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QNT 5040 (Business Modeling) - Airline Forecasting Case Study




Question;Introduction:Planning for the future is a vital task for all business;managers. As part of that process this;course has provided you with a number of tools that you can use to make smart;business decisions. One of these;techniques is to use software forecasting tools, such as Palisades StatTools;to create defensible forecasts. This;exercise will allow you to create different forecasts for two major airline;companies.Background on the Study:Dramatic changes to airline industry revenues have forced;management at most U.S. airlines to review many long-standing business;approaches. The rapid growth of low cost;carriers (LCCs) and shifts to Internet distribution channels put downward;pressure on airfares and, in turn, airline revenues. Many of these changes accelerated as airline;revenues began falling behind their historic relationship with the Gross;Domestic Product since late 2000.;Ancillary revenues have become a critical source to individual airlines;as can be seen by the various and expensive options for checking baggage;selecting priority and desirable seats, etc.This exercise provides you historic data from 1995 through;2013 for two important airlines, Delta Airlines and Southwest Airlines. Delta, as you probably know, is a full;service airline flying internationally and is one of the nation?s largest air;carrier. Southwest has a long history of;low-cost, low frills service to generally smaller or regional airports;although that has changed somewhat over the past years.Both airlines invest heavily in projecting out the future;passenger load (the number of passengers carried for X miles). Data from the Massachusetts Institute of;Technology?s Airline Data Project has;been used for this case study, and is not covered by any implied;copyright. Only several parts of the;data for these two airlines has been used in this case study and is available;with the accompanying Excel Spreadsheet ? Airline Forecasting Case Study. There are many other factors that impact;making an accurate forecast for future passenger load, but for this exercise;the only factor used for both airlines is their operating revenue (all amounts;in billions of dollars).?Your tasks for this Airline Forecasting case study:You are to create a 3 year forecast, from 2014 through 2016;for both Delta and Southwest airlines that uses the following forecasting and;statistical techniques:Remember to analyze each of these outputs and include them;in the body of the report where you discuss and analyze them.1. The one;variable summary for both airlines in StatTools ? analyze the results for the;two companies, do not just put the output in the report without completely;analyzing the results for both airlines.2. The runs;test to determine if the airline data is random or not.3. The Q-Q;plot to determineif the data for both airlines (each done separately) is;relatively normal or not.4. The;annual box and whisker plot for both airlines.5. A;histogram for both airlines (to be done separately) to determine how the;earnings data appears.6. The;moving average with a span of 3 ? in this case it will be 3 years.7. The;simple exponential smoothing forecast.8. The;Holt?s linear method for trends (seasonalized) and the Holt?s linear method;deseasonalized. Both methods are;required.9. NOTE: The;Winters method for trends and seasonality will not work for annual data, thus;it is NOT required for this case study.To decide which of these has the best forecast for both;airlines you will concentrate on the following results as provided by the;StatTools software:1. The mean;absolute error (MAE) of each forecasting technique,2. The root;mean square error (RMSE) of each forecasting technique,3. The mean;absolute percentage of error (MAPE) of each forecasting technique,4. The;average and cumulative error (see slides 81 to 83 from week 7 PowerPoint)5. Which;forecasting technique best follows the actual earnings line, and provides the;best forecasted earnings. NOTE: This;technique may be different for the two airlines.6. NOTE: You;MUST include the Airline Forecasting Data ? Table One (page one of the Excel;file) completed with the forecast for the years 2014 though 2016 for both;airlines. Important things you need to know:1. You may;assume that both companies fiscal year goes from January to December. 2. All;operating revenue are in billions of dollars, thus 11.22 = $11,220,000,000 in;operating revenue for that year.Your Tasks:1. Carry out;the various statistical tests as indicated above.2. Analyze;the resulting data, and determine which of the forecasting techniques provides;the best forecast for each airline, and why.3. Report on;each of these forecasting techniques in your report, explaining what you did;what you found out, and how you decided which forecast is the best.4. Put the;relevant output graphs, tables and figures INTO the report and discuss them;where they are placed in the report. Do;NOT just put the output into the Appendix or in the attachment of the;report. OUTPUT figures MUST be included;and discussed in the report itself.5. Forecast;the next three years of operating revenue for both airlines.6. Submit;your individual report on time as determined by your section?s Monthly/Weekly;Calendar.Write a management report (using the required format);suggesting and justifying an appropriate decision regarding the sales;forecast. In your report, analyze the;patterns of the annual time series, discuss the properties of each forecasting;model and their relevance to predicting the series, select the best forecasting;models for the series, make your recommendations supported by arguments which;are further supported by references to model results and tables or figures in;your report. Independent outside;research is encouraged to provide relevant background information and/ or to;provide more support for your arguments. Please make sure that you use the Assignment Cover Sheet as;the first page of your report and the Grading Rubric as the second and third;pages of your report (available on BB). Please, embed your Excel spreadsheet;showing the appropriate calculations and charts into the Appendix section of;your report. How to embed a file into a;Word document is explained in Format of a Management Report. (Available on BB)Submit this report into the Assignment Dropbox.;="msonormal">


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