Financial Services Ireland


The greatest risk facing global airlines? Each other.

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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.

Largest movements

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.

Differences between North American and International Airlines

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.

Top 20 Global Airline Industry risk factors

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.

Pat O’Driscoll

FS Partner, Aviation Finance
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