Optimal leasing and airlines' cost efficiency: A stochastic frontier analysis

In this paper, we use an original and rich dataset (containing yearly data on 134 airlines worldwide, for the period 2007-2019) to empirically test the cost efficiency gains resulting from airlines' leasing choices, using a stochastic frontier approach. Our objective is to evaluate whether airlines' choices of leasing are driven by incentives to reduce cost inefficiency. Our estimation confirms the role of leasing as strategic to improve airlines' operational efficiency. We also compute airlines' optimal level of leasing and provide accurate measures of airlines' economic efficiency. Finally, we show that airlines do not benefit from leasing in the same proportions depending on their ability to have access to capital markets as a funding source, on the extent to which governments own part of the airline's shares and may act as a guarantee for investors, or on their business model.