Risk Management in the Airline Industry - 2570 Words

BACKGROUND There are few industries that are exposed to such a diverse assortment of risks as the airline industry. Ever since the first powered human flight in 1903, the progress of aviation and air travel has been inextricably linked to economic and political developments. The airlines of today face all of the four major categories of risk; operational, strategic, operational, financial and hazard risks. During the past 50 years, the airline industry has gone through several major changes. In the 70’s and 80’s, the North American and European airline industries were deregulated. This allowed new airlines to compete more freely with the established major carriers. This put a pressure on the profitability of airlines, and subsequently†¦show more content†¦Today, low-cost airlines dominate the regional markets in North America and Europe. By outsourcing non-essential operations such as baggage handling and catering, and employing standardized and simple procedures, they have been able to cut costs and simplify their operations. Doing this enables these companies to stay competitive even in bad times, and maximize their ability to react to changes in their business environment. (Zea, 2002) Airlines are dependent on the loyalty of their employees. Strikes and labor unrest has plagued the industry for many years. A strike doesn’t only have a direct detrimental effect on revenue; it also tarnishes brand reputation and generally discourages people from flying. The US low-cost carrier Southwest has been very successful in increasing employee loyalty through a â€Å"fun-culture†, profit sharing, and a generally people-centered style of management. (An example showing the hazards of unhappy employees: A friend of mine who actually works as a pilot for a European airline told me that whenever they were unhappy with company policy, they would nudge the throttle a bit too much forward on every takeoff, burning a few extra tons of fuel! True story.) Due to the complex nature of the industry, there are many inherent risks in the day-to-day operations. A large number of people and equipment need to be at certain places at certain times, otherwise schedules break and operations are interrupted. Everything from aShow MoreRelatedThe Cost Of Risk Management Aviation1391 Words   |  6 Pages The cost of Risk Management Aviation integrated framework expands on internal control providing a more robust and extensive focus on the broader subject of Aviation management. Both costs of risk management and financing involve promises to pay that need to be Collateralized, resulting in a financing versus cost risk management trade-off While it is not intended to and does not replace the internal control framework but rather incorporates the internal control framework within it, companies mayRead MoreThis Is a Summary on the Risk Management Case Study of Air Canada1730 Words   |  7 PagesREPORT ON RISK MANGEMENT OF AIR CANADA SUBMITTED TO : MRS.VANDANA MEHROTRA SUBMITTED BY: KUNAL KOTHARI MOHITA AGARWAL SAIMA AHMED APURV SHARMA NAINA SINGH SONAKSHI RATHI AIR CANADA- RISK MANAGEMENT INTRODUCTION: Colin Rovinescu, the Chief Executive Officer (CEO), for Air Canada was reviewing the Risk Management program of the company because the scheduled board meeting was approaching soon. He needed to deliver a comprehensive presentation in front of the board members. CHALLENGESRead MoreOligopoly Behavior in the Airline Industry. Case Analysis647 Words   |  3 PagesOligopoly Behavior in the Airline Industry. Case Analysis This case illustrates the pricing behavior of firms that are oligopoly whose market is characterized by the relative few participating firms offering differentiated or standardized products or services. Such firms in an oligopoly have market power derived from barriers of entry that wards off potential participants. As seen in the case, it is clear that because there are a small number of US Airlines firms competing with each other, theirRead MoreHedging Strategies And Effects On Mncs Valuation1550 Words   |  7 Pagesfirms to be able to forecast their business and earnings against the backdrop of uncertainties. A direct result of these challenges lies in the methods that organizations utilize financial vehicles in an effort to offset any unforeseen financial risks that may arise. MNCs utilize various hedging or arbitrage strategies to stabilize financial earnings or firm value especially when there are obvious inconsistencies in global exchange movements. This paper contributes to the literature by providingRead MoreAnalysis Of The Financial Analysis Of American Airlines1639 Words   |  7 Pages American Airlines Financial Analysis Luigi Vittatoe Florida Institute of Technology June 13, 2016 â€Æ' American Airlines Financial Analysis The paper will focus on the financial analysis of American Airlines to enable us make a decision on whether it’s viable to invest in the company. One of the tools that will be used for the analysis is the financial ratios. The financial ratios of the past three years will be calculated to determine the capital structure of the company, liquidity, profitabilityRead MoreSouthwest Airlines Hedging Activity For The Years 2000937 Words   |  4 PagesGiven the background of airline risk exposure and risk management practices, it is apparent that airlines have a variety of options available to minimise fuel price risk. Most of their hedging activity involves over the counter (OTC) instruments which are largely unregulated and difficult to study. Market activity in futures exchanges presents a safer option whose activity is monitored and regulated. The rest of the paper focuses on Southwest Airlines’ hedging activity for the years 2000 – 2014Read MoreSwot Analysis : The Airline Industry1377 Words   |  6 PagesVincent Oram Strategic Management Five Forces 9/30/16 When considering to enter a market or not, one of the smartest things a company can do is run a five forces analysis. This analysis looks over the level of competition in an industry to find the intensity of it, which in turns shows the attractiveness of entering this industry or not. This analysis looks over five categories; the threat of new entrants, the threat or availability of substitutes, the power of buyers, the power of substitutesRead MoreTaft Hartley Act1296 Words   |  6 Pagesbeen several laws passed in the United stated pertaining to employees, employers, and unions including The Labor Management Reporting and Disclosure act of 1959 (LMRDA) and the Taft-Hartley act (Hero, 2015), (Legal Dictionary, 2015),. These laws and acts serve as a guidelines in making union, employer, or judicial decisions (Department of Labor, 2015). In 2012 Pilots of American Airlines were facing the task of striking or not striking, and made their decision based on the guidelines of these a ctsRead MoreEssay about Opportunities and Threats facing the U.S Airline Industry1612 Words   |  7 PagesOpportunities and Threats facing the U.S Airline Industry The health of the overall U.S airline industry is still tenuous in-spite of the passenger traffic volumes returning to pre-9/11 levels. A survey estimated that from 2001 through 2003, the US airline industry reported to have lost $23.2 billion dollars, compounded by an additional $1.6 billion in the first quarter of 2004. This $24.8 billion shortfall exceeds the total profits earned over the entire six-year period 1995-2000 DrasticRead MoreSummary and Analysis of Zsidisin Hartley’s (2012) Managing Commodity Price Risk1403 Words   |  6 PagesCommodity Price Risk Summary As every organization and business in the market is exposed to price risks due to the commodity price volatility, it’s imperative for managers to predict those risks and make strategies to mitigate the damages brought by price volatility. This book not only shows us the importance of commodity price management, but also teaches organizations how to adapt and adjust themselves to commodity price volatility and provides approaches to decrease the exposure to risks for managers