Executive Summary
The reason why an organization engages in risk management is to lessen the likelihood and impact of risks. Risk management includes processes concerned with conduction risk management planning, identification, analysis, and responses and monitoring and control. Risk management includes maximizing the probability and consequences of positive events and minimizing the probability and consequences of adverse events to project and organizational objectives.
Introduction
Risk Management Plan
Introduction
The risk management plan is aimed at guiding the risk manager and the decision makers of the possible preventive measures and solutions to risks that Cathay Pacific will encounter. This paper will study and provide solutions to the company’s most urgent risks.
This section will present an analysis of the risks through context assessment, identification of risks, assessment of risks, and risks registers. The process used in this section is developed according to the AS/NZS 4360:2004 standards.
Context
Overview of Business
Cathay Pacific Airways in an international Hong Kong based airline that offers scheduled passenger and cargo to 118 destinations in 37 countries and territories. The company has earned the reputation as one of the world’s leading airlines and Asia’s biggest and most regarded airline. The company was founded in 1946 in Hong Kong. Cathay Pacific is committed to uplifting Hong Kong’s airline industry and invests in making Hong Kong one of the world’s aviation hubs. In addition to Cathay Pacific’s expanding fleet of aircraft, the company has invested in other related businesses such as catering, aircraft maintenance and ground-handling. Cathay Pacific owns Hong Kong Dragon Airlines Limited (Dragonair) and partners with Air China Limited. In addition, the airline is also a major shareholder in AHK Air Hong Kong Limited which is an all-cargo carrier offering scheduled express-freight services within Asia ( 2007).
The company together with its subsidiaries employ almost 20,000 people in Hong Kong. In 2007, Cathay Pacific recorded a total profit of HK,023 million. The key driver for this profit was strong passenger demand, helped by a weak dollar, fuel hedging gains and the profit contribution from its associates such as China Air. In 2007, the company also faces problems especially the rising fuel prices. The company gained from the strong passenger demand especially from first class and business class passengers ( 2007).
However, the gains in 2007 were not maintained in 2008. Cathay Pacific’s Interim Report for the first half of 2008 reveals that the company has lost HK3 million for the first six months of 2008. The main reason for this was the exorbitant fuel increase. In line with the company’s commitment to the environment and in order to cut fuel price, Cathay Pacific constantly updates its aircraft fleet, making sure to operate the most modern, fuel-efficient fleet possible.
Current Business Setting
Over the last decade, there has been an increase in numbers of low cost-carriers around Asia. Cathay Pacific as one of the biggest and established airlines in Asia, is not affected by this trend. However, low-cost carriers are becoming more aggressive and they are undergoing major changes in terms of their products and services.
Cathay Pacific, as of the moment does not have a solid plan regarding the exploration of the budget airfares’ market. Cathay Pacific claims that they intend to cater to a different market segment. Cathay Pacific believes that the key to the competition is value for money and offering the best services.
Objectives
The objective of the Risk Management Plan is to mitigate the negative impacts of the increasing competition in the airline industry. The company aims to avoid customer loss due to intense competition and entrance of new airlines.
Risk Identification
Objectives of Risk Identification
Risk identification is the first step in the risk assessment process. Its purpose is to surface risk events as early as possible, thereby reducing or eliminating surprises. As a consequence of risk identification, risk analysts can develop a good sense of possible sources of problems that will affect the organization’s projects and operations.
Cathay Pacific is an International airline that aims to be the most admired airline in the world. The company is committed to Hong Kong and its aviation industry. The company made substantial investments in making Hong Kong a prime aviation hub in the world. The company strives to:
1. Achieve Product Leadership
2. Encourage Customer Loyalty
3. Increase Sales
4. Expand Operation
5. Tap New Markets
Identification of Stakeholder Groups
A stakeholder is defined as an individual or a group that has one or more of the various kinds of stakes in a business. The individual or group can affect or be affected by the actions, decisions, policies, practices, or goals of the organization ( 2003).
A. Internal Stakeholders
- Shareholders – the shareholders participate in distribution of profits, additional stock offerings, assets on liquidation, inspection of company books, election of board of directors and other rights established in the contract with the firm.
- Employees – Employees are believed to be a source of competitive advantage. The knowledge, skills and abilities of the employees contribute to the success of the organization. In return, the employees expect economic, social and psychological satisfaction in the place of employment. The employees also expect freedom from arbitrary and capricious behavior on the part of company officials. The employees expect to share in fringe benefits, freedom to join union and participate in collective bargaining, individual freedom in offering up their services through an employment contract.
B. External Stakeholders
- Customers – the customers are the source of the firm’s earnings. The customers purchase the firm’s products and services in exchange with satisfaction of needs, wants and requirements.
- Suppliers – the suppliers are part of the firm’s value chain. In exchange with the suppliers products, services or expertise the firm is expected to be a source of business and facilitate a professional relationship in contracting for, purchasing, and receiving goods and services.
- Competitors – competitors are also important stakeholders. They expect the company to observe the norms of competitive conduct established by society and industry.
- Governments – the Hong Kong government and other governmental departments are important stakeholders that have direct impact on the firm’s strategies. The government expect the firm to pay taxes, to adhere to the letter and intent of public policy dealing with the requirements of fair and free competition; discharge of legal obligations.
- Local Communities – the local communities are also important stakeholders. The firm needs to participate in community affairs and to provide regular employment and support to the local government.
Risk Areas
Sources of Risk
Health and Safety
o Human Errors
o Management Errors
o Operational Hazards (Facilities)
o Natural Disasters
o Disease Outbreaks
o Accidents
Sales and Marketing
o Inadequate Market Information
o Ineffective Market Segmentation
o Inadequate Positioning Strategy
o Ineffective Marketing and Advertising Strategies
o Inaccurate Market Forecasting
o Inaccurate Sales
o Inefficient Staff
o Changes in Demands
o Changes in Market Shares
Regulations
o Failure of Staff to Adhere to Regulations and Guidelines
o Sudden Change of Regulations and Guidelines
Political/Regulatory
o Political Instability
o Changes in Political Leadership
o Changes in Political Structure
o Political Agreements
Human Resources
o Employee Turnover
o Insufficient Labor Pool
o Changes in the Labor Market
o Ineffective Recruitment
o Ineffective Training and Development Schemes
o War for Talents
o Inefficient Employees
Operations
o System Failure
o Process Failure
o Human Errors
o Failure in Internal Supervision and Control
o Natural Disasters and Calamities
Financial
o Decline in Revenue
o Failure to achieve Financial Stability
o Insufficient Cash Inflows to cover Cash Outflow
Consumers
o Intense Competition
o Loss of Differentiation
o Price War
Risk Assessment
Risk Assessment Criteria
In the event that the company encounter the identified risks, the negative consequences include significant decrease in passenger numbers, loss of leadership position in the industry, decline in profits, loss of employees, and loss of customer loyalty.
Consequence Table
Level and Descriptor
Decline in
Passenger Numbers
Loss of Customer Loyalty
Decline in Profits
Loss of Employees
Catastrophic
11 percent or more decline in passenger numbers
40 percent or more decline in repeat purchase
11 percent or more decline in Profits
21 percent or more increase in employee turnover
Major
8-10 percent decline in passenger numbers
30-39 percent decline in repeat purchase
8-10 percent decline in profits
16-20 percent increase in employee turnover
Moderate
5-7 percent decline in passenger numbers
20-29 percent decline in repeat purchase
5-7 percent decline in profits
11-15 percent increase in employee turnover
Minor
1-3 percent decline in passenger numbers
11-19 percent decline in repeat purchase
1-3 percent decline in profits
5-10 percent increase in employee turnover
Insignificant
Less than 1 percent decline in passenger numbers
Less than 10 percent decline in repeat purchase
Less than 1 percent decline in profits
Less than 5 percent increase in employee turnover
Likelihood
The likelihood that the risk will occur is then analyzed. The likelihood criteria is presented in the table below:
Description
Description
Indicative Frequency
Almost Certain
The event will occur in most circumstances
Once a month or more frequently
Likely
The event will probably occur in most circumstances
Once in six months
Possible
The event might occur at some time
Once a year
Unlikely
The event could occur at some time
Once in 1 year and six months
Rare
The event may occur only in exceptional circumstances
Once in two years
Combined Analysis
Likelihood
Consequences
1 Insignificant
2 Minor
3 Moderate
4 Major
5 Catastrophic
5 Almost Certain
M(5)
H(10)
H(15)
VH(20)
VH(25)
4 Likely
M(4)
M(8)
H(12)
H(16)
VH(20)
3 Possible
L(3)
M(6)
H(9)
H(12)
H(15)
2 Unlikely
L(2)
L(4)
M(6)
M(8)
H(10)
1 Rare
L(1)
L(2)
M(3)
M(4)
H(5)
Risk Register
Risk Matrix
Detailed Risk Register
One of the major threats that Cathay Pacific faces is customer loss due to increased competition and entrance of new players in the industry. There has been a growing number of low-cost carriers in Asia. These airlines focus their attention on budget conscious market. These airlines aim to make air travel available for everyone. The product and service quality of these airlines are also improving. These airlines are offering budget long haul flights without compromising the quality of service, making competition more intense and the border between market segments blurred.
1. Loss of Customers due to Competition – the key issue in the nature of competition in the airline industry is whether an airline wants to be a global network carrier or a niche player. A global carrier would aim to provide network of routes and destinations. It can do this by linking its own wide route network with that of a handful of alliance partners through their respective hubs to create a truly global system. The alternative is to be a niche carrier. The niche to focus on may be either geographical or a particular type of service ( 2001).
Cathay Pacific has a global carrier status. It has a wide network of destinations and many alliance partners. The position of Cathay Pacific as a premier airline in Hong Kong is being threatened by the increasing number of niche players that are seeking to expand their operations and to attract more passengers.
2. Loss of Customers due to Loss of Differentiation – The emergence of cheap long-haul airlines does not bother Cathay Pacific Airways at present. The company maintains that they cater to a different market which values service and product features more than price. Cathay Pacific offers quality service and luxurious features and amenities. Interior layout and configuration of the aircraft is one of the considerations of Cathay Pacific’s passengers. Space is considered as the key comfort variable. Another important offering of Cathay Pacific that sets it apart from its competition is its high in-flight service and catering standards. In flight service and catering standards according to (2002), cover the nature and quality of food and beverages provided, the number of cabin staff for each class of cabin, the availability and range of newspapers and magazines, in-flight entertainment and communications, give-aways for passengers as well as for children and so on. Cathay Pacific exerts a great deal of effort to the planning of airline meals and meeting target catering standards. Another competitive advantage of Cathay Pacific is the services offered to passengers on the ground. Cathay Pacific’s super hub at Hong Kong International Airport offers a wide range of services and benefits aimed at making the passengers’ arrival, departure and connections as smooth, convenient and pleasurable as possible.
Other intangible aspects of comfort and source of differentiation that Cathay Pacific is offering are efficiency, helpfulness and friendliness of staff, both the cabin crew in the air and the ground staff at check-in, in the airline lounges and at the boarding gates.
Over the years, low-cost carriers started to keep up with large airlines such as Cathay Pacific in terms of services and facilities. Low-cost carriers are starting expand their market reach and to attract more passengers. This has paved the way for the increase in product and service quality among low-cost carriers. The factors that differentiates Cathay Pacific from its competitors are easily copied. Cathay Pacific and its competitors have equal access to producers and technological innovations, making differentiation hard to maintain.
3. Loss of Customers due to Price War – because of the increase in competition, the consumers have more choices and power. The price war between airlines in Hong Kong is seen as a threat to Cathay Pacific’s leadership in the industry. Because more and more airlines are offering quality products/services at lower prices, Cathay Pacific will most likely lose customers in the long run.
Credit:ivythesis.typepad.com
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