A Case Analysis on North-South Airline

A CASE ANALYSIS ON NORTH-SOUTH AIRLINE

1. CASE BACKGROUND

Northern Airlines merged with Southeast Airlines to create the fourth largest U.S. carrier in which it inherited both an aging fleet of Boeing 727-300 aircraft and Stephen Ruth.

As the new president of the airline, Stephen’s first concern is to create a financially solid company since it is a common presumption for airline industries that maintenance costs rise with the age of aircrafts.

He noticed that there have been significant differences in the reported B727-300 maintenance costs (from ATA Form 41s) both in the airframe and engine areas between Northern and Southeast Airlines, with Southeast having the newer fleet. He asked Peg Jones, Vice President for Operations and Finance to investigate on this issue and to know whether there was a direct relationship between average fleet age and direct engine maintenance costs.

1. STATEMENT OF THE PROBLEM

Peg Jones must be able to determine if there was a correlation between the average fleet and the maintenance cost. She must also find out if the average fleet age is related to the direct engine machine costs. Jones must be able to provide his findings to Stephen Ruth, who is the new president and chairman of the board of the two airlines, for them to be able to properly investigate and address the issue.

1.  CASE FACTS, LIMITATIONS AND CONSTRAINTS

For this case analysis, the following are the available data to be used to help Ms. Jones in the determination if there was a correlation between average fleet age and the direct maintenance costs (Please see Annex 1). And the following steps were performed by Ms. Jones and her staff:

1. The staff constructed the average age of both fleets, by quarter.

2. The average age of each fleet was calculated by first multiplying the total number of calendar days each aircraft has been in service at that time.

3. The average utilization was found by taking the actual total fleet hours flown on September 30, 2007, from Northern to Southeast data, and dividing by the total days in service for all aircraft at that time.

4. The average utilization for Southeast and Northern was 8.3 and 8.7 hours per day, respectively.

5. The available data were calculated for each yearly period ending at the end of the first quarter. Thus, average fleet age was calculated at the same points in time.

The paper is limited within the case facts as these are the available data considering also the other factors that might be helpful for us to solve the problem. The group members are not experts about the airline industry and we based our conclusion and recommendations based on practical applications.

Correlation does not necessarily mean causation. The two variables may be highly correlated, but one is not causing the other to change in which other factors must be considered. The linear relationship may exist within the range of values and what happens beyond this range is unknown wherein the linear relationship may become nonlinear at some point.