Report on Risk Management of American Airline Company

The study has discussed the all risk elimination and loss control measures in the airline industry and the company is American Airline Company. It discusses about how the management has been engaged in covering the all nature of risks involved into the business which can be catastrophic nature and leads to huge business loss financial and non-financial both. This is a serious business which involves the lives of the humans at risk, therefore it needs more risk control procedures in place so that human lives are protected and their business model also remains sustainable. This study lets the reader know that how airline industry is being affected with bad weather as well.

How likely “American Airline Group” is subjected to catastrophic losses?

There are many ways which makes the American Airline Company to be having the subject of catastrophic losses which have been occurred in the past as well, discussed in the following.

Engine Failed of Loss Control Risk Management of American Airline Company

This is one of the catastrophic losses which have higher probability of occurring because plane engine is a subject of high technical details which needs to be supervised and monitored by the highly technical staff of the company. There are still chances that the engine gets failed during the take-off, landing or even in the air thousands of feet above from the land. This is going to be the major catastrophic loss because it involves hundreds of human lives, putting them in danger is a serious matter for the private company and overall. It has been occurred in the past where company failed in re-checking the engine and it failed during the take-off (Boyd, A New Disruptive Economic Model Is Emerging In The Airline Industry, 2017). The things managed quite well by the pilot and succeeded in successful landing but still minor injuries occurred to the passengers.

This is a big risk which needs to be resolved by implementing the strict policies about checking the engine on updated basis and supervising the process of monitoring by the highly qualified and experienced team. This should be the big concern for American Airline companies and also other airline companies because once the plane is in the air, things cannot be controlled easily and it becomes the matter of death for hundreds of people. A strict check and control system which ensures that there is no problem in the engine. This is a catastrophic loss for customers of the company and management both (Boyd, Ultra-Low Cost Carriers Are The New Wildcatter Airlines, 2018).

Thunderstorm and Hurricane of American Airline Company

This is a catastrophic loss for the company itself as the whole business operations get disturbed due to flight cancellation and delays. This causes the huge business loss and revenues loss because there is flights cancellation on continuous basis which is not good for the business. There are as such not possible to keep the check and control on this kind of catastrophic loss because it is nature and cannot be controlled. Though, the management of the company has installed the technology and machinery which informs that the hurricane or bad weather is expected at specific locations so it would be dangerous landing there, can put the passenger’s life at risk (Frenker, 2016).

Therefore, technology is enabling the American Airline cancelling the flights of those cities, countries and regions where bad weather is expected because loss of lives is such a huge catastrophic loss which cannot be recovered and also put the company’s position at extremely risk stage. Airline has spent millions of dollars on weather reporting technology which helps them avoiding the catastrophic loss and maintain the business reputation. Bad weather is the most common catastrophic loss for the airline companies, this reduces the potential of higher profits for the company and this all go down (Boyd, A New Disruptive Economic Model Is Emerging In The Airline Industry, 2017). This does not allow continuation of the business on regular basis which is also defined under the catastrophic loss.

American Hurricane has become the regular phenomena in which other nature of businesses get also affected due to its thunderstorm nature. Airlines companies have to be suffering from the huge losses which rise in millions and billions. Cancellation of flights is very common and it does not let the airline company flying at its full capacity. This is very important to highlight that bad weather is the major risk for the airline businesses (Hollister, 2019).

Has the business suffered losses of the kind in the past? 

American Airline company has been suffered too much from the past catastrophic events occurred which caused the company huge losses. The US hurricane in the month of September is the regular thing which occurs every year and company has to be cancelling the flights during that month and there is nothing they can do to avoid cancellation. This always becomes the cause of loss around millions of dollars for the company and they have nothing against it that problem to resolve once for all (Boyd, A New Disruptive Economic Model Is Emerging In The Airline Industry, 2017).

It also happened that American Airline had to be engaged in emergency landing to avoid the crashing and saved the lives of passengers. The bad weather has overcome the emergence of technology and even at the time of strong technology, they cannot do anything to avoid the bad weather and keep continuing the flights. This is the every year story which restricts the American airline company to close the business operations to the limited level and not allowing the continuation of the business due to avoid catastrophic losses. This hurricane also damaged lots of planes of the company and its repairing is also very expensive. Once the planes gets damaged, it takes weeks in repairing and be available at running condition. Meanwhile, the business has to be suffering from the losses which cannot be recovered (Boyd, Ultra-Low Cost Carriers Are The New Wildcatter Airlines, 2018).

What losses could be caused to the firm if a catastrophic event occurs?

There can be several kinds of catastrophic losses occurs to the American Airline Company, discussed in the following.

Direct Property Loss Control Risk Management of American Airline Company

The American hurricane occurred last year in 2018 caused the direct damage to the planes of the American Airline company. It damaged the plane from the front which called as nose of the plane and also broke the windows which was huge. Most of the planes are Boeing and they cost in millions which means even the small damage requires the repairing also in millions which is huge. It was a big loss for the company and that plane also could not come in use for months which was also the loss for the company. American Hurricane has become the major challenge and threat for the all airlines companies because it has been damaging the plane physically and knows it is the direct property loss for the company (Garcia M. , A 'Perfect Storm' Pilot Shortage Threatens Global Aviation, 2018). This is the largest loss because asset destruction is huge and it shrinks the balance sheet of the company. The asset destruction is the direct leaking from the business cash inflows.

Indirect Property Loss Control Risk Management of American Airline Company

The indirect property loss may be defined as when the plane is damaged and not able to fly which causes revenue loss, this is called indirect property loss. American airline has to be suffering from indirect property loss on annual basis mostly comes from this hurricane which occurs in the month of September (Hopkin, 2015). Company has insured themselves for such kind of losses, though they are obligated to fulfill the conditions of the insurance company and not taking the risks. Every year American airline has to suffer from multiple plane damages and then they cannot fly for sometime which causes huge revenue loss. The bad thing is not such concrete procedures and techniques available to control this risk.

Liability Loss Control Risk Management of American Airline Company

There are several liability losses occurred by the American Airline company, discussed in the following.

Passenger filed the loss claim of American Airline Company

Cancellation of flights due to bad weather, disturbance in plane or any other reason is very common in the airline business. This is also associated with the huge liability coming from the passenger who was expecting to be arriving at the right time in order to crack the business deal. Such flight cancellation causes the business loss to the passenger and then he makes the decision to file the case against the airline company to recover such damages and loss. This is one of the kinds which make the company suffering from liability loss. This is very common in the business of airline and American airline had to be paying millions of its liability losses to the passengers because they have to be meeting the legal existence and following the law (Viner, 2016). Though, this is also not a big fault from the company side but they have to be maintaining the high standards of customer service and legal conditions.

It is very common in America because mostly passengers belong to business class and they have flights to attend the business meetings with the clients. Cancellation of the flights leads to cancel the business deal which might be in millions, therefore airline business is suffering from huge liability claims coming from the passenger which has become a major risk for Airline industry. American airline have several legal cases in line which is awaited for the court decisions. Therefore, the contingent liability of the company is extremely higher and non-balance the financial position of the company (Reed, 2018).

Liability loss of damaged bags in American Airline Company

This is also the liability loss, airline companies suffers a lot from. Passenger often files the claim against the American Airline company because the baggage was stolen or damaged due to not paying the due care from the staff of the airline company. This baggage loss might be the less costly things or might be very expensive goods (Boyd, A New Disruptive Economic Model Is Emerging In The Airline Industry, 2017). It depends upon the nature of goods being packed and damaged from the staff. Management has to be paying off its liability towards the passengers because they have promised for that in the contract. This is going to be very costly for the company but they have added into the operational cost and the price of the ticket. Company has ensured that such risk is controlled under the strict scrutiny of the staff and controlled process of handling the customer bags. American Airline Company has also availed the insurance to cover such risks and paying the monthly premium to the insurance companies, also claim the damages to pay liability towards the passengers (Boyd, Ultra-Low Cost Carriers Are The New Wildcatter Airlines, 2018).

Though, company has appropriate arrangements in order to reduce the risk of theft and loss of luggage. They have also provided the staff training for how to handle the expensive luggage goods and things carefully. Since, this is in the large ample quantity and thousands of passengers are travelling on daily basis which leads to the accidental thefts and misplacing of the luggage (Frenker, 2016).  

Personnel Loss Control Risk Management of American Airline Company

It is studied that passengers often have to be suffering from the injuries during the flights when thunderstorms occur and plane takes the shocks inside. It lets the passenger cracking his head from the roof and can have the injury in the body. This leads the passenger claiming for the “Personnel Loss” which has to be repaid by the company. Though, this also includes if the death of the passenger happens due to the careless behavior of the airline company (Garcia M. , 2018). Such kind of Personnel loss is not frequent to the management, but they also have this kind of insurance to cover such expenses.

Management has been paying huge hospital bills and fulfilling the claims from the passenger side. Though, American airline has insured the passenger against their injuries and even deaths. The passenger may have the kind of injury which does not cover within the insurance taken for makes the management pay the hospital bills. Management is very much concerned about fulfilling the all laws because otherwise passenger can file the claim against the company which leads to heavy penalties from the court side (Garcia M. , IATA Warns Of Aviation Security Risks, Calls For Better Collaboration With Governments, 2019). Courts and laws are more favorable to the consumer means passenger because airline companies have already been making billions of profits and they have to pay to their customers when they are guilty.

hi-jacking of the aero plane Crime in American Airline Company

American Airline Company is responsible for protecting its passenger from any kind of criminal incidence such as hi-jacking of the aero plane. It is the company’s responsibility avoids any criminal activity taking place and also protects the passenger because he paid for safe journey to reach at the destination. American airline company have installed the security measures, scanners and terminal control checkups which does not let any passenger get in the plane with weapon (Boyd, A New Disruptive Economic Model Is Emerging In The Airline Industry, 2017). It is the job of the management to take the measures and steps which ensures that no plane hi-jacking or such incidences taken place because it is directly affecting the passengers and it is the direct responsibility of the airline company.

Other loss exposures of American Airline Company

The passengers have been served with the food inside the plane which has to be nourished and clean. This is the other area where passengers can be exposed to the risk or loss from the airplane company side. The food must be cleaned and hygienic so that no diseases can be produced inside the body of passenger which can let him claiming the liability against the airplane company. Management has imposed the strict check on the quality of food which must be healthy (Boyd, Ultra-Low Cost Carriers Are The New Wildcatter Airlines, 2018).

2. What loss control activities has the firm implemented to reduce the loss?

There have been following control activities taken place in order to loss control and reduce the loss, discussed in the following.

Insurance against damage occurred to plane of American Airline Company

American Airline company has been made the contract with insurance companies to claim the losses if any damage occurs to one of its planes owned by the company during the hurricane or any other reason which damages the plane. There is a big amount paid by the company to insurance companies on monthly basis in the name of premium, this gives them the right to claim the damages against them (Garcia M. , A 'Perfect Storm' Pilot Shortage Threatens Global Aviation, 2018). This is one of the most ordinary and common loss control activity taken place by the all big firms and organizations so that they can ensure the business stability and put the more focus on growth in the future instead of expecting any contingent liability or loss.

Even the biggest airline company cannot be affording losing the plane because it costs in millions and lost it means millions of dollars assets gone. Therefore, insurance is the only ultimate solution available as the risk management procedure and tool. There are also several other reasons which damages the plane such as hitting the bird at the area which damages the plane (Hopkin, 2015).

Strict check on plane and equipment’s of American Airline Company

All planes and associated equipments are highly expensive and the major asset of the American airline company. They pay heavy prices for the regular equipments which supports the daily operations and maintenance in order to keep the operations continue. Its count and protection have been monitored under the governance department which is liable to report directly to the top management on daily basis and also responsible for any theft occurs to the company regarding these expensive equipments. These equipments have been costing in millions and the critical amount of assets of the company (Boyd, A New Disruptive Economic Model Is Emerging In The Airline Industry, 2017).

All professional airline companies manage its old equipments in the inventory so that they can use them later in future when they need it most. These equipments are costly and its proper management can save the company millions of dollars in future. The proper asset management is the important step in the business process and all viable companies do the same in the effort of improving the process control (Frenker, 2016).

Preventive Maintenance of American Airline Company

American Airline Company has been engaged in preventive maintenance very seriously. They have been engaged in maintaining their planes on regular basis and ensure the technical checkup after every flight. It is very critical and important because any little or minor default in the plane can be leading to the serious damages. This is called the preventive maintenance in order to ensure the long life of the plane (Hollister, 2019). Secondly, they have strict policy in place that they would never be flying during the hurricane season and heavy thunderstorm which occurs same time every year because of its tough nature. This bad weather can expose the plane to the heavy shocks which cannot be controlled by the pilot even and this could put the lives at risk of the passengers. Therefore, preventive maintenance is necessary in order to maintain the balance.

Equipment and Process Control of American Airline Company

There is a strict process control implemented for the equipment safeguard and protection. Management has made it clear that no equipment must be theft and placed at the right place. There have been maintenance of old equipments and planes as well because those can be re-used later in order to avoid the extra cost. These controls are especially implemented so that the higher operational efficiency can be ensured (Boyd, A New Disruptive Economic Model Is Emerging In The Airline Industry, 2017).

Facility Design and Construction of American Airline Company

The American Airline company has ensured that the facilities provided to the passengers at the best level. Its staff is very good who is responsible for dispatching the luggage and ensures its protection at the highest level. They have constructed the waiting room area for their passengers who are designed as per offering executive level services and quality. They have been serving their passenger customers very well and taking every initiative to ensure that they have improved their customer service (Garcia M. , IATA Warns Of Aviation Security Risks, Calls For Better Collaboration With Governments, 2019).

Human Element Programs of American Airline Company

American Airline Company has also ensured that they have implemented the human associated programs related to their workforce. They ensure taking every secure measure which safeguards the workers, staff and employee’s life. They have been offering life insurance for their employees and pilots in case they lost their lives during the flight or outside the flight eligible for the insurance. It is the duty of the employer means American Airline Company to be taking the responsibility for the family of the employees because they have served the company and now employer has to protecting and taking care of its family (Hopkin, 2015). This is a human element program which should be expecting from the all big companies because they have enough funds available to be offering lifetime insurances and protection to their families.

They have also managed the training programs for their aviation department in order how to ensure the full protection of the plane from crashing so that lives can be protected. Its management has been managing the training programs for the pilots and staff on continuous basis as how to handle the situation during the crashing and saving the lives of passengers in the line of doing their duty. These trainings are really useful in the event of crashing though such crashing event has not been taken place over the time (Boyd, A New Disruptive Economic Model Is Emerging In The Airline Industry, 2017).

Pre-incident Planning and Business Continuity Planning of American Airline Company

Since American Airline company has been associated with bad weather risk which disturbs the business operations and millions of dollars loss occurs due to interruption in the business operations. They have no solution available to go against that risk and do something which does not affect their business revenues. Furthermore, they have taken as a alternative measure to not have the revenue loss. They have increased the number of flights to other destinations during the hurricane season so that they can utilize the fixed cost of operations at highest level and earn the revenues from alternative sources (Frenker, 2016). It is very important for the all businesses to maximize the business revenues and profits.

They are also looking for more flights options in the regions and countries where they do not provide the flight services and the demand is higher. it does not seem like the issue of hurricane is going to be resolved soon because it is more natural problem and it would be happening all in coming years. The hurricane is a major catastrophic event takes place (Hopkin, 2015).

Proactive Safety Procedures of American Airline Company

They have installed the proactive safety procedures everywhere in the system. They have installed the belts of high quality for its passengers so that they can tied it down and avoid the shocks which can hurt them hitting somewhere inside the plane. These are the high-quality belts which protects the passengers from heavy injuries. Moreover, passengers have also been guided by the air hostess about how to be using the parachute in the event of plane crashing and saving the lives. This is very critical in order to protect the lives of the passengers (Boyd, Ultra-Low Cost Carriers Are The New Wildcatter Airlines, 2018).

Bibliography of American Airline Company

Boyd, M. (2017, July 10). A New Disruptive Economic Model Is Emerging In The Airline Industry. Retrieved May 11, 2019, from Forbes: https://www.forbes.com/sites/mikeboyd/2017/07/10/the-airline-industry-a-new-disruptive-economic-model-is-emerging/#71a08189412a

Boyd, M. (2018, August 01). Ultra-Low Cost Carriers Are The New Wildcatter Airlines. Retrieved May 11, 2019, from Forbes:

https://www.forbes.com/sites/mikeboyd/2018/08/01/ultra-low-cost-carriers-are-the-new-wildcatter-airlines/#60314e8d6340Frenker, M. (2016). Risk Management: Challenge and Opportunity. London: Wiley.

Garcia, M. (2018, July 27). A 'Perfect Storm' Pilot Shortage Threatens Global Aviation. Retrieved May 11, 2019, from Forbes: https://www.forbes.com/sites/marisagarcia/2018/07/27/a-perfect-storm-pilot-shortage-threatens-global-aviation-even-private-jets/#463fc2951549

Garcia, M. (2018, October 24). Air Travel Projected To Double In 20 Years, But Protectionism Poses Threat. Retrieved May 11, 2019, from Forbes: https://www.forbes.com/sites/marisagarcia/2018/10/24/iata-raises-20-year-projections-to-8-2-billion-passengers-warns-against-protectionism/#1dee6c4b150f

Garcia, M. (2019, February 27). IATA Warns Of Aviation Security Risks, Calls For Better Collaboration With Governments. Retrieved May 11, 2019, from Forbes: https://www.forbes.com/sites/marisagarcia/2019/02/27/iata-warns-of-aviation-security-risks-calls-for-better-collaboration-with-governments/#148f276436e2

Halz, A. M. (2017). Financial Risk Management: Models, History, and Institutions. London: Wiley.

Hollister, G. (2019, March 13). Leading Travel Risk Firm Recommends Avoiding 737 MAX But Business Takes A Wait-And-See Approach. Retrieved May 11, 2019, from Forbes: https://www.forbes.com/sites/glennhollister/2019/03/13/leading-travel-risk-firm-recommends-avoiding-737-max-but-business-takes-a-wait-and-see-approach/#30f302cf1ad1

Hopkin, P. (2015). Fundamentals of Risk Management: Understanding, Evaluating and Implementing . London: Pearson.

Reed, T. (2018, May 25). American Lags The Airline Industry In Outsourced Work: It Seeks More In Contract Talks. Retrieved May 11, 2019, from Forbes: https://www.forbes.com/sites/tedreed/2018/05/25/american-lags-the-airline-industry-in-outsourced-jobs-it-seeks-more-in-contract-talks/#335263fc2c18

Viner, D. (2016). Occupational Risk Control: Predicting and Preventing the Unwanted. London: Wiley.