Business Continuity Disaster Recovery COOP Crisis Management John Glenn CRP MBCI
Anything unique?
Airline risks
JOHN
GLENN, MBCI
Certified Business Continuity Planner
My immediate thought was: the airline has some unique risks.
- Aircraft that are delayed.
- Federal regulations.
- Passengers - too few, too many.
- Work actions.
- Financial support and the stock market.
But the more I thought about it, the airline's risks are the same as any business.
Delayed aircraft
How can "delayed aircraft" have anything to do with, say, manufacturing a 16- inch three-way valve?
Aircraft, for the airline, can be related to raw material. Empty, it makes no money for the company; empty and in transit, it costs the airline money. Similar to seagoing container ships, unless the vehicle is loaded and moving, money is being lost. In the valve business, if the production line can't produce, the valve maker is losing money - idle workers and machines, delayed deliveries and, perhaps, penalties.
The airline, the container ship company, and the valve manufacturer all "lose face" when they can't deliver as promised.
Passengers in CVG really don't care about weather conditions in IAD if they are flying to SLC via a connection at ORD. (You can look up airport codes at http://www.airportcitycodes.com/aaa/CCDBFrame.html.) All they want is for their flight to depart CVG and ORD on time so that they'll get to SLC in time to carve a turkey.
Likewise, customers rarely care if their container arrives on the SS Minnow or the SS Leviathan, or if it comes in at Savannah GA or Houston TX, as long as the container arrives in St. Louis on the expected date and the customer has delegated the overland part of the trip to an agent.
Finally, our valve maker really doesn't care if the raw material needed for the 16-inch valve spends two days in a rail yard in Tampa as long as the truck delivers it to the manufacturer's receiving door when expected.
Federal regulations
Granted, Federal regulations don't apply to all organizations, but they do apply to many. Food and drug manufacturers, financial industry, cross-border shipping by any transportation mode, medical records, and public companies. The airlines have their own, unique concerns (e.g. FAA) and the "standard" concerns (notably SOx).
Passengers - too few, too many
Almost everyone who has flown though a busy airport has heard airline counter agents admitting flights are over-booked and offering increasingly lucrative awards for passengers willing to give up their seat to catch a later flight. (Who's to blame for this state of affairs? Passengers who double-booked flights than cancelled one at the last minute. To counter this action, which resulted in empty seats, the airlines started overbooking, anticipating cancellations.)
In order for an airline to make money and stay in business, it has to fly at almost 100% capacity; it figures its revenue by "seat-mile."
Our valve maker has a similar problem, but instead of "passengers" the valve maker is worried about orders.
If the manufacturer has more orders than can be filled, the company takes a chance that the customer will go elsewhere.
Too few orders and the valve manufacturing equipment is used at somewhat less than capacity. Like the airline, the manufacturer buys equipment with the Return On Investment (ROI) foremost in mind. Rather than "seat-miles," the manufacturer is interested in production hours.
Airlines have been "suspected" of canceling flights on the pretense of weather, equipment malfunction, or lack of crew when a plane has only a few paying passengers; flying empty aircraft is losing proposition for the airline . . . even if the plane is needed elsewhere.
Work actions
Work actions are work actions are work actions.
The airlines are more often victimized by strikes against other operations than most manufacturing companies.
Take, for example, the strike by caterers in the UK which besmirched England's main international carrier's reputation. Had British Airways been a little more Business Continuity conscious and aware of the possibly - obvious to many - that all was not well at the company's only caterer and its staff, and had British Airways been a little more alert to its baggage handlers' sympathies, it might have avoided an embarrassing incident.
I'm certain it has made some changes since.
In the U.S., many of us remember the Air Traffic Controllers' strike and Ronald Reagan's immediate decision to fire them (for illegally striking) and to replace them with military controllers. Then there was September 11, 2001 when all aircraft were grounded by executive order.
While it would seem work actions are unique to airlines, we know they are not. Even in a non-union environment, strikes can cripple a company.
If the monel manufacturer is union and strikes, if the teamsters walk, if toll takers on the highways shut their windows or simply "work to rule," the material for that 16-inch seawater valve will be delayed getting to the manufacturer. (And that's only half the distance; the finished product still has to be delivered to the client.)
No organization is immune from the effect of a work (in)action.
Financial support and the stock market
After the shock of 9-11-01 and the grounding of all flights by executive fiat, many airlines started muttering "bankruptcy." Many, but not all.
One "low cost" carrier returned to business as usual as soon at the flight ban was lifted. That same carrier still does its own thing and never shows up on the Internet "find-a-flight" services.
Southwest survived when other, bigger name carriers, staggered; some actually
went under.
Southwest survived because it had a plan, and that plan included a war chest into which it could dip if passengers decided to stay on the ground for awhile.
It also had a plan to use the downtime for aircraft maintenance. As long as the aircraft were on the ground, aircrews also were on the ground. Fuel costs, one of an airline's main expenses, were almost nil while Southwest's fleet of Boeing 737s were on the tarmac.
Ford Motor Company recently shut several of its plants for a week or so because a vendor-provided part failed to meet its QA/QC standards. I am not privy to Ford's policies and procedures on furlough pay - does it pay its workers full pay, partial pay, or force them to apply for unemployment compensation - but I'm certain, given the presence of the United Auto Workers (UAW) and other unions that there is a policy and procedure at least for the unionized personnel.
Southwest, because it had a plan and because it had a "war chest" on which to draw, was a prime candidate to borrow money while protecting its stock. Did it take advantage of its credit line? I have no idea, but I am certain that because Southwest had a plan and money in the bank, it was viewed as a better risk then, say, USAir or United, both of which went the bankruptcy route. (Delta since has followed suit.)
There is one other mitigating factor in Southwest's favor - it not only found its (low-cost flights) niche, but it developed a "personality" as a consumer- friendly business with first on/first choice seating and jesting flight attendants who were "uninhibited." For all that, I know that while flight attendants can help drive an airline into bankruptcy court, all the customer loyalty a carrier can generate won't fill the seats unless the airline meets its core obligations - getting passengers safely to their destinations petty much on time.
If my manufacturer suddenly gets an order for 100 16-inch monel valves, it will be hard pressed to pay for the raw materials. If it has to run double shifts and perhaps repair over-worked production equipment, it would be hard-pressed to pay for everything out of the corporate pocket.
But because my valve maker has an excellent reputation, and because the orders and pretty solid, and because the manufacturer is putting its own money into the contract, it's financial backers can be expected to be generous - of course the profit on those 100 valves will be a little less (to pay interest on loans), but the contract can be made.
Risk behind the risk
There is no question that airlines have some - if not "unique" than at least unusual - risks. If a plane crashes, the airlines have to brace for cancellations, but planes crash - that's a given. The airlines, knowing that and understanding the flying public's immediate and short-term response, need a financial buffer to get them by until the customers return. A unique "risk- behind-the-risk," but in the final analysis, the "real" risk is loss of income.
Creating a plan for Delta Airlines and Delta Faucets may seem to be totally different exercises, but when you look at the big picture, you see the similarities in the litany of risks and impact.
Delta Faucets may not worry about handing out cola and crackers when the 11 p.m. flight can't leave until 1:30 a.m. (which Delta Airlines did), and Delta Airlines doesn't worry if a faucet's chrome peels off (as Delta Faucets does), but they both are concerned about image. The risk-behind-the-risk may be different, but the "bottom line" risk remains the same.
John Glenn, MBCI, has been helping organizations of all types avoid or mitigate risks to their operations since 1994. Comments about this article, or others at http://JohnGlennMBCI.com/ may be sent to JohnGlennCRP @ yahoo.com.
