AVM 301 Forecasting

05.12.2017

G7: Osman Babalolu, Caner Ayaz, Ali nal, Batuhan Kaan, Oulcan zebi

In todays world forecasting consists of essential part for every companies, especially for airline
companies. Since, if they see the future of their demand, they can decide their future to decide, whether
to open new route or not. Also, with forecasting companies can find when they need cashflow. Because,
every month in year passenger flow could be change and if they need cash, with forecasting they can
easily find it.

Starting from 2010 to 2016, 6 years pax traffic of Aeroflot Airline has been found. Numbers are given in
the table below.

Data
Pax
Years Traffic(mln)
2010 11.3
2011 14.2
2012 27.5
2013 31.4
2014 34.7
2015 39.4
2016 43.4
To forecast how many pax was carried in 2017, linear and exponential trendlines were inserted shown
below.
 Linear y = 5.50x + 6.86
R = 0.95
50
45
40
35
30
25
20
15
10
5
0
0 1 2 3 4 5 6 7 8

X-axis represent periods and each period represents the years. (E.g. 2010 corresponds to 1 on x-axis and
2011 is 2)

Y-axis represent number of pax (pax traffic (mls)).

So, by looking at the graph, it is indicated that there is a strong relationship between x and y.
Demonstration of relationship can be calculated as R which turns out to be 0.97 which means that
there is a positive strong relationship. Secondly, correlation of determination (R2) which explains all the
variability of the response data around its mean. R2 is 95% meaning that 95% change in number of pax
can be explained by the change in years. These parameters will help us to determine which forecasting
method is better.

Exponential y = 10.59e0.23x
R = 0.88
60

50

40

30

20

10

0
0 1 2 3 4 5 6 7 8
Correlation of coefficient turns out to be 0.94. Exponential trendline also shows a positive strong
relationship; however, linear one is performing better against exponential one.

Correlation of determination is 0.88 meaning that variability is higher around the mean comparing to
linear one.

Overall,

All the numbers plugged in the parameters of each methods. So, the findings are below,

Forecasts
Periods Linear Exponential
1 12.35 13.33
2 17.85 16.78
3 23.35 21.11
4 28.84 26.57
5 34.34 33.45
6 39.84 42.09
7 45.33 52.98
8 50.83 66.68
SSE 42.277 175.437

8th is the forecasted one which is 50.83 for linear method and 66.68 for exponential method. To
determine easily what method to choose sum of squared errors (SSE) has been found. Knowing that the
lower SSE is the better forecast. Therefore, linear method is the best one for us and we are expecting to
have 50.83 million pax in 2017 as Aeroflot.

Without doing any calculations, we can also comment and decide what method to choose just by looking
on the charts. It is seen that linear one is fitting the data points better than exponential one. So, it
indicates that error is much lower than the exponential method. And data has constant increase, it also
indicates that linear is the best for us.

References

http://ir.aeroflot.ru/reporting/traffic-statistics/
http://ir.aeroflot.com/en/news-detail/article/18827/