Introduction
United Airlines is one of the major airline carriers in the United States which has been in operation for many decades. In 2019, United Airlines generated annual revenue of more than $43 billion, yet a year later, the company suffered considerable losses due to the pandemic (United Airlines Holdings, 2021). The purpose of the current report is to analyze the existing risks which the company can face in the near future and devise a proper risk management plan.
Occurrence of Risk in Relation to Economic and Legal Implications
Definition of Risk
Risk itself is a complex concept which requires a clear definition in order to establish how it should be understood in this paper. Risk can be viewed as a possibility that certain events may affect the eventual results in a noteworthy manner (Lemos, 2020). It is important to note that the outcomes can be both positive and negative, as well as deviating from the predicted ones. Since the current paper concerns an analysis of risks inherent to an organization, it is essential to place the definition of the concept of risk in a corporate setting. As a result, risk can be considered any event or situation which is capable of disrupting, improving, causing doubt about the efficiency and effectiveness of the main organizational processes (Hopkin, 2018). Thus, in the current paper, a risk constitutes an event which can potentially affect the performance of the company in a positive or a negative way.
Difference between Risk and Uncertainty
When discussing the concept of risk, it is vital to also consider the idea of uncertainty since these two phenomena have a direct relationship. Uncertainty can be defined as an intangible measure of what is not known and, therefore, a source of risk (Cleden, 2017). Essentially, uncertainty is the lack of knowledge and the absence of attempts to explore any possible scenarios which may arise in the future. At the same time, any risk can be viewed as a form of uncertainty which nevertheless can be measured and thus be more controlled (Hillson, 2016). Therefore, the main difference between uncertainty and risk is that the latter constitutes a quantifiable version of the former. In a corporate environment, every organization is constantly facing numerous uncertainties, yet but only those which the company decides to view as important and worth assessing become risks.
Origins and the Nature of Risk
The idea of risk was developed several centuries ago and to this day causes many debates in the sphere of philosophy. The word “risk” is related to the Ancient Greek “rhizikon,” which conveyed the meaning of danger in the sea (Engemann, 2018). The modern concept of risk can be attributed to the scientists of the enlightenment and industrialization periods who began to calculate and measure it (Dionne, 2019). Pascal was among the first scientist to demonstrate the idea of risk in an example. He developed an argument in support of God’s existence by designing a wager, which involved two possibilities believing and non-believing in God. The former option implied only positive, eternal life, or neutral outcomes, while the latter implied only neutral and or negative, eternal damnation, consequences. Hopkin identified four types of risks, namely, compliance, hazard, control, and opportunity ones (Hopkin, 2018). Despite the fact that there can be different forms of risk, its nature always constitutes a consequence of uncertainty
Business and Societal Setting
United Airlines operates in the commercial aviation industry, which has multiple important aspects necessary to consider when analyzing the company’s business setting. For instance, the industry has a substantial degree of competition which makes companies be more innovative and willing to offer unique customer propositions (Samunderu, 2019). Each airline usually targets certain niche customers, and in the case of United Airlines, these are business travellers (Singh, 2020). United Airlines provides domestic travel to US citizens; therefore, its potential customer base includes millions of people. The primary language used by the customer population is English, and the main cultural background of the society is western. Due to the fact that a substantial number of people in the country have a high level of income, United Airlines’ strategy is based on offering a comfortable customer experience and not simply low-cost air travel.
Identification of Risks in the Context of Economic and Legal Implications
Compliance Risks
United Airlines is subject to US laws, including the labor law, which constitutes a noteworthy risk for the company. For instance, in the past six years, United Airlines has been fined a total of more than $3 million for ground delays which mostly occurred due to weather conditions (Associated Press, 2021; Buckley, 2016). Moreover, the company was also ordered to pay $2 million for its mistreatment of passengers with a disability (Baskas, 2016). Based on the events which occurred previously, it is possible to assume that the probability of compliance risks is rather moderate, yet the impact is low. The total of $5 million paid in fines by United Airlines is a small sum compared to the size of the company’s annual revenues. Thus, the company faces a low risk in terms of compliance since the probability of it is moderate, 0.5, and the impact is very low 0.05.
Hazard Risks
The hazard risks which can potentially affect United Airlines are diverse, but the two important ones are the plane crashes and the pandemic. According to the National Transportation Safety Board, the fatal accident rate for air travel is 0.006%, making the probability of the hazard risk of a plane crash very low (Survivability of accidents, 2020). At the same time, the impact of a plane crash is very high, thus the hazard risk of a plane crash should be viewed as moderate. Similarly, the impact of the pandemic can be determined to be very high since, in 2020, due to the spread of the COVID-19, United Airlines suffered a loss of more than $7 billion (Duffy, 2021). The probability of a pandemic is very low, nevertheless, it still should be considered high risk.
Control Risks
United Airlines is an airline company and, therefore, it operates a large fleet of aircraft which, if not maintained in a proper way, may become a major source of control risks. United Airlines is continuously having problems with its Pratt & Whitney engines, one of which even caught fire in the February of 2021 due to the poor inspection (Siemaszko, 2021). Thus, the probability of the control risk negligence can be considered as moderate and the impact as high, thus making it a high risk. Additionally, the violation of standard procedures on the part of the cabin crew can be another control risk. The probability of such a risk is moderate since there were instances in the past when the flight attendants did not deliver on their responsibilities. There were cases involving a broken guitar of a passenger, and a failure of the cabin crew to explain the involuntary denied boarding process to the clients, which led to a $1 billion drop in the company’s stock (Wilde, 2017). The impact of such occurrences is high because it damages the company’s reputation; therefore, the control risk is high.
Opportunity Risks
United Airlines is constantly trying to gain a competitive advantage by embracing new technological and innovative solutions, which constitute a considerable opportunity risk. For instance, the company invested $30 million in a startup using household waste to create jet fuel (O’Neill, 2021). The probability and the impact of the project failing are rather moderate, which means that the opportunity risk related to sustainable jet fuel is moderate. Moreover, recently, the company made its largest aircraft order of 270 planes which will cost it between $15 and $30 billion in an attempt to grow its business (Josephs, 2021). Such an order certainly constitutes a high opportunity risk because there is a moderate probability of failure considering the uncertainty concerning the future of the pandemic. The impact of the decision can be very high since it will entail substantial losses if the company fails to successfully utilize its additional fleet.
Risk Management Plan
Control Measures
The existing compliance risks for United Airlines are delays and mistreatment of passengers with disabilities. The US Department of Transportation can fine airline carriers for holding passengers on the tarmac for over three hours (Duncan, 2021). The main hazard sources of the former, which are in control of the company, include the rest time requirements for the cabin crew and strikes. Thus, the company has to establish proper planning to ensure that the cabin crew always has enough rest time without delaying flights. Additionally, the problem of strikes can be resolved by quickly reaching a consensus with the employees who engage in a strike. The primary hazard source of mistreatment of passengers with disabilities is the lack of proper care during transportation for such clients’ equipment, including wheelchairs.
In terms of the hazard risks, which include plane crashes and pandemics, the company also has to target potential sources. The hazardous source in relation to plane crashes is the non-functioning equipment, therefore, United Airlines has to conduct proper pre-flight inspections and instantly change the planes if certain issues arise. The company also needs to perform timely maintenance of its fleet. The core hazardous sources of the spread of the pandemic onboard aircraft are poor ventilation and the lack of protective gear on passengers and cabin crew. As a result, the company needs to ensure that the air filtering systems on its planes are always running and that all passengers and employees wear masks.
When considering the appropriate way of addressing the control risks such as negligence and violation of standard procedures by cabin crew, it is essential to task the quality-control department with focusing on the prevention of such occurrences. For instance, to prevent negligence, United Airlines should create a special task force responsible for conducting additional regular inspections of each aircraft. In order to reduce the risk of violations of standard procedures, the company has to create a quality-control department. According to research, pilot error is the leading cause of plane crashes, therefore it is essential that the company tracks its employees’ performance (Clifford Law, 2020). The specialists working for the department can be tasked with performing assessments of the expertise and compliance of the cabin crew.
The opportunity risks United Airlines faces also can be minimized by undertaking effective measures. For instance, the lack of funding can be a considerable hazardous source for the development of innovative jet fuel. Therefore, United Airlines must ensure better monitoring of the activities and spending of the organization engaged in the creation of the fuel. Potential hazardous sources for the large fleet expansion project are the lack of awareness among passengers and possible production delays. Both of these problems can be controlled by establishing a special department tasked with overseeing the investment project and reporting to the company’s board of directors.
Corrective Actions
The rest time allocated to the cabin crew and strikes of the employees are considerable hazard sources for delays. Therefore, the company has to closely monitor how much rest each pilot and other cabin crew members get, especially when performing several flights in a short period of time. According to research, unintentional sleep among airline pilots is most frequently caused by poor working conditions, such as flying more than 65 hours monthly (Marqueze et al., 2017). United Airlines must present schedules to cabin crew in advance and always have an extra pilot who could replace the main one for each flight. As mentioned above, strikes leading to delays should be resolved by quickly reaching a consensus. Yet, first of all, United Airlines needs to prevent any strikes by regularly assessing the job satisfaction of employees. Mistreatment of passengers is another risk for United Airlines, and the company’s HR department can resolve it by providing better training to cabin crew and conducting quality-control checks.
The source of plane crashes is faulty equipment; therefore, this factor must be addressed. The problem of poorly functioning aircraft systems can be solved by replacing the old aircraft and performing renovations. If, during the inspection, certain issues with planes emerge, the company must cancel the flight or replace the aircraft with a new one. The hazard sources of the pandemic include broken ventilation and the lack of protective gear worn by passengers and cabin crew (Belluz and Resnick, 2020). The faulty air systems can be replaced, and if it is not possible, the flight should be canceled. In terms of protective gear, United Airlines must offer free masks and gloves to the passengers who do not have these items.
Negligence and violation of standard procedures are two control risks, the causes of which can be eliminated. Both of the issues can be solved by imposing disciplinary actions on employees who did not deliver on their professional responsibilities (Okolie and Udom, 2019). For instance, the aforementioned case of United Airlines’ engines catching fire should have been investigated internally. The person who was tasked with the inspection of the engine should have been fined. Such a policy can deter other employees from poorly performing their job.
The opportunity risks for United Airlines, which include its investments in sustainable jet fuel and new fleet, also can be reduced. For instance, the company can allocate more money to the jet fuel project and hire additional professionals to facilitate the creation of the product. United Airlines should invest in the marketing of its new jets to let clients know about the advantages of using United Airlines’ innovative aircraft. At the same time, the company has to ensure that the production of the planes goes according to the predetermined plan and, therefore, must ask the contractors to provide updates on the process.
Record Keeping and Review Frequencies
The HR department should be tasked with overseeing the time spent by crew members resting and working. The number of hours allocated to both activities should be recorded and stored for three years to track the dynamics and see any improvements. Similarly, the HR department should record all occasions of strikes, as well as job satisfaction of employees, and store information for a year, reviewing it every six months. The mistreatment of passengers on the part of employees is also a sphere of responsibility of the HR department, which must record every instance of it and review these cases monthly.
The operations department must assess all instances of faulty equipment, as well as the lack of protection on board. Such records must be kept for a year and reviewed every week. The safety of passengers depends on the well-functioning aircraft systems and anti-virus measures; therefore, the operation department has an important role.
All cases of negligence and violation of the standard procedures must be recorded and analyzed by the quality-control department. All of the occurrences have to be reviewed weekly. Moreover, the records should be kept for at least three years, in order to trace the individual performance of employees.
The investment projects of United Airlines, namely, the one involving a new type of jet fuel and an extension to the company’s fleet, have to be a priority of the investment department. The body in question must track the development of both projects and report directly to the board of directors of United Airlines. All of the problems arising during the projects have to be recorded and reviewed every week, while the general development must be assessed monthly.
Summary
United Airlines faces a variety of risks of different types, including compliance, hazard, control, and opportunity ones. The high risks for the company are negligence, violation of standard procedures by employees, pandemic, and the investment in the new fleet. The moderate risks the company encounters include a potential plane crash, as well as the investment in innovative jet fuel. Finally, the low risks for United Airlines are related to compliance, and they involve delays and mistreatment of passengers.
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