Operating Income Prediction of the Airline Company by Applying Advanced Forecasting Models

Abstract

This thesis is based on corporate financial theory and market risk management theory, studies the risk measurement of corporate revenue, costs and expenses and elaborates on corporate market risk management, taking the Air France-KLM Group as an example. It provides a guide for the company's risk control for future financial planning to improve shareholder value and performance and introduces the company's risk measurement and management methods and tools to facilitate the company's risk management. The goal of the thesis is the prediction of the probability distribution of operating income, Earnings at risk (EaR) and Earnings per share at risk (EPSaR) of the Air France-KLM Group by applying advanced prediction models for the period 2021 and 2022. The fifth chapter uses advanced prediction models to analyze the probability distribution of selected random risk variables. First, the advanced time-frequency analysis model analyzes the time series of the selected random risk variables, and the corresponding probability distribution of selected random risk variables is predicted by the advanced prediction model. Models are trained by using the first 90% of the data, and then the prediction accuracy of the model is tested by using the last 10% of the data. The RMSE, MSE, MAE and MAPE measures are used for comparing the prediction accuracy of the prediction model, the most suitable prediction model is also selected for subsequent calculations. VMD-SVM is selected as the optimal aviation kerosene price prediction model, VMD-ARIMA model is the optimal EUR/USD exchange rate prediction model, and VMD-SVM is the optimal passenger number prediction model. Chapter six focuses on the prediction of the probability distribution of operating income, EaR and EpSaR of Air France-KLM Group. First, Air France-KLM Group Income Statement is analyzed and assumptions for operating income prediction are pointed out. Next, random components of operating revenues, costs and expenses are simulated and predicted followed by the estimation of other non-random operating income and expense components. Subsequently, the probability distribution of operating income for 2021 and 2022 is estimated, that the expected value (mean) of the probability distribution of the operating income of Air France-KLM Group is -2469.388 million euros in 2021 and -413.156 million euros in 2022, respectively. At last, the sensitivity analysis of operating income is performed and EaR and EpSaR are calculated. The results show that the Air France-KLM Group's estimated 〖EaR〗_(5%) is 7427.774 million euros in 2021 and 6002.309 million euros in 2022, respectively, the estimated 〖EpSaR〗_(5%) is 17.329 euros in 2021 and 14.003 euros in 2022, respectively. Finally, get the conclusion of the Air France-KLM Group is likely to face operating losses in 2021 and 2022, but the loss will be smaller than that in 2020. Under current such varying degrees of market risk, the probability of Air France-KLM Group achieving positive net income in 2021 and 2022 is small, but the loss will continue to decrease.