Now, we explore the role of managerial accounting to support this decision. Submit your work in excel.

Estimate the salary cost function for Delta. Despite the fact you can choose between some feasible drivers, please use Revenue Passenger Miles for this part of the case. Use the High Low method.

Estimate the salary cost function for JetBlue. Use the high low method.

Now, let’s discuss the results!

What conclusion can you make out of the comparison of both cost functions?

Maybe it is the cost separation method! Please redo 1 (above) and 2 (above) by using simple linear regression? An attachment with the tables is available for you to use Preview the document.

Did the result and conclusions of your analysis change after answering 2?

Can Delta be successful on the new segment? Is the strategy aligned with the microeconomic structure of Delta?

Some years after Delta’s case situation, salaries were no longer the highest cost for Delta. Fuel prices increased dramatically after 2001. How can you deal with this new profitability threat from a cost management perspective?  If costs cannot come down, how can we improve the profitability of a firm such as Delta?

Week 3 – Analysis of the Song Proposal

  1. What would be the effect of a sharp decline on passengers for a firm with a microeconomic structure such as the one Delta had in place during 2001? Is Delta’s operating leverage high or low?
  • Analyze the proposal to launch Song as a response to the situation the firm is facing.  Do you agree with this solution? Why? What would be some possible alternatives or alternative?

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