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Project-02: BA 523
College of Business
College of Business
You should follow American Psychological Association (APA) style.
PASSENGER DEMAND ESTIMATION:
An integral part of any pricing policy is developing a demand model. This assignment is designed to allow you to apply your knowledge of economics, data mining, and forecasting to estimate the demand function for a particular route, operated by a particular airline. You are free to choose any route/airline combination you desire. However, given the vast quantity of airline-route combinations, it is expected that each student will have a different selection.
Imagine that you work for the leading low cost airline and you are in charge of revenue management. The main goal of this project is to develop an airline demand model in order to forecast travel demand and traffic conditions in a specific market. You should prepare a 6-page written report (excluding data and empirical results), as well as about 10-minute presentation (Follow APA Guideline). All of your tables and figures must have number and title and all must be on a standard format (Follow APA Guideline). The project should address the issues discussed above, highlight the independent variables explored and the rationale for their inclusion, and fully discuss the results including the statistical significance of their regression models and the better, more statistically relevant model.
Before you estimate the long-run passenger demand function for your selected airline route, set up the hypotheses for each of the coefficients of the independent variables (the expected signs of the parameters for the demand function). As a minimum, you should include the following independent variables:
Income (per capita disposable income or GDP)
Airfare for airline route selected
Competitors airfares in the route selected
Financial position of your airline (if it is applicable)
Entry and exit from the market by other airlines served the same market (if it is applicable)
Availability and prices of the mode of transportation
You may also include variables which they could represent passenger satisfaction.
You have an enormous amount of material to use for this project. Using available resources (Diio, On-Board, Bureau of Labor Statistics, etc), develop a dataset for the above variables from 2006 through the most current available, on a quarterly basis. As you initiate work on this project, you’ll find inconsistencies in the data: average ticket price; number of passengers, or any other data. You have a number of options available: make assumptions; adjust your data, etc. What you feel is reasonable given the data and available time and give your justification.
In addition to the required independent variables mentioned above, there are likely other variables or situations that are important for understanding demand during this period. These variables may be specific to the route you have selected or may be general to the industry. You should include appropriate variables to examine these impacts.
AVAILABLE STATISTICAL SOFTWARE
Using Eviews Software, Excel, or SPSS estimate a linear model with the independent variables discussed in the above, and the dataset developed in your analysis.
Provide your answers to the following questions systematically, start it with part a, and finish it with part h (. Follow a writing style that is professional and clear).
A brief background on the airline, the management team, the major dubs, aircraft type, number of aircraft, number of employees, and the financial conditions. Plot the data for your dependent variable on one graph. Explain and identify the following for the dependent variable used in your analysis.
The average number of passengers over time.
Trend: a gradual increase or decrease in the average number of passengers over time.
Seasonal influence: predictable short-term cycling behavior due to time of day, week, month, season, year, etc.
Cyclical movement: unpredictable long-term cycling behavior due to business cycle or product/service life cycle
Prepare a scatter diagram for the average fare for your airline. What information is provided by this plot? Is there any noteworthy information in these plots (a and b)?
What are your independent variables? Why did you selected them? Do the signs of the estimated coefficients match your expectations? Give an interpretation of each of the estimated coefficients. Also calculate the t-statistic for each coefficient, and indicate whether the coefficient is significantly different than zero at a 95% confidence level.
Calculate the coefficient of multiple determination, R2. Interpret the number.
Evaluate the model with respect to coefficient interpretations and all appropriate statistical analyses. Complete all tests at the 0.05 significance level. Give a preliminary overall impression of the precision/quality of the estimated model.
We are expecting the economy to improve, which would increase peoples’ incomes. Should we expect a dramatic increase in the demand your airline?
Estimate the demand function using a non-linear model.
How strong is the competition in the market for your airline? What has happened to your market share, and why?
Keep the following in mind when including a table in your paper:
Your project should be on 8.5 x 11-inch paper with margins of 1 inch (top and bottom) and 1 or 1.25 inches on the sides.
The size of the font should be a standard size (12 pt) and the typeface is usually Times New Roman.
Place the word Table and the table number above the table, flush left. Place the title of the table (in title case and italics), double-spaced, under the table number, flush left.
Double-space before and after the table. Information regarding abbreviations or symbols used in a table, copyright information, and probability must be located in a Note below the table.
If you are using data from a source in your figure, be sure to cite the source after the figure description.
The font size used in tables and figures may be smaller than that used in the text; however, to ensure a professional appearance and legibility, it should be no smaller than 10 point and no larger than 12 point.
Table text may be single- or double-spaced; consider readability in your line-spacing decision.
BA 523 Dr. Bijan Vasigh
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