Please note that this article relates to the 2017 research – view our latest findings here.
A recently released survey of global airlines carried out by EY found that for the second year running, competition is perceived as the top threat facing the industry.
The survey included finance leaders from airlines around the world, and provided insights for both North America and the rest of the world, with the listing below bring the combined global view. In both jurisdictions, competition was deemed to be the number one risk for the second year in a row.
While eight of the top ten risks remained the same between the 2016 and 2017 surveys, two new entrants to the top 10 were cost overruns and severe business disruptions.
Cost overruns or uncontrollable costs moved up 7 spots from 11 last year to 4 this year, making it the most significant movement in the year. Severe business interruptions or network disruptions and the threat of low cost carriers (LCC) moved 5 places each from 13 to 8 and 16 to 11.
Conversely, the most significant downgrades were foreign exchange or interest rate risk, and terrorism which each moved down seven places from 6 to 13 and 8 to 15 respectively.
Interestingly from a lessor perspective, fleet mix and availability of new aircraft fell out of the top 20 in 2017, which would point to greater access to the aircraft needed.
Replacement of aging aircraft remains a higher risk for North American respondents (no 7 in the North America only results) which is to be expected given the older fleet operating in North America.
Considering the increase in high profile hacking events in 2017 it is interesting to note that Data intelligence threats and cybercrime fell 3 places from 3 to 6. The movement is largely due to changes in respondents from North America where the risk fell from number 1 to number 7.
Labour relations came in sixth place in the North American survey, while it does not feature at all on the international listing. The risk posed by labour negotiations, as well as competition in recruitment and retention, are more acute in the North American market due to the highly unionised nature of the US airline workforce.
For international respondents, access to capital is still seen as a significant risk, positioned as number 4 in the international survey. In the North American survey, access to capital has fallen off the top 20 listing entirely, having been at number 19 in 2016.
Foreign exchange and interest rate risk is also a more significant risk factor for the international respondents, at number 8 (2016: number 2) on the international only listing and not appearing in the North American top 20. Given the level of international flights vs domestic flights for the international respondents and the larger volumes of foreign currency revenue, this is not a surprising disparity.
| 2017 | Risk |
| 1 | Competition |
| 2 | Safety management |
| 3 | Strategic initiative for revenue growth and maximization |
| 4 | Cost overrun / uncontrollable cost |
| 5 | Macroeconomic factors |
| 6 | Data intelligence threats and cybercrime |
| 7 | Technology enablement |
| 8 | Severe business interruptions / network disruption |
| 9 | Commodity Fuel |
| 10 | Access to capital and liquidity |
| 11 | Threat from LCC |
| 12 | Labor negotiations |
| 13 | Foreign exchange and interest rates |
| 14 | Regulatory compliance risk |
| 15 | Terrorism |
| 16 | Contract and vendor management |
| 17 | Replacement of aging aircraft |
| 18 | Industry consolidation and alliances |
| 19 | Customer facing innovation |
| 20 | Recruitment and retention |
This article originally appeared in Aviation Finance.
