agreement on a feasible set corresponding to different production points. This not only provides airlines with the opportunity to set targets for sustainable operations in a network production structure where intermediate outputs cannot be stored, but also takes into account the issue of reducing CO2 emissions. According to the results, airlines that are weak efficient or inefficient could establish their targets to attain efficiency through a fair and logical negotiation among the inputs, intermediate products, good outputs, and bad output. The maximisation of utility for all inputs and outputs, which are treated as players, is the rationale behind the bargaining solution attained by the airlines. Appropriate policies need to be implemented that would improve the airlines’ performance in terms of improvement in not only the efficiency of inputs and desirable outputs along with intermediate products but also with regard to environmental performance. This would ensure sustainable growth in airlines’ performance