Corporate Risk Assessment for Virgin Atlantic Airways - Case Study Example

Corporate risk assessment for Virgin Atlantic Airways Virgin Atlantic flights and information: Check-in, baggage and legroom @ Table of contents 1.0 introduction.....................................................................................................4 2.0 Overview of Virgin Atlantic.....................................................................................4 3.0 PESTEL analysis.......................................................................................................5-7 4.0 SWOT ANALYSIS...................................................................................................7-8 5.0 Identification and ranking of risks............................................................................8 6.0 Fault tree analysis…………………………………………………………….11 7.0 Common cause analysis……………………………………………………..11 8.0 Reliability Block Diagram…………………………………………………..11 9.0 The event tree diagram....................................................................................12 10.0 Ticklist............................................................................................................13 11.0 Cost benefits analysis......................................................................................14 12.0 Comparison of the risk assessment methods..................................................15 13.0 How to allocate fixed budget for the risks.......................................................15 14.0 Conclusion.......................................................................................................15-16 List of tables Table 1: international and domestic airports that Virgin Atlantic Airways services...................5 Table 2: PESTEL analysis.............................................................................................................7 Table 3: SWOT ANALYSIS..........................................................................................................7 Table 4: Fatal accidents and their causes………………………………………………….9 Table 5: Odds of getting involved in the car accidents…………………………………….10 Table 6: passengers’ survival rates on fatal aircraft accidents with 10 plus passengers……6 Table 7: Ticklist......................................................................................................................14 List of figures Figure 1: Fatalities and accidents based on the flight phase………………………………..9 Figure 2: Event tree diagram for gas leak risk in the airports……………………………….12 1.0 Introduction Air and travel industry has grown globally due the presence of fast and effective airline industries world wide. The world for is experiencing a growing trend in air travel since it also integrates hospitality aspects. With the development and growth of the airline industries, there is the need to carry out comprehensive risk assessment since the business involves transportation of human beings whose heaths may be at risks at sometimes (Civil Aviation Authority 2014, 1). Moreover, there are other business conditions that may be either internal or external that present risks to such businesses. This paper chooses Virgin Atlantic Airways as an airline company that was one of the pioneers of air travels in the United Kingdom (Virgin Atlantic 2014, 1). Virgin Atlantic airlines have been known in the history of air travel as one of the companies with excellent customer services with utmost sense of humour. Therefore, the company provides first class services to various destinations globally. This report provides a corporate risk assessment on safety and health of the airline boarders (Zhou & Liu 2012, 567). Firstly, the paper provides a ticklist that act as a first hand assessment tool for the company. The list provides criteria for assessing this company. Secondly, the paper does a PESTEL analysis on the company by first referring the company’s SWOT analysis aspect. On the other hand, the paper uses other aspects of risk assessment like the fault tree, Reliability block diagram, Fishbone, bow-tie or common cause analysis and the event tree. Besides the report ranks these risks using F-N diagram and eventually evaluates this risk analysis by the use of cost-benefit analysis. Nonetheless, the report compares these methods by recommending the best assessment tool to use and the least effective tool for this assessment. Finally, the report summarises with illustrating on how to allocate fixed budget that will respond to these risks. 2.0 Overview of Virgin Atlantic Since Virgin Atlantic Airways operates the biggest portion of long distance international travels, the company has over 30 global destinations. Around 51% of the company is owned by the Virgin Group while the remaining 49% is owned by Singapore Airlines (Virgin Atlantic 2014, 1). The company thus transports approximately five million passengers annually with routes globally. Virgin Atlantic offers three classes namely the premium economy, upper class and the economy all class. This Airline Company operates international and domestic flights as shown in the table below. Apart from travelling services, the airline industry also provides hospitality to the passengers. Therefore, Virgin Atlantic also provides food and services to the customers that give rise to food related risks which the report discusses later using a comprehensive approach. Guests receive some food and beverages benefits to the esteemed customers in the form of coffee wine, beer and beverage. This means that the company also operates a restaurant. The other services airport lounges, airport transfers, customs and duty free and airport guides. Onboard services concentrate mostly on the in-flight-health. However, the airline has partnered with other airline companies like Delat Airlines, Air New Zealand, Etihad Airways, Singapore Airines, Virgin America, and Air Berlin among other flights (Virgin Atlantic 2014, 1). Table 1: international and domestic airports that Virgin Atlantic Airways services (Virgin Atlantic http://www.virgin-atlantic.com/us/en.html) Airport code country Airport name Number of flights LHR GB Heathrow 23 LGW GB Gatwick 9 MAN GB Manchester Intl. 4 BGI BB Grantley Adams Intl. 3 ANU AG V.C. Bird Intl. 2 EVN AM Zvartnots Intl. 2 HKG HK Hong Kong Intl. 2 LAS US McCarran Intl. 2 MCO US Orlando Intl. 2 3.0 PESTEL analysis This tool assesses the influence that external factors or environment has on the business performance of a company (Ammar, Kayis & Sapatorn 2007, 25). It impacts on the business strategies and the business model of the company. The tool denotes political, economic, social, technological, environmental and the legal factors (PESTEL) that affects the business. Therefore, this report presents all the PESTEL factors that have considerate effects on business operations at the Virgin Atlantic Airways. A comprehensive assessment and evaluation of these factors would enable the business to identify its potential external risks. Factors Analysis Political Government regulations on air travel Increased terrorist threats in the UK mostly Development of Single European Sky (SES) that acted as a regulator for the industry Enactment of low cost air travels enabling low cist airlines like Virgin Atlantic to operate. This was an agreement between the US and EU. Economic High GDP in the UK. The steady regain in the economic recession since the last economic crisis. Socio-cultural The travelling nature of the UK population to areas like Asia, Australia and Asia Increased need for the youthful population to seek employment and education abroad thus providing opportunity for air travel. technological A milestone in the airline technology that has ensured the manufacturing powerful aircrafts from main manufactures like the Boeing and Airbus. The new technologies in communication that has enabled the development of online booking systems like the online ticketing through the use of social media and phone technologies Environmental Growing concern of global warming and the issue of carbon footprints. Airplanes produce air pollution prompting increased public concern on the need to use less polluting fuels Legal The government regulations on the airline operations like lowering airline prices and strict regulations on environmental pollution Table 2: PESTEL analysis 4.0 SWOT ANALYSIS Table 3: SWOT ANALYSIS strengths opportunity Presence of a strong domestic market Support from UK investors(monetary support) Steady increase in the income level after the economic recession Weakness Highly competitive market Strict tax structure Future competition Threats Increasing business and labour costs uncertain global economy increased interest rates , unexpected problems low financial capacity The obvious strength of this company is that it is operating in a domestic market thus it has a home-based support for its business operations (Ammar, Kayis & Sapatorn 2007, 25). Being a domestic company for the UK population, the company can develop a great deal of getting monetary support from UK investors. The weaknesses of this company are that it is operating in a highly competitive market with a strict tax structure that is not favourable to all of its business strategies and operations. On the other hand, there is an anticipated stiff future competition in the global airline market. However, the opportunity that Virgin Atlantic has is that it income level is increasing constantly after the global financial crisis and the Euro-zone crisis. Threats that may influence business activities in this company include increasing business and labor costs, uncertain global economy, increased interest rates, unexpected problems and low financial capacity. From the above SWOT analysis, Virgin Atlantic can therefore capitalise on its strengths and opportunities while mitigating weaknesses and threats to achieve the best business performance. 5.0 Identification and ranking of risks Virgin Atlantic faces risks that emanates either from the internal environment or the external environment within urban settings (Zhou & Liu 2012, 569). The company needs to mitigate all the environmental risks that may affect the business as well as legislations that may affect the business operations. For instance, legislation has opened the US route to all European flights posing competition to Virgin Atlantic (Virgin Atlantic 2014, 1). In this business context, risk is a situation that is likely to affect the goals and objectives of the company in a negative manner. Risks have three elements that include the risk scenario, occurrence probability and magnitude impact. Analysis on the global airline accidents that occur within the UK shows that they are high likely to recur. The risks that are associated to airlines include runway, loss of control, runway incursion, airborne conflicts, fire and ground handling. This report therefore identifies and ranks these risks by using the F-N diagram. 5.1 Ranking the risks using F-N diagram The F-N diagram expresses frequency of risk events that can cause N casualties (Ammar, Kayis & Sapatorn 2007, 26). It also has f-N curve that expresses the occurrence of risks in terms of annual probability that may cause N casualties. The diagram identifies the most significant uncertainties or risks that have the greatest impacts by considering casualties. On the other hand, the causal factors for these risks are also determined using the same diagram. The following table shows fatal accidents and their causes Cause 1950s 1960s 1970s 1980s 1990s 2000s All  Pilot Error 40 34 24 26 27 30 29  Pilot Error  (weather related) 10 17 14 18 19 19 15  Pilot Error (mechanical related) 6 5 5 2 5 5 5  Total Pilot Error 57 56 43 46 51 54 50  Other Human Error 2 9 9 6 9 5 7  Weather 16 9 14 14 10 8 12  Mechanical Failure 21 19 20 20 18 24 22  Sabotage 5 5 13 13 11 9 9  Other Cause 0 2 1 1 1 0 1 Table 4: Fatal accidents and their causes. The percentage expressed in terms of the decade (Statistics web, planecrashinfo.com http://www.planecrashinfo.com/cause.htm). Figure 1: Fatalities and accidents based on the flight phase (Statistics web, planecrashinfo.com http://www.planecrashinfo.com/cause.htm) Odds of being on an airline flight which results in at least one fatality Odds of being killed on a single airline flight 78 major world airlines 1 in 3.4 million 78 major world airlines 1 in 4.7 million Top 39 airlines with the best accident rates  1 in 10.0 million  Top 39 airlines with the best accident rates  1 in 19.8 million  Bottom 39 with the worst accident rates  1 in 1.5 million Bottom 39 with the worst accident rates  1 in 2.0 million Table 5: Odds of getting involved in the car accidents (Statistics web, planecrashinfo.com http://www.planecrashinfo.com/cause.htm) Decade % surviving 1930s 21 1940s 20 1950s 24 1960s 19 1970s 25 1980s 34 1990s 35 2000s 24 Survival rate of passengers on aircraft ditching during controlled flight 53% Table 6: passengers’ survival rates on fatal aircraft accidents with 10 plus passengers (Statistics web, planecrashinfo.com http://www.planecrashinfo.com/cause.htm) From the above figures and tables, it is possible to come up with F-N analysis for risk assessment of Virgin Atlantic. For instance, the risk assessment may look back into historical records of airline accidents and their causes. On the other hand, the nature of such accidents may be determined by referring to the statistics that show the odds of getting involved in flight accidents as well as looking at the accidents based on the flight phase. 6.0 Fault tree analysis Fire is also a phenomenon of airline risks (BSI 2014, 1). In this case, the Fault analysis divides events into considerately two categories of deliberate and accidental cases (Ammar, Kayis & Sapatorn 2007, 26). Accidental fires in the airline industry involve such causes like electronic defaults that may set the whole premise on fire. This may be due to fires that may be from neglected flammable chemicals like gasoline. However, deliberate fires may be limited in the airline industry but can occur when someone sets a section or the whole firm a blaze. Such deliberate risks in the airline industry may be as a result of terrorism. 7.0 Common cause analysis Common Cause Analysis identifies the common causes to various autonomous situations. (Ammar, Kayis & Sapatorn 2007, 29) In this case, the analysis at Virgin Atlantic Airways will involve identification of some of the common shortcomings within the system functionality that can lead to risk situations. The Virgin Atlantic company has a system that it uses to manage possible risks. From table 2, it is evident that pilot errors may be the cause of fatal aircraft accidents (Statistics 2014, 1). On the other hand, bad weather also plays a major role in airline risks since it can also lead to system failures. 8.0 Reliability Block Diagram This methodology develops block diagrams that show the relationships among events, processes after which an analysis is developed based on this dynamism (Ammar, Kayis & Sapatorn 2007, 27). On Virgin Atlantic for instance, there are numerous factors that lead to fatal events. However, one such event is enough to cause system failures resulting to risks. For instance, bad weather practically relates to pilot errors since they pilots are able to make so many errors when they are faced with extreme weather conditions. 9.0 The event tree diagram Event tree assesses and quantifies risks (Ammar, Kayis & Sapatorn 2007, 29). The diagram is simply tree-shaped with each branch representing any possible decision. In this case, one choice leads to another while individual branches represent exclusive and independent choice. For instance, the event tree diagram may be used to explain how a gas leakage may cause some risks and fatalities in the airline industry. Figure 2: Event tree diagram for gas leak risk in the airports (Ammar, Kayis & Sapatorn, 2007) 10.0 Ticklist The list provides a criterion for checking existing conditions against some criteria set before this analysis (Ammar, Kayis & Sapatorn 2007, 25). The ticlist below provides certain criteria for assessing the frequency of risks in relation to some pre-existing criteria that must be present. # Risk Yes No Risk assessment Airport facilities 1. Are there air conditioners in the flights to ensure that passengers get enough air on board?  Frequency Severity 1 2 3 4 1 2 3 4 2. Are there fire extinguishers at the airport to carter for emergency situations?  Frequency Severity 1 2 3 4 1 2 3 4 3. Are the planes fitted with signal equipments to ensure that the aircrafts avoids collisions in the air?  Frequency Severity 1 2 3 4 1 2 3 4 4. Are there in-flight health facilities for health emergency cases while the flight is on board?  Frequency Severity 1 2 3 4 1 2 3 4 5. Do aircraft manufacturing companies provide all the necessary guidelines for the use of their products?  Frequency Severity 1 2 3 4 1 2 3 4 6. Are there measures taken to ensure that cases of gas leaking in the airport facilities are responded to promptly?  Frequency Severity 1 2 3 4 1 2 3 4 Table 7: Ticklist 11.0 Cost benefit analysis This entails allocating the company’s limited resources to management of risks (Ammar, Kayis & Sapatorn 2007, 24). Risks are managed at certain costs but eventually benefit the company. Cost benefit analysis assesses a company’s monetary costs as well as benefits of this capital investment over a period of time. In the case of Virgin Atlantic, it is possible to do its cost benefit analysis on mitigating the environmental risks. The company has developed a new system of managing fuel that will save up 20 million pounds and around 92, 0000 metric tonnes of green house gases like carbon dioxide (Virgin Atlantic 2014, 1). The programme is trying to reduce the green house effect while still maintaining cost benefit of the company’s fuel usage. After adoption of this system, the company hopes to save fuel amounts of up to 1.4 tonnes per flight which will lead to the saving carbon dioxide of 3.15 quantities which will reduce its impacts on the environment. The above value gives a value of 4.41 of carbon that would be in every flight and 21, 000 flights in the year leads to around 92, 610 tonnes of the green house carbon that the company will save. 12.0 Comparison of the risk assessment methods SWOT and PESTEL aid in analysing internal as well as external that influence risk situations in the business premises. Due to the dynamism of the economic, technological and political conditions these tools may be inappropriate. Tickist is the simplest tool for identifying possible risks and requires no personnel training. However, it is time consuming to prepare since coming up with a standard list requires a lot of effort. The F-N diagram, on the other hand, makes it possible for the risk assessors the recommended risk level and it is highly accurate. On the other hand, the method gives all the statistics on the factors that trigger risks. The main weakness of this method is it’s over reliance on past events that are just anticipated to recur in the future. Fault tree method provides the most valuable information by combining all factors that are the basis of risks but it sometimes covers unimportant events. In addition, Common Cause Failures Analysis identifies event that causes potential risks but it has a weakness in that it sometimes assign to these events the same probability of occurrence. 13.0 How to allocate fixed budget for the risks Allocation of the fixed budget for risk mitigation majors on the potential risks in Virgin Atlantic. For instance, a fixed budget may first be allocated to the mitigation of environmental risks that the company poise to the atmosphere. A large amount of this fixed budget will therefore be allocated to the mitigation of environmental risks since it has sufficed benefits to the company. On the other hand, a considerate amount of this fixed budget will be allocated to risks such as fires, passenger health and business uncertainties. However, fatal accident risk mitigation will therefore receive a good amount of the fixed budget since as the table 2 shows; fatal accidents are one of the most unanticipated risks in the airline business. 14.0 Conclusion The above report shows that airline business is characterised by certain risks that must be mitigated at all costs. Therefore, it is imperative to carry out risk assessment on these airline facilities to determine their causes. The report above has carried out a corporate risk assessment on Virgin Atlantic as one of the reputable airlines in UK that operates at a global scale. The report has thus given an overview company that forms the basis of assessing its risk situations. Most importantly, the report has assessed these risks using different methodologies that include PESTEL, SWOT analysis, Ticlist, Fault tree, event tree, RBD diagram including common cause analysis. On the other hand, the assessment has also ranked these risks using F-N diagram that determines risks and their causal factors. Besides, the paper explains the concept of cost benefit analysis that shows the benefits of mitigating certain environmental risks to Virgin Atlantic. Finally, the assessment has provided a comprehensive comparison of these assessment tools and concludes by describing fixed budget allocation for the risk mitigation initiatives. Works cited Ammar Ahmed, Berman Kayis and Sataporn Amornsawadwatana. "A review of techniques for risk management in projects", Benchmarking: an International Journal vol. 14.1(2007): 22 – 36. Print. BSI. PAS 79 Fire risk assessment –Guidance and a recommended Methodology. Web. Accessed 5th March 2014 http://www.fia.uk.com/filemanager/root/site_assets/technical/pas_79_drs.pdf Civil Aviation Authority. Significant Seven Safety Risks. Web. Accessed 5 march 2014 http://www.caa.co.uk/default.aspx?catid=2445 Statistics. Web. Planecrashinfo.com. accessed 5th March 2014 http://www.planecrashinfo.com/cause.htm. Virgin Atlantic. Web. Accessed 5th March 2014 Zhou, Y., and Liu, M. Risk Assessment of Major Hazards and its Application in Urban Planning: A Case Study. Risk Analysis: An International Journal, 32.3(2012):566-577.print. Read More