A-1 Car Rental is one of the two car rental agencies serving a small regional airport in the U.S. Midwest. Forty per cent (40%) of its customers are airline passengers and the remaining sixty per cent (60%) are dwellers of the small nearby college town who use rental cars for business and leisure trips. The airport is within two miles from campus and approximately six miles from the city center. It is easy to reach by car, taxi, or city bus.
You are a manager of A-1 Car Rental. Your fleet consists of 72 cars, of which 47 fall into the “economy” class and 25 in the “luxury” class. Whenever demand for cars in some class exceeds the number of cars available, additional vehicles can be delivered from the nearest company hub in the state capital 70 miles away. Alternatively, some customers unable to rent an economy-class car may be upgraded to a luxury-class car at no extra cost to them.
Your only competitor at this location has a more sophisticated system of car category tiers, which consist of Compact, Economy, Mid-size, and Large cars.
In order to better understand your unit’s operating environment, you are asked to provide an estimate of the demand equation that would account for various factors that affect your customer traffic. Estimating the demand equation is useful for future analysis of your unit’s performance.
Review the data file that your staff has put together for this analysis and identify which variables you would like to include in your demand function. For each variable you choose to include, provide reasons why you expect it to be important for your analysis. Also explain the expected sign of the relationship between the proposed independent variable and the dependent variable.
Estimate the demand function for A-1 Car Rental using regression techniques. Make sure you include an interpretation of all coefficients of your estimated demand function.
Submit a report (Word document) and your analysis (Excel file) for grading.
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