After some of the toughest years ever for the airline industry, travel is back on the cards as we adapt to the ‘new normal’. However, that new normal is plagued by performance issues and poor customer experiences, with carriers coming under fire from customers, regulators and politicians.
Consider the following issues highlighted in recent weeks:
- The Transportation Secretary is investigating airlines after 2,700 flights were cancelled over the Memorial Day holiday
- Calls from Senators to ensure airlines are held accountable for disruptions and ensure consumers are compensated
- Massive baggage pileups at London Heathrow airport due to a malfunction, resulting in delays potentially up to two days or customers not travelling with their bags
- Qantas is in the news in Australia for repeatedly cancelling or delaying flights
You don’t need to look too high in the sky to find similar stories: these issues appear persistent across most carriers. And of course, the airline industry isn’t new to disruption. From natural disasters like hurricanes and ash clouds, mechanical failures that ground planes, to terrorist threats, it has been through plenty of challenges. What can we learn about these less acute, more chronic problems?
Let’s explore through these risk management lenses:
- Resilience to different types of disruption
- Complexity of managing complex operations with third parties
- Using scenarios to improve resilience
Being resilient to different types of disruption
Operational resilience includes being prepared for short sharp disruptions. But how resilient are you to sustained poor performance?
An effective operational resilience program defines impact tolerances for its important/critical business functions if they are immediately disrupted. We also recommend considering sustained degradation or underperformance as part of your operational resilience program. How long should you accept a defined level of underperformance before taking action? The definition of ‘underperformance’ will differ between industries and organizations, and critical business functions but may include:
- Delivering services in a sub-optimal timeframe (such as delayed flights)
- Reduced quality of the services provided
- Poor customer service while delivering products or services
- Poor data integrity or incomplete data impacting the end user
If you consider all of this to be performance management, we agree. An enterprise risk management program should include managing the uncertainty around targeted performance. An operational resilience program should improve the likelihood of meeting or restoring that targeted performance.
Managing third parties in operational resilience
The critical business function of flying from A to B relies on the individual processes of many separate organizations working together. The most obvious are the airline and the airport. Many of the individual activities are also outsourced to third parties, such as online booking services, and security and baggage services.
The airline industry has third-party concentration risk baked in, even before we consider outsourcing: airports serve multiple carriers at once. Poor performance of a single airport may hinder the reputation of multiple airlines as their customers suffer through long security lines or baggage mishaps. In some ways, that puts everyone on a level playing field – but an airline’s response to these disruptions might be the differentiator between maintaining or losing their reputation.
Using scenarios to improve resilience
Defining limits, tolerances and triggers for underperformance can result in pre-determined decisions to re-allocate resources or change operations to adapt; don’t just wing it!
Let’s consider the response of London Gatwick airport. On 17 June 2022 they dropped their planned flights of 900 per day during peak times down to 825 in July and 850 in August, based on continued staff shortages.
Gatwick’s action will have annoyed many. Airlines had to cancel flights, so some customers need to reschedule their flights, plan other types of travel, or perhaps cancel their plans. But the alternative would have resulted in worse impacts for travelers. More of those travelers would have experienced delayed flights or last-minute cancellations, or other sub-optimal performance as staff struggled to meet the demands of their work. At worst it could even raise concerns about safety.
Gatwick’s action also highlights forethought. They projected performance based on a resource (their people) not at full capacity and decided that the projected performance was not acceptable. They acted ahead of time before sustained underperformance impacted travelers.
We don’t know if Gatwick in particular had pre-defined tolerances or a planned response for this type of scenario. However, the benefit of pre-defined tolerances is that management have already agreed on triggers and action, and potentially also invested in contingency readiness, speeding up the ability to respond.
Learning outcomes
Here are our thoughts on what you can learn from the airline industry and apply to operational resilience programs in any industry:
- Consider sustained underperformance when setting impact tolerances. Under what timeframes and conditions should you take action?
- Understand the ‘health’ of the resources required to deliver your business services at desired performance levels
- Use leading indicators where possible to forecast when you will potentially exceed your impact tolerances
- Use scenarios to determine what actions you might take to restore performance to acceptable levels or minimize the effect underperformance has on your objectives
We hope your operational resilience program is in full flight.
Financial services regulators are leading the way in driving operational resilience, but shouldn't it be a core focus of every organization's Enterprise Risk Management capability? Join us on Tuesday July 26 for our Operational Resilience: The ultimate goal in risk management webinar to find out what it means to be resilient and how to integrate resilience into your ERM framework.