AirNX: A Management Report

Industry background and company outlook

Case

You have recently begun work as an accountant for AirNX, a hypothetical airline company based in New Zealand. AirNX operates a large domestic route network and provides scheduled flights to selected international destinations, primarily around the Pacific Rim. Your line manager has asked you to compile a report that addresses the following:

1. Industry background and company outlook – conduct independent research and reflect on the course content to complete items (a) and (b).

(a) Comment on current industry trends, opportunities and challenges faced by the airline industry in general.

(b) Focus on the operating environment of AirNX and discuss internal and external factors that could affect their future operations and financial performance.

2. Cost prediction – use the file ‘AirNX Data’ to complete items (c) to (h). Detail your answer for each item in the management report.

(c) Identify several possible drivers for (i) Wages and benefits, (ii) Aircraft fuel, and (iii) Aircraft maintenance that could be used in estimating their respective cost functions.

(d) Select one of the possible cost drivers identified for each type of cost and apply the high-low method in estimating the wages and benefits cost function, the aircraft fuel cost function, and the aircraft maintenance cost function for AirNX.

· Clearly identify the driver you selected for each type of cost and explain why it is selected.

(e) Select one of the possible cost drivers identified for each type of cost and apply simple regression to estimate the wages and benefits cost function, the aircraft fuel cost function, and the aircraft maintenance cost function for AirNX

· Clearly identify the driver you selected for each type of cost and explain why it is selected.

· Comment on the statistical validity and significance of your results.

(f) Select several possible drivers of wages and benefits, aircraft fuel and aircraft maintenance and use multiple regression to estimate the respective cost functions for AirNX.

· Clearly identify the cost drivers you selected to estimate each type of cost and explain why they are selected.

· Explain whether the models estimated is an improvement over the models estimated in (e).

(g) Use the cost functions derived in (d) to (f) to forecast AirNX’s 2019 Q1 to Q4 wages and benefits, aircraft fuel and aircraft maintenance costs.

· Report your forecasted results.

· Explain under what conditions the cost functions estimated in (d) to (f) will be useful in predicting the costs for AirNX.

(h) Explain the advantages and disadvantages of using the high-low method, simple regression and multiple regression for cost estimation, and make a recommendation regarding how best to estimate the future costs for AirNX.