1.1 Introduction
Efficiency is defined as the ratio between outputs and inputs, as a distance between the quantity of input and output, and the quantity of input and output that defines a frontier, the best possible frontier for a firm in its cluster industry (Liebert, 2011). Aviation industry is one of the major important sectors in the transportation industry in the world. Its continuous development and technological service improvement makes the sector to be a major contributor to the modern and the global standard of advanced development in the transportation sector. Many studies have been conducted in Nigeria on air transportation, airport capacity utilization performance and efficiency in other to make suggestions on how to increase airport and aviation performance.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
The aviation industry in Nigeria has been deregulated since mid-1990’s following the commercialization of state-owned airports and the licencing of private airlines to participate in the aviation industry. The airports have operated largely in a deregulated environment in the country, although many of the airports owned by the federal and state governments shifted some aspects of their operations to the private sector through concession. This globalization, liberalization and deregulations of airrts and air transport have led the sector to a competitive environment. These will lead them into having some significant organizational changes within the aviation sector. Some airports in the country have been publicly owned for the past decades, but for the past eight years some airports have been partially or fully privatized due the deregulation process. The emergence of hub airport for the intercontinental and domestic passenger traffic can offer Nigerian resident business men a better offer in terms of access to their various destinations, at a higher frequency and at a lower price in terms of fare charges within the West African sub-region.
The Nigerian airports and ground services contribute heavily to the GDP of the nation with a total of NGN 97 billion in 2012 (Oxford Economics Brochure, 2012). With that heavy output of the airport and the ground services contribution, it is expected that rapid growth of air traffic and as well passenger traffic would require numerous amount of funding, human resources, other ground resources to help in the development of facilities and infrastructure programmes of the airport as part of inputs. This will help to enhance good efficiency measures and productivity which will yield a good output in terms of passengers, aircraft movements, revenue, cargo and mail for the nation.
The interest in the assessment of the productivity efficiency of airports especially in a developing economy like Nigeria is a novel area. Furthermore monitoring and comparison of airport productive efficiency were not common in the transport sector, more especially aviation. Due to deregulation, the aviation industry has moved toward being a public private partnership and commercial business, this has drive the sector into high market competition. With this every airport is working towards evaluating their airports and upgrading them to meet the world standard. The high rate of increase in demand for air transport services over the last few decades has led to a higher level of competitions among Nigerian airports and also those of the neighbouring countries of West African sub-region. In order to handle the increasing level of competition, benchmarking has become an important source of weakness determination at airports that are faced with increasing traffic demand.
Airline’s major factor in choosing airport is the demand from passengers which could be due to the characteristics of the city where the airport is located (for instance, commercial cities, tourist towns, cultural values and so on). Also, airport charges, which constitutes a small part of the airlines cost, is another factor influencing an airline choice of airport as most airlines rely on long term strategies. So, airport productivity and efficiency study help airlines in airport choice decision making (Ulku, 2009).
Aviation industry is one of the major important sectors in the global transportation industry. Its continuous development and technological service improvement make the sector to be a major contributor to the modern and global standard of advanced development in transportation sector. The growth of this sector cannot be compared with any other major transport sector due to its sophisticated technological equipment and continuous innovation in the sector because of its haul of vehicle (Aircraft) that it uses as a carrying system. With the help of this sector, much has been achieved throughout the world in terms of economic development, tourism, connectivity, communication, logistics and supply chain activities (Button, 2008).
Several authors argued on the importance of studying airport productivity. For instance, Sarkis and Talluri, (2004) argues that evaluating airport operational efficiency is important for a number of reasons including communities’ reliance on airports for economic wellbeing; air carriers’ ability to choose among competing airports due to deregulation, and the principle that federal funding for airport improvements is based on performance measures. Performance evaluation and improvement studies of airport operations have important implications for a number of airport stakeholders. Likewise, municipalities would benefit from efficient airports in terms of attracting business and passengers. They also assist Federal Government in making effective decisions on optimal allocation of resources to airport improvement programmes, and in evaluating the efficacy of such programmes on the bottom line efficiency of airports. Furthermore, benchmarking their own airports against comparable airports is one way for operations managers to ensure that there is competition among the airports (Sarkis and Talluri, 2004).
Furthermore, airports are essentially a part of the air transportation system. They are the landlord to the airlines and other aviation activities or businesses. They provide the entire infrastructure needed to enable passengers and freight to transfer from surface to air mode of transport and to allow airlines take off and land. More so, airports offer a wide range of variety in commercial facilities ranging from shops, restaurant, hotel, and conference services (Graham, 2003). When you look at the airport business broadly, you will observe that it is a big business.
Francis and Humpherys (2001) stipulated that aviation sector increases pressure on public finance and requires much attention in terms of development. Such pressures have led governments all over the world to consider privatization and commercialization to relieve them from financial burden of airport ownership. Airport managers have to adapt themselves in response to such pressure as well. They are now acting more like corporate business managers. The airport managment thinks strategically, identify the type of market they will enter, set up strategic objectives and goals, create strategic competition amongst airports, monitor, evaluate output and respond to the market competition dynamics in order to minimize cost and maximize profit for the management objectives.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to evaluate the Nigeria Airport Productivity and Efficiency.
1.3 Statement of Problems
Investigation revealed that the airports or aviation sector still has insufficient or unclear understanding productivity and efficiency measures of airports operating in the specific markets of the country. They lack the understanding regarding the relationships between the airports inputs and outputs variable determination which helps in the airport benchmarking, more especially when undesirable by products are taken into consideration in the airports.
The growth in air travel is outstripping the capacity of airport and air traffic control system. That has resulted in increasing congestion and delay in air transport operations in Nigeria. The consistent growth of air traffic and passenger demand is causing the operational movements at hub airports to approach their maximum capacities. With this growth, delays to aircrafts and passengers are increasing and safety is becoming a major problem. From the beginning of the millennium year, statistics shows that there has been an increase in air transportation traffic in Nigeria, in the areas of passengers’ departure and arrivals, cargo and aircraft movement. The airport authority, agencies and federal government has given more attention on the Nigeria airport system on how to assess the performance of various airports to meet international standards.
Furthermore, lack of airport infrastructure and technological equipment in most airports has brought about unquantifiable loss of revenue and employment at various airports. However, many aircrafts meant for Nigeria market arrive at the neighbouring countries airports and the passengers find their way to Nigeria (especially runway in Nigeria airport cannot carry large aircraft). This will lead to a huge loss to the economy as revenue could have been generated for the Federal Government.
1.4 Aim and Objectives of Study
The aim of the study is to evaluate the productivity and efficiency of airports in Nigeria by identifying the most efficient airports and benchmarking them using the best global practice. In achieving this aim, the following specific objectives were laid out as follows:
- To assess the productive efficiency of domestic and international airports in Nigeria.
- To estimate the production function of the airports during the study period
- To identify among the sample airports operating under returns to scale.
- To compare the productive efficiency of the major hub airports with that of the airports located in the commercial cities in Nigeria.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Is the productivity and efficiency of the major hub airports and that of the airports located in commercial cities in Nigeria comparable?
- Could the DEA model result of this study be bootstrap to enhance robustness of the estimated models for Nigerian airports?
- How can the production function of airports estimated within the study period?
- Which of the sampled airports are operating under returns to scale?
- What is the productive efficiency of domestic and international airports in Nigeria?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There is no significant productive efficiency of domestic and international airports in Nigeria
- H1: There is a significant productive efficiency of domestic and international airports in Nigeria
Hypothesis Two
- H0: There is no significant relationship between airport productivity and efficiency in Nigeria
- H1: There is a significant relationship between airport productivity and efficiency in Nigeria
1.7 Significance of Study
The study will help the managers of different airports or the Federal Airport Authority of Nigeria to effectively decide the probability of the general traffic level (outputs) that exist at all the airports in the nation and how to manage them at a given level of inputs of the airports. It will be extremely helpful to FAAN in checking, overseeing and planning all their operational activities at different airports in the nation. Besides, the evaluation will enhance the airport manager of operations or director of operations to benchmark operational performances of various airports and how to set up proper standard on their focused outputs. It will also enhance changes in the airport organizations and operational activities to produce more output and prepare the Federal Government for eventual policy making for the airports in the country.
This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.
1.8 Scope of Study
The scope of the research is focused on the Evaluation of Nigeria Airport Productivity and Efficiency. The study will cover the major productivity and efficiency indicators (variable) of the airside and landside of the airports.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Efficiency: Efficiency is defined as the ratio between outputs and inputs, as a distance between the quantity of input and output, and the quantity of input and output that defines a frontier, the best possible frontier for a firm in its cluster industry (Liebert, 2011).
FAAN: FAAN is an acronym of Federal Airport Authority of Nigeria
