Can you help me solve this? I am having a hard time understanding the regressions

ACCY 302 (Wu) Group Activity #3 DELTA'S NEW SONG: COST ESTIMATION IN THE AIRLINE INDUSTRY Assignment Upper management at Delta Airlines is considering how to forecast salary costs for Delta Song. Your supervisor has asked you to provide a prediction model for estimating these labor costs based on Delta's historical costs. Your assignment is to use regression analysis to estimate Delta's cost function for Salaries & related costs, using data from Q1 (first quarter) 1993 through Q2 (second quarter) 2013. A data file is provided for your convenience. Some of the operational measures are defined in the Appendix to this assignment. Salaries & related costs. This account includes salaries and wages, as well as fringe benefits. These include salaries for pilots and wages for flight attendants and ground crew, as well as wages for mechanics. Additionally, a significant portion of this salary pool represents wages of reservation specialists, customer service representatives at airports, and the salaries for administrative and support personnel (e.g., flight schedulers, technology personnel, accountants, and division managers). 1. Think carefully about likely cost drivers for salary costs. Which cost drivers do you expect will best predict salaries, and why? 2. Using simple regression and a single cost driver, estimate the salary cost function for Delta Airlines. Does your proposed regression model meet all six specification tests? 3. Using multiple regression and more than one cost driver, estimate the salary cost function for Delta Airlines. Does your proposed regression model meet all six specification tests? Which of the two regression models is better, and why? WARNING! ... You could spend every waking moment from now to the end of the semester running different regressions. Don't. Spend just enough time to get to what you think is a reasonable model. Requirements You are required to submit an Excel file containing the tables and plots needed to assess both regression models - i.e., your simple regression and multiple regression models - including the Excel output tables for the regression, as well as the residual plots, line fit plots and normal probability plots for use in specification tests. You should also include the correlation matrix for your dependent and independent variables. Submit a Word file to serve as a cover page for your regression models with the following: 1) Provide your best estimated cost function for Salaries & related costs. 2) Interpret this cost function, including the statistical validity and significance of your regression results. 3) Apply the six specification tests. Do any of them suggest that one (or more) of the regression assumptions have been violated? 4) Page 1 of 3 ACCY 302 (Wu) Group Activity #3 APPENDIX - OPERATIONAL MEASURES DEFINED Available Seat Mile (ASM): The Basic Measure Of Capacity One seat (empty or filled) flying one mile is an ASM A 129-seat MD-80 flying a 500-mile segment creates 64,500 ASMs. Revenue Passenger Mile (RPM): The Basic Measure Of Production A paying passenger flying one mile creates an RPM 100 passengers flying 500 miles generates 50,000 RPMs Related metrics: Revenue Air Hours; Revenue Miles Flown, Scheduled, and Emplaned; Revenue Passenger Ton Miles and Revenue Ton Miles Load Factor: Production Compared To Capacity To calculate systemwide load factor, divide RPMs by ASMs; In 2001 it's 106.7 billion RPMs divided by 153.9 billion ASMs, or 68.9 percent. For an individual flight, divide the revenue passengers on board by the aircraft capacity High load factors are not necessarily desirable - How much each passenger pays is also important, as we see in the next measure. Yield: Revenue Per Passenger Mile To calculate system yield, divide passenger revenue by total RPMs. To calculate a customer's individual yield, divide ticket price by mileage; If a customer pays $98.00 for a 500-mile segment, the yield would be 19.6 cents per mile. Operating Revenue Per Available Seat Mile (R/ASM): The Best Basic Measure Multiply load factor times yield to get the measure of how much revenue we generate per increment of capacity. Operating Cost per Available Seat Mile: To Round Out the Picture Total ASM capacity divided into total operating expense produces unit costs, or how much it costs to fly a seat (empty or filled) one-mile. Other operational measures available in the data file Number of Departures Revenue Air Hours Revenue Miles Flown Revenue Miles Scheduled Revenue Passengers Emplaned Page 2 of 3 ACCY 302 (Wu) Group Activity #3 Australian airline attendants make an effort to make the in-flight 'safety lecture' and their other announcements a bit more entertaining. Here are some real examples that have been heard or reported: On an Air NZ Flight with a very 'senior' flight attendant crew, the Pilot said, 'Ladies and gentlemen, we've reached cruising altitude and will be turning down the cabin lights. This is for your comfort and to enhance the appearance of your flight attendants.' There may be 50 ways to leave your lover, but there are only 4 ways to leave the aircraft.' After a particularly rough landing during thunderstorms in Adelaide, a flight attendant on a Qantas flight announced, 'Please take care when opening the overhead compartments because, after a landing like that, sure as f*** everything has shifted.' From a Qantas employee: 'Welcome aboard Qantas Flight X to Y to operate your seat belt, insert the metal tab into the buckle, and pull tight. It works just like every other seat belt; and, if you don't know how to operate one, you probably shouldn't be out in public un-supervised.' 'In the event of a sudden loss of cabin pressure, masks will descend from the ceiling. Stop screaming, grab the mask, and pull it over your face. If you have a small child traveling with you, secure your mask before assisting with theirs. If you are traveling with more than one small child, pick your favourite. Heard on Qantas Airlines just after a very hard landing in Hobart. The flight attendant came on the intercom and said, 'That was quite bump and I know what you are all thinking. I'm here to tell you it wasn't the airlines fault, it wasn't the pilot's fault, it wasn't the flight attendants fault.. It was the asphalt!' Another flight attendant's comment on a less than perfect landing: 'We ask you to please remain seated as Captain Kangaroo bounces us to the terminal.' An airline pilot wrote that on this particular flight he had hammered his ship into the runway really hard. The airline had a policy which required the first officer to stand at the door while the passengers exited, smile, and give them a 'Thanks for flying United. 'He said that, in light of his bad landing, he had a hard time looking the passengers in the eye, thinking that someone would have a smart comment. Finally everyone had got off except for an old lady walking with a cane. She said, 'Sonny, mind if I ask you a question?' 'Why no Ma'am,' said the pilot. 'What is it?' The little old lady said, 'Did we land or were we shot down?' A plane was taking off from Mascot Airport. After it reached a comfortable cruising altitude, the captain made an announcement over the intercom, 'Ladies and gentlemen, this is your captain speaking. Welcome to Flight Number XYZ, non-stop from Sydney to Auckland. The weather ahead is good and, therefore, we should have smooth and uneventful flight. Now sit back and relax - ARGHHH! OH, MY GOD!' Silence followed and after a few minutes, the captain came back on the intercom and said, 'Ladies and Gentlemen, I am so sorry if I scared you earlier, but, while I was talking, the flight attendant brought me a cup of coffee and spilled the hot coffee in my lap. You should see the front of my pants!' A passenger in Economy said, 'That's nothing. He should see the back of mine!' Page 3 of 3