How to establish input and output targets for airlines with heterogeneous production technologies: A nash bargaining DEA approach within the meta-frontier framework

Abstract

In order to take into consideration the presence of technological heterogeneity in the aviation industry, numerous studies over the past ten years have embraced the data envelopment analysis (DEA)-based metafrontier framework. Since group targets and meta targets are calculated independently to evaluate the technology gap in airlines, there is a possibility of obtaining unrealistic targets. Estimating the projected inputs and outputs of the evaluated units separately at both the group and meta-frontier does not automatically ensure superiority on the meta-frontier compared to the group frontier. Our proposed combined Nash bargaining model that integrates group technology and metatechnology presents a potential answer to the current unreasonable targets issue and gives more reliable outcomes. The results of the empirical application on a dataset of Alliance and Non-alliance airlines show that the proposed approach generates targets for inputs and outputs which are realistic and optimal, as well as a valid and reasonable technology gap. The finding thus validates the utilisation of our suggested model and it can be used by airline managers to improve the airline operational process.