Multiple Linear Regression Model

FARE = -63.91 + 3.755*COUPON - 2.396*NEW + 0.008426*HI + 0.001207*S_INCOME +

0.001374*E_INCOME + 0.000003401*S_POP + 0.000004363*E_POP + 0.07498*DISTANCE -

0.0008709*PAX + 35.64*VACATION_NO + 40.97*SW_NO - 16.24*SLOT_FREE -

20.58*GATE_FREE

Interpretation of the co-efficient

SW_Yes (Southwest Airlines serving the route):

The estimation results that are presented lack the coefficient for SW_Yes. This suggests that, during
variable selection (also known as backward variable selection), the variable SW_Yes was eliminated.

If the coefficient for SW_Yes existed, a positive coefficient would mean that, all other things being
equal, routes operated by Southwest Airlines often had higher prices than routes operated by other
airlines.

DISTANCE (Distance between two endpoint airports):

DISTANCE has a coefficient of 0.07498.

If all else is equal, a positive coefficient indicates that the fare tends to increase by 0.07498 units for
every mile that separates the two terminus airports.

This suggests that longer routes usually have higher rates, which may be brought about by variations
in demand or greater operating expenses.
Comparison of the models
RSE, or residual standard error:

Full Model: 35.47 RSE

Backward Model: RSE = 27.98

Greater prediction accuracy is shown by lower RSE values. The lower RSE of the backward model
indicates that it does a better job of forecasting the average fare on new routes.

R-squared adjusted:

Full Model: R-squared Adjusted = 0.7823

Backward Model: R-squared adjusted to equal 0.8645

An improved model fit is shown by higher Adjusted R-squared values. With a higher Adjusted R-
squared, the backward model appears to be able to explain a larger share of the variability in the
average fare.

F-value

Full Model: 177.1 is the F-statistic.

F-statistic in the Backward Model is 33.78.

The model's overall significance is measured by the F-statistic. The backward model is based on
fewer predictors, which is significant even if the complete model has a larger F-statistic.

These comparisons show that in terms of model fit and forecast accuracy, the backward model
performs better. With a higher adjusted R-squared and a smaller residual standard error, it is better
able to anticipate and account for greater fluctuation in the average fare on new routes.

Recommendation
The airline firm might get various insights to inform their pricing strategy for new routes by analyzing
the prediction models. The business may determine important elements impacting average rates,
such as distance, population demographics, and the availability of holiday locations, by looking at the
coefficients of the chosen variables in the backward model. By utilizing this data, the business may
create a dynamic pricing plan that takes these variables into account when setting starting rates and
modifying them in response to changes in demand and pressure from competitors. To properly
position itself in the market, the corporation needs to keep an eye on its competitors' pricing
methods, especially those of low-cost carriers. Furthermore, emphasizing in marketing efforts the
special qualities of the new routes—like handy travel alternatives or holiday spots—will draw
customers and increase demand. Targeted pricing and promotional offers can be implemented to
optimize revenue and profitability by segmenting clients based on their preferences and readiness to
pay for certain route features. To improve service offerings and fine-tune methods, it is important to
maintain flexibility in pricing strategies and solicit input from customers on price and overall travel
experience. All things considered, the airline firm may price the new routes profitably, draw
customers, and maximize revenue production while maintaining market competitiveness by
incorporating these insights into its pricing strategy.