Reputation Risks Facing Airlines

Even with ticket prices at an all-time high, air travel in the Asia-Pacific is increasing. Some believe volume there may even surpass that of North America and Europe in the next five years. But with more flights comes more risk.

At a recent airline insurance conference in Hong Kong, Joe Plumeri, chairman and CEO of insurance broker Willis, highlighted the most troubling threats. Currency and price fluctuations are on everyone’s mind, especially with the looming possibility of a military strike on Iran and a subsequent oil price spike. Environmental regulation, particularly with the EU offsetting charges for carbon dioxide emissions soon to be imposed on airlines not based in Europe, present another significant concern. But Plumeri believes that the gravest threat facing the global aviation industry is reputational risk.

Research from Willis has found that major firms suffer a significant reputational reversal every seven years on average. “While a reputational crisis can destroy a company’s value, massively and almost instantly, they are virtually impossible to predict,” said Plumeri.

So rather than trying to anticipate unpredictable risks, he advised airlines to focus on building resilience into their company’s operations. “By having a risk management policy based solely on anticipation, a company will find that they are not fast or flexible enough to respond to a complex, interconnected and rapidly changing world.”

Conversely, the resiliency approach embraces—rather than laments—an unpredictable future. For Plumeri, this is a key distinction, as it will allow airlines to respond by putting processes in place “to make decentralized decisions and adjustments in real time.”