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

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