Business Analytics Analysis Project:

Investment Decisions through Analysis of Aircraft’s

Total Expected Profit.

Valentina Carvajal Bueno & Esteban Rojas Acuna

BUAD 261: Business Analytics

Professor Dale Matheny

Principia College

Fall 2017
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Background and Introduction:

Statistics is the practice of recollecting and analyzing large quantities of data to determine
the whole perspective of how a system or sample works. It is also important in the decision making.
An investor might take the decision of investing depending on a forecast of a company or on any
analytics study. Statistics also enable to take decisions in a company. They will not only help in
terms of who to target and to growth, but also in how to avoid insolvency and failure. They solve
diverse types of problems that are seen every day in companies, cities and even countries. Giving
helpful analytic results can lead to the answer to the issue in a study.
In the world, we live today we generates thousands of billions of bytes of data, but being
able to interpret this date and use to use it for market a product is the real challenge. A great
example of the uses of statistics to solve a business problem took place in Dublin. The airplanes
services companies analyzed the information and data about people traveling, costs and the time
it takes for the airline to transport a customer from a point to another. They did for several years
saving and updating the date. It finally allowed them to determine what could be the best
opportunity to the company to target their market and how can they improve their performance in
comparison with their competitors. The magazine The Business Reporter affirms in their one of
their articles; “using the data taken every day for a long time of period, enables the airport to target
better their customers” (2016). This type of tools helps companies to improve their performance
and create loyal relations with their customers.
The uses of the statistics can be seen any day and anywhere. For example, according to
“Los Andes newspaper” from Chile, with the arrival of the low-cost trips from Mendoza to
Santiago, the passenger traveling inside the country had increased from 11400 to 12500, which
could be confirmed using and analyzing the hypothesis test to measure this.
Furthermore, the coefficient of interval is also great tool used in control graphs. Recently
and according to “El Pais newspaper” from Colombia (2017); Aviana had trouble with their
workers and stopped almost 50% of their flights losing millions of dollars and losing hundreds of
loyal customers. This problem could have been avoided if the company had made constant surveys
to knowing the conformity of the workers towards the enterprise. For example, in a scale from 1-
10, and then analyzing if the answer where inside a possible confidence of interval.
The biggest challenge in business is how to make more profit and to maintain their position
in the market. Companies take decisions all the time and analytics tools help to solved this kind of
issues. In this paper, we will be using statistics tools and the SPSS program to tackle this are in
business and related in relation with the aeronautics market.

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Business Problem:
InvestCol is a mutual fund which is looking forward to investing in the airline industry.
One of their most valuable investors, Dale Matheny, knows that most of the time, the airline’s
gross profit depend on the kind of airplanes they use, and most importantly, the cost of these.
The cost is a key determinant factor because it is directly proportional to the quality and the size
of the aircraft. The more expensive their airplanes are, the longer they last and the more people
they can carry. The president of InvestCo’s committee suggests to hire CarvajalRojas & Co. who
specialize in the airline industry, specifically in the area of airplane cost and gross profit.
CarvajalRojas advises InvestCol and explains that today, the best way to invest money in
the airline industry is to find the aircraft model that is most profitable and then invest in the
airline that has the most quantity of them. A confident way to determine if an airline is profitable
or not is by looking at the different type and quantity of aircrafts that an airline owns, the cost per
unit, age average, and most important, the current, past (number of that same aircraft the airline
has owned and fulfilled its useful life, becoming obsolete) and Placed Orders (Already paid
aircrafts waiting to be delivered in the future – which count towards the Total Units).
InvestCol is willing to invest $1,000,000,000 in the airline industry. The problem is that
they have to be completely sure that the airline they are investing on is going to be profitable
enough to return at least 25% of the principal assuming the airlines today pay X% premium
dividends to investors of $1,000,000,000 in the first 10 years. InvestCol’s investors have the next
requests (constrains):
Find one aircraft that:
1. Expects a profit of 100,000,000,000 in the next 10 years.
2. Has more than 200 Placed Orders for the near future.
CarvajalRojas starts the research process and finds the data of the combination of all the airlines
in the world and the aircrafts they use (809 combinations) with the following KPIs:
 Airline: Each and every airline in the world including commercial ones, like Delta
Airlines and non-commercial ones, like FedEx Express.
 Aircraft Type: Aircraft brand, like for example Airbus, and model, like for example
A330. This is a key component of the data because it is what CarvajalRojas is looking
for.
 Average Age: This KPI determines the average years of use of a specific model of
aircraft of a specific airline. This could have a relationship with the amount expected
profit InvestCo is looking for.
 Current: This is the amount of aircrafts of a specific model that the airline is currently
operating with.
 Historic: Number of that same aircraft the airline has owned and fulfilled its useful life,
becoming obsolete. This shows if the airline has had these aircrafts in the past or they are
new to it.

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  Fixing: This is the amount of aircrafts that are currently being fixed because of
performance errors. If an aircraft is being fixed it still counts towards the amount of
aircrafts an airline owns. This metric might be important to determine if certain type of
aircraft breaks down a lot and how this affects the performance of the airline.
 Placed Orders (Future): Shows the amount of aircrafts that the airline has ordered and
paid, and is waiting to receive in the near future (less than 2 years).
 Total Aircrafts: The sum between the current, historic (past), fixing and placed orders.
This number is the total quantity of aircrafts of a specific model that an airline owns.
 Unit Cost: This is the cost per unit of each aircraft model. This metric suggests that if Air
France and AirAsia X buy a Boeing 777, it is the same price for both airlines.
 Total Cost (Historic): This is the multiplication between the Total Aircrafts and the Unit
Cost per Aircraft. There are around 45 different type of aircrafts that the airline industry
uses for different commercial and non-commercial purposes.
 Total Expected Sales (10 years): This is a very important metric. This is directly related
to the Total Cost, because in the airline industry, it is known that an aircraft, in its 10 year
useful life period, is expected to pay itself and produce 80% more of its original value.
For example if an aircraft is $10, in its useful life, it is expected to produce $18.
 Total Expected Profit (10 years): This is the calculation of Total Expected Sales -
Total Cost (Historic). The result of this calculation is an expected value that represent
the total profit that a model of aircraft can produce during a period of 10 years.

In order to find the best way to invest in the airline industry, one must find the aircraft
with the best Total Expecting Profit in the long run and a considerable amount of Placed
Orders for the future (this demonstrates that the aircrafts have been working well for the
airline and they are willing to increase their feet with them).

A sample of how the data looks is:

As shown in the chart above, some airlines do not have Placed Orders (Future) for
some specific aircrafts, or Fixing units, mostly because there are no broken aircrafts from that
specific model. This only affects the amount of aircrafts the airline owns.

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Descriptive:
As the process continues, CarvajalRojas starts to break down the data into the basic
components to do a statistical analysis and gain insight from the data’s variation.
The first step to this analysis is to find the Mean, Max, Min, Range, Quartile 1, Median,
Quartile 3, Size (N) and Standard Deviation. These descriptive statistics help gain insight on our
data. The following chart was made based on Total Expected Profit (10 years). This will be the
dependent metric on our study since this is what InvestCol has asked us to analyze.

Thanks to this data, CarvajalRojas now can analyze the variation of the data. The following
methods were used:
1. Box and Whisker Chart (based on Total Expected Profit (10 years)):

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 The whisker chart is one of the most common ways to characterize the data in order to
visualize all the descriptive statics. This particular whisker chart shows that 50 percent of the
data is within the Total Expected Profit (10 years) between $1,496 and $12,480. This insight is
important because it tells us that there is a big part of the data allocated in a small range. In most
of the cases this means that there is going to be just a few related dependent variables, in this
case, there will most probably be a few aircraft models with extravagant Total Expected Profit!

2. Frequency Table and Histogram:

This technique divides the data into even groups of sales ranges in order to see how many
aircrafts are in each range. This will give insight in what range is the majority and minority
of data in terms of Total Expected Profit. In the last method used we predicted that the data
would be extremely uneven.
Frequency Table:

This data shows, as predicted, the obvious results. As shown in the table, the frequency in
Group 1, is 764 aircrafts. Since there is 809 aircraft combinations, this becomes 94.44% of
the data. This also goes back to the Box and Whisker Chart, where it is shown that 50% of
the data is between the range of $1,496 and $12,480.
Another important fact to underline is that 99.75% of the data is between the first 3
groups. This shows that the level of Total Expected Profit that InvestCol is looking for will
be found within the last 2 groups.
Histogram:

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 This histogram clearly shows, in bars, the proportion between each group of data.
Group #1 covers 94.44%, Group #2 covers 4.45%, Group#3 covers 0.87% and both
group #4 and #5 cover 0.12% each = 100% of the data analyzed.

As the analysis continues, CarvajalRojas starts to understand the deviation and

variation of the data. And start to apply more statistical methods by taking a sample of
the data:
The descriptive statistics for the sample data are the following:

Inferential:
3. Normal Distribution:
This method represent symmetrical distribution of a random continuous variable. This
helps determine what percent of data is within a certain value of our dependent variable,
Total Expected Profit.

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 As it is shown above, it is determined that only 0.000000652% of the aircraft’s Total
Expected Profit will be good enough for InvestCol, since this percentage represents the
probability of having a value that is expected to generate $100,000,000,000 or more.

Slowly, every method we use is starting to point out that the aircraft model we are
looking for is within a very small percentage of the Total Expected Profit. Since we
have 809 different combinations of airlines and aircrafts models, this result will probably
shrink the combinations to one or two different options that InvestCol could choose from.

4. Confidence Intervals:

Thanks to the variation on our sample, we have to estimate a population mean by

taking a sample of the population itself. This creates a sample mean, which will be in the
middle of the confidence interval. LCL is the lower confidence limit and UCL is the
upper confidence limit. This confidence can be done at any percentage as wished, but the
most used are 95%, 98%, 99%, and 99.9%. In this case, a 95% confidence interval is
applied and the result is as expected. The interpretation for this method is that there is a
95% confidence that the population mean is within $11,550.39 and $12,577.75.

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5. Hypothesis Test:
A hypothesis test is used by CarvajalRojas to test a hypothesized mean. This helps to
know if the sample mean is statistically far away enough to be considered different. What it
being tried to prove in this situation, is if the sample mean is higher than the population
mean. To statistically test this, 4 steps are needed:

 Step 1: In this step, the Null Hypothesis (Ho) is set. If the sample mean (x) is smaller or
equal to the population mean ($10,308), then the hypothesis is null. But, if the sample
mean (x) is bigger than the population mean ($10,308), then H1 becomes true and the
hypothesis is tested right.
 Step 2: After the null hypothesis is set up, there has to be a limit from where is defined if
the sample mean is statistically higher or not from the population mean. This limit is
called the Z(Reject). This is determined by a T.inv excel function, and contains the level
of confidence chosen. In this case the level of confidence is 99% and the Z(Reject) is
2.345 standard deviations from the population mean.
 Step 3: This is the number of standard deviations that the sample mean is away from the
population mean, in a 99% confidence level. This value is called the Z(Sample), and in
this case it is 6.74.

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  Step 4: Since 6.74 is greater than 2.345, then we accept H1 and determine that the sample
mean ($12,064) is statistically higher, at a 99% confidence level, than the population
mean ($10,308).

Visual Representation of Hypothesis Test:

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 Analytic:
CarvajalRojas & Company decides to take this to the next level. With the help of a statistics
analysis program called SPSS Statistics 24 by IMB, they decide to run the data base through
hoping they can find insight on the data and could help InvestCol a decision on whether to invest
in the airline industry, according to their conditions (constrains), or not. The CarvajalRojas team
has decided to test the data with the following methods:

1. Regression
Dependent Variable: Total expected profit

The R square is the coefficient of determination with values between 0 and 1. In this
scenario 𝑅 2 is 95.4 which means 95.4% of the variation in the dependent variables is explained
by the independent variables.

We want to keep and use independent variables with sig. of < 0.05 or 95% significance.
We have a lot of variables with significance > 0.5 so we need to re-run to get a better model. In

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order to do so we remove variables one at a time starting with the worst significance value, until
we get to the perfect model.
As a result we have 4 models, and we have choose the fourth one because it has the best-
adjusted 𝑅 2 , being the closer to 1 for 0.047. First Model has a 𝑅 2 of .869, it is 0.133 far from 1,
which is the perfect fit. The second model has a 𝑅 2 of 0.940, being 0.06 away from 1 and the
third model have a 𝑅 2 of 0.951 being 0.049 of 1. Model fourth was the better one.

With the coefficients we have create a predictive formula for the Total expected profit.

*It is important to understand that since the unit cost and total units are within the equation for Total Expected Cost,
there is a collinearity. But, Placed Orders (future), shows a close relationship.

Now CarvajalRojas came up with a very important tool to help InvestCol decide which
Aircraft they should invest in. This formula determines the Total expected profit depending on
the values of the Total (units), Unit Cost, Total Cost (Historic) and Placed Orders (Future):

Total Expected Profit = -6325.108+ 114.981*Total (units)+ 84.013*Unit cost+ 0.320*Total

cost (Historic) +44.075*Placed Orders (Future).

The equation above will helps us deciding which of the Airline will generate more profit.
As investors we want to seek for the airline that generates around 182,720 Million Dollar gross
profit in the next ten years. This equation would help us to find the right airline and therefore

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make a good investment .Every incremental in one metric would increase the expected profit.
Therefore, if we have an airline and we know their Total N. planes, their unit cost, Total historic
cost and future placed orders; we will know their Total expected profit.
2. Correlation
This is an extremely useful tool to because it would help us find which metrics relate to
others. We would be able to see their behavior and how one can affect the other. According to
our data we would see if the whether the attributes have high or low correlation. For example we
would find if the metric of Historical (Past) has a high correlation to the Total Cost (Historic).
Therefore, if one variable changes or fluctuates it will caused the similar effect in the
other variable. In the other hand, we would also find if they have low correlation. Meaning that,
their behavior doesn’t impact the other variable. In our research, this tool would help us to find
out which key metrics and attributes we should focused on and which ones are less noteworthy.

Our variable of interest is Total expected profit and we are looking for intersection of
two variables where the significance value is <=.05 or even better <.01. The person correlation is
better as it gets closer to 1 because it shows that variables are highly correlated.

The Current number of aircraft they have and the amount of future placed orders are the
most correlated variables with the total expected profit. This means that, we as investors would
much rather invest in airlines that have more current planes and that are expecting to have more
in the future, than the ones who used to have more in the past. The average age of the planes
have no significant correlation with the expected profit. Average Age determines the average of
use of an specific model of aircraft, in our initial research we though that this attribute had a
direct relationship with the total expected profit, but with correlation we were able to realize that
these two variables have low or non-correlation. Correlation is very useful because it enable to
narrow the attributes to the ones that matter the most and helps to find a focused.

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 They all have correlation with the Total expected profit. This means that any change or
fluctuation in the behavior of these attributes will affect and alter the behavior of the Total
expected profit. Total Cost (Historic) and Total expected sales have a higher Pearson correlation
number, which confirms that these two variables are highly correlated. The results obtained
make total sense because the total expected profit are the total sales minus the total cost.

3. Clustering
According to Stat Treck: “Assuming the sample size is constant across sampling
methods, cluster sampling generally provides less precision than either simple random sampling
or stratified sampling.” (2017) Analyzing our data through clustering would enable us to find
similarities and differences among the attributes. The aim of doing clustering is to segment the
data. In this scenario finding specifics segment’s and needs that best suits our expectations and
that most impact our decision of investment. This results allows to take a wiser decision in the
moment of investing. Our goal is to find a good variation in the cluster groups, to find variation
and distinction.
We chose the variables of Total units; number of aircraft from each airline. The second
variable we chose was Total expected profit; dependent variable of the research and the amount
of money expected to be gained from a specific aircraft model. These two variables are one of
the most representative in the case study, therefore we wanted to analyze the differences,
disparity and possible distinction among them. Having this results would help us to target better
our subject of study; which aircraft will generate the most possible profit in the next 10 years.

We found two groups with 1.000. This led us to keep

running the test until getting more distinct clusters.
We wanted to find for more variation in the groups.

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The second time we run it, we still didn’t find enough variation and distinction in the number of
clusters. We vary the number of groups until we find enough distinction and variation in the
groups.

Finally, we decided that five clusters had

good disparity. There was enough
dispersion between the total expected profit
and the total units of aircraft. This results
let us to have more insights of the data and
to tailor our decision on whether invest or
not.

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 Conclusion:
Thanks to running an analysis on the descriptive statistics, box and whisker chart, frequency
table, frequency histogram, normal distribution, confidence interval, hypothesis test, regression,
correlation and finally clustering, we gained enough insight to advise with enough clarity
InvestCol in what aircraft to invest their $1,000,000,000. Within the 802 combination of airlines
and aircrafts, there are only three that satisfy InvestCol’s conditions (constrains).
 Southwest Airline’s Boeing 737 with 284 Placed Orders (future) and $182,780 million in
Total Expected Profit.
 IndiGo’s Airbus A320 with 400 Placed Orders (future) and $107,800 million in Total
Expected Profit.
 RyanAir’s Boeing 737 with 205 Placed Orders (future) and $100,788 million in Total
Expected Profit
Since one of InvestCol’s condition was that the aircraft had to have at least (minimum of)
200 Placed Orders (future), there is not necessarily a preference if there is more or less, as
long as is more than 200 orders. Therefore, the model that best suits InvestCol’s conditions,
and brings a better Total Expected Profit is Southwest Airline’s Boeing 737.
With $182,780 million in Total Expected Profit, this aircraft returns 45,695 million (25%
dividends) in the first 10 years, which is 250 million

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 References

What is Cluster Sampling? Retrieved December 08, 2017, from http://stattrek.com/survey-

research/cluster-sampling.aspx.

Matheny, Dale. (2017). (4th edition): Getting to aha! A beginner’s Guide to Business Analytics.
Middeltown,DEDuncan, G. J., & Brooks-Gunn, J. (Eds.). (1997). Consequences of
growing up poor. New York, NY: Russell Sage Foundation

How Dublin airport uses big data to improve the customer's journey. (2017, May 16). Retrieved
December 08, 2017, from https://business-reporter.co.uk/2017/05/16/dublin-airport-uses-
big-data-improve-customers-journey/
Avianca.Retrieved December 08, 2017, from https://www.similarweb.com/website/avianca.com

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