Theory and Methodology Productivity change model in the airline industry: A parametric approach Rakhmat Ceha a,b , Hiroshi Ohta a, * a Department of Industrial Engineering, Osaka Prefecture University, 1-1 Gakuen-Cho, Sakai, Osaka 599-8531, Japan b Nusantara Aircraft Industry Co. Ltd., Jalan Pajajaran, Bandung 40174, Indonesia Received 30 June 1998; accepted 18 November 1998 Abstract In this paper we construct a general model of the airline competition that incorporates the main variables discussed in dierent models of the quality of airlines competition. The model is applied to data on the domestic airlines in the Republic of Indonesia, which consists of six airlines. Although we ®nd little evidence in support of endogenous vari- ables, it seems that the estimated variables of all airlines are consistent with the notion that the market shares of the airlines are positively related to the main variables. The parameter results represent weights, which describe the number of appearances in the facet for each particular airline. Then, we attempt to introduce a goal programming model with constraints that are developed for estimating the parametric frontiers using translog form, and the coecient of its objective function using the above parameter results of an airline competition model. The objective of this paper is to propose a methodology that decomposes total factor productivity change into technological progress and change in technical eciency. The analysis of methodology provides a useful illustration of the productivity change in the airline industry. Ó 2000 Elsevier Science B.V. All rights reserved. Keywords: Goal programming; Airline competition; Translog; Total factor productivity 1. Introduction Many problems in operational research involve competition among the users of a system for scarce resources. The competitive mechanism drives the system to an equilibrium state satisfying the problem-speci®c equilibrium conditions. Market shares of airlines represent a wide class of such problems in which competition takes place in the airline industry. Despite the presence of uncertainties, the airline industry requires extremely long-term decision making. The reason is that most cost factors be- sides fuel and labor, e.g., acquisition of aircraft, construction of facilities and development of route systems have multi-decade character. Because of the extensive use of capital assets, such as aircraft, airport facilities and the capital cost, these are European Journal of Operational Research 121 (2000) 641±655 www.elsevier.com/locate/orms * Corresponding author. Tel.: +81 722 52 1161; fax: +81 722 54 9915. 0377-2217/00/$ - see front matter Ó 2000 Elsevier Science B.V. All rights reserved. PII: S 0 3 7 7 - 2 2 1 7 ( 9 9 ) 0 0 0 5 8 - 2