Group Project 1: Delta's New Sonj
NOTE: Data in Exhibits 2, 4, 5, and 6 are available in Microsoft Excel format on our course website. This will make it MUCH easier to do regressions.
Required:
1. Identify several possible drivers of salary costs for use in estimating a salary cost function. Using one of these cost drivers, apply the high-low technique to estimate the salary cost function for Delta Airlines. What driver did you select and why? How would Delta use this function to forecast costs? What are the advantages of this technique? The disadvantages? 2. Use simple regression to estimate the salary cost function for Delta Airlines. Comment on the statistical validity and significance of your results. What are the
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AIRLINE LABOR COSTS
Industry Challenges
Airlines must operate within a low-margin, high-fixed-cost environment, making profitability particularly sensitive to decreases in volume, either from environmental factors (e.g., the September 11,2001 attacks) or from competition. Moreover, the airline business is labor-intensive. Labor costs as a percentage of revenues ranges from a low of about 25 percent for the low-fare airlines to almost 50
4. For the questions 1-3 we found out a couple different cost functions that could be useful for Delta when predicting salaries for 2003 and 2004. The multiple regressions may be most reliable considering it uses multiple variables, but the single R square is better than multiple regressions.
Salary schedules also come in handy while the company is budgeting. The salary schedule provides the company with the ability to effectively budget in labor costs. The human resources department in a company can thus analyze the available jobs at their pay grade and get a reasonable estimate of the cost of labor by department and organization. The latter make it easier to the leader to make an assessment on the current labor depending on the needs of the company or any project that the company may need to engage in (Kokemulle, 2017). While labor remains as one of the most expensive factors in a company, having schedules come in handy in ensuring that a business is operated aptly.
Exercises 12.17, 12.21, and 12.43 require the use of the “Regression” function within the Data Analysis menu in Excel. Refer to Appendix E12 for instructions on using Excel for these exercises.
AJ DAVIS is a department store chain, which has many credit customers and wants to find out more information about these customers. A sample of 50 credit customers is selected with data collected on the following five variables:
A union may negotiate limits on workload in order to increase the demand for labor and raise workers' salaries. This practice is known as:
The researcher will use business people in the city of Holly Springs, Ms., to determine the answer to the following question. Along with using business journals and a survey instrument the following questions would help on the decision making styles. The following research questions are introduced to approve/disapprove whether potential employees income is affected during the hiring process:
There are several possible factors that seem more relevant to be as a cost diver to estimate Delta’s salaries:
The airline industry is an extremely competitive industry and is also a highly seasonal industry. Profit can be drastically affected by fluctuations in energy prices or economic downturns (Maverick, 2015). Key financial metrics utilized by analysts in the airline industry include the quick ratio, the return on assets ratio and the debt capitalization ratio, which was already covered earlier (Maverick, 2015).
Critique the model that this analyst used. Be sure to include answers to the following questions in your response.
Rising fuel prices has a huge impact on the airline industry. In an article published by the New York Times in 2007, oil prices were hovering ‘near $100 a barrel’ which caused the International Air Transport Association (IATA) to ‘slash’ their predicted profits for 2008 from ‘$7.8 billion to $5 billion’ (Clark, 2007). In 2008 high fuel prices were ‘dominant factor’ in the losses that faced the industry, and continued to same effect in 2009 (Dunn, 2009). Diagram 2 shows how fuel price has increased and fallen over the last 5 years.
3. What is your most recent salary and salary expectation (please provide a specific amount or range)?
a. How does this model compare to the previous model using R-squared? Explain what this difference in the R-squared values means in simple terms.
Estimate the effect on income of each of the options Rowe has suggested if Bradley estimates as follows:
Since the airline industry is a direct product of market conditions, it is greatly affected by all externalities. Many people noticed a decline in travel after the September 11th tragedy occurred due to safety concerns. When there is a huge increase in fares that definitely interferes with the demand for travel; it causes the price of tickets to continue to rise since a clear correlation between supply and demand exists. When the economy is doing well in terms of the employment rate, and when the dollar is strong people have the tendency to travel more (Jerram,1998).
• The airline industry, like many other industries, is increasingly exposed to competition. Increased competition has two effects on firms: it creates downward pressures on output prices, and it creates incentives for improving productivity and efficiency.