Delta Song Case Analysis

834 WordsMay 13, 20134 Pages
Delta Song Case Analysis Possible cost drivers that will allow us to estimate a salary cost function for Delta are: available seat miles, number of departures, available ton miles, revenue passenger miles, and revenue ton miles. The two cost drivers we chose were revenue passenger miles and available ton miles. The salaries consist of payments to pilots, flight attendants and ticket agents. Their salaries are determined by the number of passengers and cargoes and the miles or hours flown. This is why we chose revenue passenger miles and available ton miles. After calculation we found that the R2 of revenue passenger miles is .1764, and the R2 of available ton miles is .5577. We used scatter plots to show this: The available ton miles…show more content…
However, it shouldn’t become a major concern for song because security costs can be expected amid the whole industry. Salary Cost for Jet Blue According to Question 1, available ton miles should be used to estimate the salary cost. However, available ton miles of 2002 Q3 are low. We drew a scatter plot to show this: In this situation, available ton miles and salaries are not linear. The scatter plot of revenue passenger miles and salaries is as follows: Revenue passenger miles and salaries are quite linear. We use the high low method technique to estimate the salary cost with revenue passenger miles as cost driver. Low point (599.4, 16000), high point (2016.2,49000) Salary=23.29xrevenue passenger miles+2038.83 Estimating the salaries cost for Delta Song in its first year To estimate the salaries cost of Song, we used the historical salaries cost of JetBlue to predict Song’s salary because Song does not have any historical data for reference. We assumed that Song can achieve the same revenue passenger miles as JetBlue in every quarter, and Jetblue’s salaries are linear with time series. To determine Song’s salary, three deviations must be taken into consideration:  Song pilots’ per hour wage are $100 more than those of JetBlue on average. We numbered each quarter in 2001 and 2002 from 1 to 8, and made simple regression between the time series and revenue air hours

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