Developing an innovation capital index of global airlines using a hierarchical data envelopment analysis approach

Abstract

This study proposes an effectiveness-based hierarchical data envelopment analysis (H-DEA) method to endogenously assign weights with the purpose of aggregating subcategories for an innovation capital index in the global airline industry. The study comprises airlines ranked in the World's Top 100 Airlines in 2018. The effectiveness-based H-DEA results provide evidence that there are opportunities for airlines to improve their innovation capital index, on average, by 48%. Relatively low scores in the internal capital category are identified as the major contributor to the poor innovation capital index, and the optimal scores and weights of the innovation capital index are found to differ by geographical location. Effectiveness-based H-DEA offers an alternative method for determining the optimal weight of an innovation capital index in a multidimensional setting for international comparison. The flexible weight can help each airline to focus on the critical innovation capital categories requiring improvement to create an effective business strategy. To the best of the authors' knowledge, to date, no studies have focussed on innovation capital in the airline industry. This study also provides a detailed discussion on how to assess the innovation capital index in the global airline industry specifically using the effectiveness-based H-DEA method.