A slacks-based network DEA efficiency analysis of European airlines

Conventional data envelopment analysis (DEA) models consider a system as a single-process ‘black box’. There are, however, DEA approaches that consider a system as composed of distinct processes or stages, each one with its own inputs and outputs and with intermediate flows among the stages. In this paper, a network DEA approach to airline efficiency assessment is presented. One conclusion of the study is that the network DEA approach has more discriminative power than the single-process DEA approach and that the computed targets, efficiency scores and rankings are more valid. This is because network DEA allows for a more fine-grained analysis that leads to a more realistic estimation of the overall system production possibility set than the one assumed by conventional DEA. In other words, compared with network DEA the conventional, single-process DEA represents an aggregated analysis that merges all system processes with their inputs and outputs and ignores their internal flows. The main drawbacks are the need for more detailed data (i.e. at the process level) and the greater complexity of the resulting models, especially if there are inputs or outputs that are shared among the processes.