Risk Management and Corporate Sustainability in Aviation

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Enterprise Risk Management Model and Procedure

Itshould be cautious and focused. And it must be ready to take action.

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Based on this necessity,the top 10 risks for global business is presented by Ernst and Young Research asfollows in Figure 1. It is useful inpreparing a risk map of companies according to their situations, environment and objectives. Figure 1.

Risk Management and Corporate Sustainability in Aviation

Factors influencing reputation risk Gerrit Jan van den Brink, can be listed as follows: 6. A famousexample was the public reaction on the disposal of the Brent Spar by Shell. The public startedboycotting Shell by purchasing fuel by other companies. Some groups even demolished somefuel statements. The problem did not stay in just one territorial area, but swapped over toother countries as well. Since the media are organized globally and internet is also emerged asa separate distribution channel, it only takes minutes to publish reputation damaginginformation around the globe. Globalization in such cases is to be seen as a risk factor.

Socialstakeholders also organized themselves in order to give the voices more impact. Attac is awell known organization with clear ideas regarding cultural values. However, some violentgroups attach themselves to demonstrations causing problems. Trust in politicians and inboard members is reducing and therefore some issues may be discussed in sharper words thanbefore. In Germany especially the pay-offs after the takeover of D2 by Vodafonewas prosecuted.

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People are currently more and more using the internet in forums, films YouTube , etc. However, it is almost impossible to screen theinternet for such material. Risks are categorized into four main sections for the purposes of this research. Compliancethreats originate in politics, law, regulation or corporate governance. Financial threats stemfrom volatility in market and the real economy.

Strategic threats are related to customers,competitors and investors. Also, every risks are marked withsymbols as up from , up down and new entry. Risks are changes in time. Top risksfor companies change continuously. Some risk change their shape, some risks are combinedwith other. Environmental and climateconcerns threaten oil and gas and utilities companies; pressures to provide wider access tolife-saving drugs threaten funding for innovation in life sciences; and the credit crunch isweakening public trust in banking and asset management companies.

Reputation risks, ranked22nd in the report, rose dramatically on the global list primarily as a result of the 7. Reputation is a key element for a successful business. In recent years, additionalresearch has been conducted in an attempt to understand what corporations can do to bettermanage their reputation risk. Benefits of a positive public image include Tonello, : Public perception of reputation can positively affect profitability, market-to-book value, and total sales A higher reputation is linked with an average annual stock price increase 35 percent of investment decisions are made based on reputation and image A premium is paid for strong reputation capital in the mergers and acquisitions marketIn many sectors, such as oil and gas, the nature of reputation risks has changed little since, but the intensity of ongoing public debate has increased.

The most dramatic reputationrisk development in was the financial crisis and resulting credit crunch. With greatuncertainty regarding the nature, extent and disclosure of losses, and the business strategiesand management oversight associated with these losses, a good financial reputation became amatter of survival. Credibility, built on financial strength, transparency and honestcommunication with the market, was a critical component of value.

Otherwise, companys faces risk losing the trust of stakeholders.

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  5. Reputation has become increasingly important to businesses as the world becomes morecomplex. It is important because the intangible factors of business talent, brand strength,patents, knowledge, technology, leadership, etc. Corporate reputation is afundamental element of sustainable and efficient contemporary business management. The aviation business sector has a complex and fragmented structure as it includes multipleplayers as different sizes.

    The complex industrial structure of aviation coupled with itsdependence on the economic and social structures of recipient nations and its vulnerability toglobal economic, social, environmental and health shock factors, increases the reputationmanagement pressure of the sector World Economic Forum, Specifically, the airline industry is highly competitive. Airline profits are sensitive to evenslight changes in fuel costs, average fare levels, and passenger demand. Passenger demandand fare levels historically have been influenced by, among other things, the general state of 9.

    The principal competitive factors in the airline industry are fares, customerservice, routes served, flight schedules, types of aircraft, safety record and reputation, code-sharing relationships, capacity, in-flight entertainment systems and frequent flyer programs.

    JetBlue, To best manage reputation, this risk should be embedded on enterprise risk managementprocess in a holistic fashion. To achieve the following objectives, airlines should beimplementing enterprise risk management models: - Network optimization - Cost Control and Productivity - Revenue Maximization - Improved relationship with stakeholders via identifying and prioritizing of stakeholders - Risk optimization - Seizing opportunities.

    Risks to reputation should be integrated into the business enterprise risk management ERM framework so that they receive attention at the right level and appropriate actions are taken tomanage them Rayner, Many of the recommendations by the Conference Boardemphasize the importance of an enterprise risk management ERM strategy in business. Implementation of reputation risk management can increase productivity and improvebusiness opportunities in areas such as economic, environmental and social impact. The RRM framework provides a clear, pragmatic process for managing risk which haspotential to impact corporate reputation throughout the company.

    We assumed that, this riskmanagement based methodology will provide a proactive and holistic framework to thereputation management process. Managers will achieve a current corporate risk map owing toa risk management based management system.


    Risk Management and Corporate Sustainability in Aviation

    A SWOT analysis tailored according to the reputation risk management for airlines is the firstphase of the reputation risk management process. The first phase of the reputation risk management process is the SWOT analysiswhich is applied according to the issues of the Harris Interactive Reputation Quotient. Thisphase aims to create useful results to identifying and prioritizing of reputation risks. Figure 3. Risks have to be recognized and understood before they can bemanaged.

    Considering the seven drivers of reputation is a useful starting point, as these arealso fertile sources of threats and opportunity to reputation see Figure 4 below Rayner, Figure. The seven drivers of reputationOnce risks to reputation have been identified, they can be evaluated, appropriate riskresponses developed, and the risks monitored and reported.

    Risks to reputation can beevaluated in the usual way by considering the likelihood of the risk occurring and the impactif it does. The reputational impact of such risks should be considered explicitly, alongsidefinancial or other impacts. This can be done by the use of a word model which explainsreputational impact in a way that is relevant and meaningful for a given business. The tablebelow Table 1 provides an example of a four-point reputation impact scale that caters forboth threats and opportunities Rayner, Four-point reputation impact scaleIf we chart up the prioritized risks on a pre-prepared matrix and a clearer picture will emerge.

    The priority risks will be seen in the top right hand corner — high likelihood and high impact. For an airline, the risk of a crash would be in this part of the matrix. With this information,steps to prevent and prepare for crises can begin. The first job is to consider if any action canbe taken to reduce the likelihood or impact of a particular risk.

    This could involve newprocedures, training, contingencies or communication. In some cases it could even meanceasing to do the thing that is causing the risk Hemus, In assessing reputational impact, the view of relevant stakeholders should be considered toensure that the impact is not underestimated.

    That is why understanding stakeholders andwhat they regard as current and emerging major issues lies at the heart of reputation riskmanagement Rayner, A disciplined approach that integrates stakeholder considerations into corebusiness strategy and operations can help senior executives and line managers create aboveaverage returns. Laszlo et al, ConclusionSuccessfully managing reputation risk is both an inside-out and an outside-in challenge. Theinside-out component requires business leaders to establish an appropriate vision, values, andstrategic goals that will guide actions and behaviors throughout the organization.

    The outside-in component requires the business to continuously scan the external environment andcanvass stakeholder opinion to ensure it is on a track that will secure the continuing support,trust, and confidence of its stakeholders. Active and systematic management of the risks toreputation can help to ensure that perception is aligned with reality and that stakeholderexperience matches expectations.

    Only in this way can a business build, safeguard, andenhance a reputation that will be sustainable in the long term Rayner, Reputation management is critical to organizations and it continues to grow morecomplicated. Companies in the past could earn reputations as good corporate citizens bymaking philanthropic contributions without significant alignment with a business strategy.

    Today, continuous access to information means companies are scrutinized nonstop bystakeholders and the general public. Furthermore, the current recession has caused trust inbusiness to decrease dramatically. These conditions make companies increasingly vulnerableto reputational issues that can destroy market capital and viability.

    Organizations that are ableto build and maintain trust are better able to meet reputational challenges Stuller, Apart from major political and economic turmoil, internal and external contingencies may also have a considerable impact on CAL's business operations. Results of the analysis are then used to develop specific countermeasures, so as to reduce the impact on the Company's business strategies and annual business plan.

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    Domestic and international economic and financial situations can also affect CAL's operating results. In particular, interest rates, currency exchange rates, inflation, and fuel represent the major costs of airlines. These costs are very sensitive to external factors and can become quite volatile. Therefore, the Finance Division confines the said major costs to a certain range using financial hedging instruments, monitors financial risks on a regular basis, and develops related strategies and measures to achieve the goal of financial risk management.

    After World War II ended in , the post-war new order was set by liberalization, privatization, and marketization. This further led to neo- liberalism and globalization in the trade, finance, and air transport markets. Financial risks and economic inequality were the underlying causes of the Global Financial Crisis of Afterwards, protectionism rose as countries intended to protect their own benefits, including punitive tariffs in the China- US trade war and Brexit, which had an impact on the global supply chain.

    In the long run, protectionism could cause the shrinkage of international trade and transnational business and thus is a potential risk factor for the development of air passenger and freight transport. The price of oil is affected by the global political and economic situation. As one of the uncontrollable costs of airlines, the price of oil is one of the five major operating costs in parallel with depreciation and rental expenses, ground and depot fees, personnel expenses, and maintenance costs.

    This indicates that oil is extremely sensitive to airline operations. However, this price is still higher than in As OPEC countries are reducing production, uncertainties remain in the aviation industry. With a trend of market liberalization in the aviation industry, countries have gradually removed their control over civil aviation transport operators and have adopted an open-sky policy.

    This was due to the continuous expansion of networks by existing airlines and the rise of emerging airlines. While this innovative business model created cost advantages and drove new demand, it also battled for the market share of the existing airlines. Infrastructure is important for the development of the air transport industry. If airport capacity cannot catch up with the development of the air transport industry, it will keep civil aviation transport operators from moving ahead and will aggravate flight delays.

    According to the definition given by Worldwide Slot Guidelines WSG , a total of airports worldwide, including 61 airports in the Asia-Pacific region, will be classified as Level 3 overcrowded airports by the summer of Taiwan Taoyuan International Airport and major airports in the Asia-Pacific region are included in the list, showing a lack of resources for air transport infrastructure in the Asia-Pacific region.