General Instructions:
Submission: The assignment is to be submitted electronically via the Assignment Tool
accessible on the subject’s LMS web page, located under the heading ‘Assignment’.
Marks: The assignment counts for 20 percent of your final grade for this subject.
Groups: The assignment is to be undertaken in groups of four (4) students. Groups must be
registered via the Group Registration tool in the LMS. One student is to be nominated to
register the group no later than Friday 18
th
August 2017. All members are expected to
contribute equally to the final outcome and groups experiencing difficulties should seek staff
assistance well before the assignment deadline.
Content: The assignment draws on material covered in ACCT90009 Strategic Cost
Management. Students are also expected to undertake their own secondary research.
Word Limit: The world limit is 3,000 words. (Note concise expression is encouraged).
Assignments that exceed the word limit will attract a marking penalty. Material placed with
the Appendix, e.g. tables, figures and graphs will not be included in the word count.
Format: Assignments should use 1.5 spacing with generous left hand margins and minimum
12 point font size. Dot points may be employed where appropriate. Assignments must be
correctly referenced using the APA system of referencing; failure to reference correctly will
attract a marking penalty. Place tables, figures, graphs as well as relevant copies of secondary
source material within an Appendix. All items within the appendix should be appropriately
summarized and referenced within the assignment.
Cost analyses for the airline industry
Students draw on materials covered in ACCT90009 Strategic Cost Management to conduct
cost analyses for the two airline companies: Delta Airlines and JetBlue Airways. In addition
to subject materials, this assignment requires students to acquire knowledge about the airline
industry to interpret the analyses. Specifically, the two airline companies may have different
business models and hence different cost structures. Exhibits 1 and 2 present financial and
operational data for Delta, respectively. Exhibits 3 and 4 show financial and operational data
for JetBlue, respectively. Those data are extracted from the two companies’ quarterly SEC
filings.
1
Exhibits 1-4 are provided in a separate excel file under the assignment tab. Students
are expected to look up the definitions of the accounts in Exhibits 1-4, and explain those
accounts or specific terms when referring to them in the responses. Note that your answers
have to be either industry specific or company specific. General responses will be discounted.
Requirements
a. Labor costs are a major component of airline companies’ operating costs. Identify the
most appropriate cost driver for labor costs and explain how the identified cost driver
causes labor costs. Use the provided data to estimate the labor cost functions for both
Delta and JetBlue with simple regression analyses. Note: students are encouraged to
collect more data to facilitate your analyses. (30%)
b. Based on (a), compare the labor cost functions between Delta and JetBlue, and explain
their similarity and difference. Hint: You have to draw on knowledge about the airline
industry to respond to this question. (20%)
c. Identify what drives revenues (i.e., the revenue driver). Discuss whether the revenue
driver is expected to be the same as the labor costs’ driver identified in (a). Use numerical
analyses to support your argument. (20%)
d. Research the concept of “operating leverage”. Explain why it matters, how it is applicable
to the airline industry, and how it is influenced by cost structure changes. (15%)
e. Calculate and compare “operating leverage” between Delta and JetBlue and explain why
they are the same or different. Also comment on how the results in (e) relate to your
findings in (b). (15%)
Note: Please articulate your answers in a clear and succinct way. You are required to
use data plots and/or numerical analyses to support your answers where appropriate.
1
Data can also be obtained from Delta Airlines’ website: http://www.delta.com , and JetBlue Airways’ website:
http://www.jetblue.com.