Risk Management in Airline Industry
The airline industry is among the world’s riskiest sectors to operate. All forms of risks are evidenced in this industry, and most international airline companies have been keen towards the management of these industry related risks. Airline sector business owners in Australia have been relying on instruments and human resources around them to successfully overcome risks. This report will provide a risk management system for a new international airline company launching its fleet of second hand aircraft maintenance facility from Australia. Also, the report will develop and describe useful risk management system (RMS) features that if applied will benefit this new airline company.
Every business is exposed to a potential number of risks which call for evaluation and management through risk management system. Risk management system refers to the process of identifying, assessing, and controlling the challenges or threats that face the capital and earnings of an organization. Such risks could be caused by financial uncertainties, natural calamities, and data-related risks. It involves establishing the policies and strategies to control or alter the risks the company’s cash flow is exposed to. This paper features the possible risks that the new international airline in Australia may face by handling a fleet of second-hand aircraft, maintenance facility, and offices and passenger handling facilities at capital city airports. It establishes the features of the risk management system that should be developed in line with the company’s operations.
- Risk refers to the situation which involves exposing the company to danger, harm, or loss.
- Risk assessment– the process of appraising the potential risks that the company’s operations are exposed to.
- Risk management – refers to forecasting and appraising the financial risks and establishing the process to minimize their impacts.
- Risk reduction – establishing the ways to reduce financial losses and the probability of risk actualization.
- Risk treatment – refers to selection and implementation of processes to amend risk.
- Risk transfer – a control strategy that enables the shifting of risk from one party to the other.
- Risk acceptance – the acknowledgment by the company that the risk involved is not so great.
Stakeholder engagement in the airline company is of great importance especially because it will be new in the industry. Truckers Insurance HQ and GIO insurance companies will be essential in providing the insurance services to the company. The company will be insured against risks such as fire, flight accidents, and other natural calamities (Bazargan, 2016). Commonwealth Bank and National Australian Banks will also be part of stakeholders. They will be necessary for granting loans whenever a need arises such as the need to expand the operations and developments.
Familiarity with the company’s operations by the employees is a great deal to help identify risks as they pose. The company will have a team of risk management who will be experts in identifying potential risks in advance and report for actions. The team will be equipped with first aid kits and fire extinguishers alongside other risk toolkits (Lawton, 2017). The team will be trained to spot any unruly behaviors at the airports and testing the presence of harmful chemicals or bomb threat.
In order to establish a good risk management system, it is good to identify the possible interruption risk for the new company. Such risks may include cyber crimes which may lead to data loss and leaking of private information. People may hack into systems and interfere with crucial data which may make the company’s operations difficult. Again, the information leakage may lead to other security threats such as posing the company at a risk of terror attacks (Robinson et al, 2017). It becomes complicated having to know that some hackers may be people who are part of the organization hence managing the risk becomes difficult. Changes in legislation may also affect the company in a great deal in the efforts to comply. As new legislation is put in place, the company may have challenges adapting to them and may also be costly. Security is also another challenge whereby the airline is supposed to keep the passengers safe while in the airport and still during the flight. Although this can be eased by scanning the passengers, suicide bombers may still pose a challenge since it is not possible to spot them. Other risks may be posed by an increasing demand for airline services, changes in technology, and global environmental concerns. Such risks require the management to have proper strategies for recovering from them if they occur.
The airports will have a steady power supply and standby generators to be used during power failures. This will ensure that lighting at the airports is sufficient to spot any disorderly behaviors which could lead to more risks. The company will also adopt a risk management solution which is based on SMS Pro’s Hazard Reporting Solution (Farahani et al, 2014). The program is suitable to validate progress in the aviation SMS program. The management will also consider the airspace structure to facilitate efficiency in the provision of services in the limited airspace. The fuelling tanks for the aircraft may get out of control especially during rush seasons due to scheduling pressure. However, the management will reduce the potential risk damage by installing a flex impact airport safety barrier.
As noted earlier, the airline industry is a highly risky sector to operate in, and this requires a company operating in this industry to design, implement, and apply various strategies in order to avoid and mitigate and potential and occurring risks (Glendon, Clarke, & McKenna, 2016). For this new international airline company, the following four strategies must be implemented into its risk management and maintenance systems:
Airline activities and services of the company considered being too risky have to be identified and strategies of avoiding them designed promptly. The most appropriate strategies for this new Australian based Airline Company to use are avoiding the creation and initiation of risky activities and services, using a relatively extreme approach, and eliminating acts that involve risks.
Mitigation or prevention
The Australian airline company needs to effectively manage liability activities by structuring its programs and activities in a manner that lower and reduce institutional risks.
On the strategy of risk transfer, the new international company needs to come up with appropriate policies of limiting the severity of any risk that occurring by sharing it with other institutions. Appropriate strategies here include insurance policies, waivers and releases, and indemnification contracts.
Finally, the new international company needs to accept certain risks inherent to its operational activities by embracing approaches like self-insurance, deductibles, and the decision not to by certain insurance policies so as to avoid exposure of its operations.
The company is deemed to operate internationally, hence will require adhering to the international standards such as the ISO 31000:2009 which can apply throughout the life of the company. The ISO provides the strategies and principles necessary to manage various risks hence adhering to the standards will place the company at a better chance of managing most of the risks. The standard is also reliable as it applies to a wide range of activities concerning the company such as decision making, operations, and projects. Adhering to this standard is good to ensure that the implementation of the risk management system puts into consideration the various needs of the organization (Asgary et al, 2015). The company will be able to allocate resources properly, identify opportunities and threats, and improve the chances of achieving objectives.
The company will require a software that integrates with the strategies and policies implemented by the company. Such will include passenger handling facilities and meeting the indicated schedules. The software adherence to the company’s operations will help a great deal in avoiding some of the risks and also detect others such as cybercrimes (Amalberti, 2017). For instance, if the software collides with the company’s operations, the chance of incurring risks such as security threats will be increased. The software will also help in keeping and tracking accounts records and other important information easily.
Generally, a risk management system is essential to the company in helping to identify potential risks and establish ways of minimizing them and their impacts to avoid closing down the company in case of a risk occurrence. The risk minimization is a great way to attain greater competitiveness and improve cost structures. Thus, the company will set some strategies to combat risks occurrence hence leading to significant savings. When the risks are reduced, the charges per flight will also be affordable with the safety of the passengers hence attracting more clients. Considering the wide market capacity in the aircraft industry, it will be important to establish risk management systems which will ensure that the airline’s operations do not come to a standstill. The RMSs should also put into consideration the countries’ rules and regulations and also the global rules concerning aircraft operations to avoid collisions.
Amalberti, R. (2017). The paradoxes of almost totally safe transportation systems. In Human Error in Aviation (pp. 101-118). Routledge.
Asgary, A., Ansari, S., Duncan, R., & Pradhan, S. (2015). Mapping potential airplane hazards and risks using airline traffic data. International journal of disaster risk reduction, 13, 276-280.
Bazargan, M. (2016). Airline operations and scheduling. Routledge.
Farahani, R. Z., Rezapour, S., Drezner, T., & Fallah, S. (2014). Competitive supply chain network design: An overview of classifications, models, solution techniques and applications. Omega, 45, 92-118.
Glendon, A. I., Clarke, S., & McKenna, E. (2016). Human safety and risk management. Crc Press.
Lawton, T. C. (2017). Cleared for take-off: structure and strategy in the low fare airline business. Routledge.
Novaes, W. G., Grossman, N. V., Pimentel, D. S., & Prada, M. (2016). Notes Terrestrial Mammal and Reptile Hazards in an Airport in the Brazilian Amazon. Human–Wildlife Interactions, 10(1), 15.
Robinson, D. C., Collins, D., Brett, J., Klewicki, J., & Murray, P. (2017). Airport building development: Towards a framework for managing building-induced wind shear and turbulence risks. Journal of Airport Management, 11(4), 369-385.