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The Impact of Outsourcing on Airlines’ Performance: Empirical Evidence from Asia and Countries in the Pacific

In: Airline Economics in Asia

Author

Listed:
  • Muhammad Asraf Abdullah
  • NurulHuda Mohd Satar

Abstract

This chapter examines the influence of outsourcing on airlines’ performance from countries of the Asia Pacific region. Performance in the context of this study is drawn from productivity growth and technical efficiency scores that are calculated using the standard data envelopment analysis (DEA) approach. We utilize data from airlines over the period 2003–2011 and estimate the impact of outsourcing on productivity and technical efficiency using generalized method of moments (GMM) estimators. The findings from DEA reveal an improvement in the technical efficiency score of airlines from Asia Pacific. Nonetheless, productivity estimates indicate fluctuations in the productivity growth trend of airlines, attributable to global economic recession in 2007/2008. GMM estimation results, however, suggest negative impacts of outsourcing on technical efficiency and productivity of the airlines from Asia Pacific countries. We offer several explanations for these outsourcing findings. Heavy outsourcing of airlines activities particularly maintenance of aircraft may negatively affect aircraft utilization and ultimately erode the service level of airlines. The erosion of the service level of airlines would affect the demand for air travel in a downward manner, thereby lowering the technical efficiency and productivity of airlines. Also, relatively low labor costs enjoyed by airlines in the Asia Pacific region would suggest that having many airline activities in-house would save operating expenses attributable to labor costs.

Suggested Citation

  • Muhammad Asraf Abdullah & NurulHuda Mohd Satar, 2018. "The Impact of Outsourcing on Airlines’ Performance: Empirical Evidence from Asia and Countries in the Pacific," Advances in Airline Economics, in: Airline Economics in Asia, volume 7, pages 195-219, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aiaezz:s2212-160920180000007011
    DOI: 10.1108/S2212-160920180000007011
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    More about this item

    Keywords

    Outsourcing; productivity; technical efficiency; air transport; Data Envelopment Analysis; Generalized Method of Moments; L24; L11; L93;
    All these keywords.

    JEL classification:

    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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