Many different definitions can be found of Risk Management, but they all have the same meaning. It is the process whereby organisations methodically address the risks attaching to their business plans. Risk management is for any activity, long or short term. The benefits and opportunities should be viewed not just in the co text of the activity itself, but in relation to the other various stakeholders that can be affected/affective.
- Aims and Objectives
The aim of this report is to critically evaluate risk factors relating to strategic decision making process and strategic planning within risk management in Ryanair.
Objectives are to present risk management of Ryanair and critically approach it with the use of secondary data.
Chapter 2
2.1.Risk management overview
It is obvious that tourism industry is one of the significant forces in the economy of the world – in 2006 travel and tourism industry world gross domestic product was 10,3%, had a turnover of US$6.477.2 billion and supported 234 million jobs – 8.7% of total world employment (Cooper et al, 2008:3).
‘In a world of change, one constant since 1950 has been the sustained growth and resilience of tourism both as activity and an economic sector. This has been demonstrated despite the ‘shocks’ of 11 September, 2001, the dual bombings of a major Asian tourism destination – Bali, SARS and the threat of bird flu, the second Iraq war, bombings of both the London and Madrid railway systems and the 2004 Boxing Day Tsunamis’ Cooper et al (2008:3).
Against all the crisis and threats tourism industry faces, it is still constantly growing industry, and this could be explained by theory that even though they trigger progressive potentials and solidarity, crises and risks also bring opportunities and new options. One of the approaches to crisis and risk management consists of the following ingredients:
- A triggering event which is significant enough to challenge the existing structure or routine of the organisation
- High threat with an element of surprise or urgency and short decision time
- A turning point, when decisive change (could have positive or negative outcome)
- ‘Fluid, unstable, dynamic’ situations
(Wilks and Page, 2003:159)
Risk management should be a continuous and developing process which runs throughout the organisation’s strategy and the implementation of that strategy.
Risk management is very complex subject and requires good analysis skills. In general, there are ten elements of operation presenting the main risk areas to the success of a business. Those are as follows:
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‘Premises – where the firm is located, type of premises available for use, amenities, distribution routes, access for customers;
- Product – industry sector, features of product or service offered, life cycle and fashion trends, materials used in production, green issues, quality;
- Purchasing – access to supplies, storage and warehouse facilities, stock control, payment terms, cost
- People – the workers in the organization, skills, training needs, motivation and commitment, incentive packages available, employment contracts;
- Procedures – production procedures, record keeping and reporting systems, monitoring and review, use of standards, emergency procedures;
- Protection – personal protection of workers and others, property and vehicle security, insurance cover, information systems, data security;
- Processes – production processes, waste and scrap disposal, skills technology and new materials;
- Performance – targets set, monitoring, measurement tool, consistency, validity of data;
- Planning – access to relevant data, management skills, external factors and levels of control, short- and long-term planning, investment options;
- Policy – range of policies that support the strategic plans of the firm’.
(Jaynes, 2002:5).
It is possible to reduce or even control some sort of levels or risk, if the risk management is carefully planned. The model presents only organisations internal risks, without considerations of any external threats that can occur. Having well planned risk management became an essential part of every business. And that is because it cannot only prevent any threats but also it can turn them into positive outcome to the business. All in all, risk management become mainstream in the business world, its role is to find the optimal blend of risk solutions. Risk management is to: identify, asses, quantify, treat and monitor the risks. (Reuvid, 2009)
On the other hand, there is Kajuter et al (2008) arguing that not all corporations needs well developed risk management. According to him, efficient capital markets are said to manage the risk themselves by eliminating unsystematic risk by diversification, therefore risk management on the corporate level is irrelevant and may reduce share-holder value due to its costs. It is, however, very narrow theory and there may be several factors that could emerge the need for risk management.
Crisis could be classified into different levels.
(Source: Henderson, 2007:5)
Firstly, there are potential crises, which characterise in crisis being non-existent. Latent crises describe the stage when crisis has already broken out but it is not yet possible to identify it with the use of quantitative instruments available in the organisation.
Going further, acute crises take place. At this level destructive effect of the crisis is visible and company struggles to cope.
Other than that, there are natural and human-induced crises which are particularly visible and significant in tourism. In general, threats triggered by human are said to have a bigger impact on the destination than natural disasters. Good example to it, is a racial unrest in Los Angeles which had a long-term effect on tourism loses which is opposite to earthquake in San Francisco where arrivals increased in the 12 months following the earthquake.
Crises can also be classified by the tempo of its onset speed – crises with fast onset speeds are due to rapid change detected quicker than is the case with slower onset speeds (Glaesser, 2006:16).
- Risk Management process
This section of the report will identify important areas of crisis planning and to distinguish the different phases of the planning process for crises.
Fig. 1 Adapted from Institute of Risk Management (2011)
The IRM (Institute of Risk Management) created this model to show the risk management process. First step is to identify the organizations strategic objectives. A strategic objective must have tactical and operational objectives, assigning responsibility throughout the organisation with each manager and employee. The strategic objective should also support accountability, performance measurement and reward and promote operational efficiency at all levels. Which is where business can identify the essential risk factors and this would be risk assessment, which is the second step leading to acknowledgment of possible future risks that would affect business performance and sustainability within industry.
Following the next step that includes risk identification, description and estimation. The next of the model sets out to identify an organisation’s exposure to uncertainty and should be approached in a precise way to ensure that all significant activities within the organisation have been identified and all the risks flowing from these activities defined.
According to IRM, the next stage is to complete a risk evaluation, which is used to decide the significance of risks to the organisation and whether each specific risk should be accepted or treated. Followed by risk reporting, includes the threats and opportunities which a business may face and can be both external and internal. External reporting may be to the stakeholders, businesses need to report back to on regular basis to show its risk management policies and its efficacy. Internal reporting may be to managers and board of directors, as well as individual employees.
Risk treatment would be the seventh step in the model where actions are selected and implemented to modify the risk.
The last one is the risk control, where business aims to minimise failure and reduce the opportunity of these key risks.
Planning is essential to ensure that business is unthreatened in case of any crisis. Planning describes a structuring process that defines how the decision-makers want to see a future process developing […] The fundamental aim of corporate planning is to assure the existence of the business, which is constantly threatened by the uncertainty of future events, for as long as possible’ (Glaesser, 2006:159).
Chapter 3
- Ryanair
As it says on the main page on the Annual Report (2011) of Ryanair’s company it is ‘The World’s Favorite Airline’. To get an idea on where Ryanair is standing between other airline companies, some brief charts will be presented.
(Source: Annual Report, 2011)
As the top picture shows, Ryanair’s is the leading company within international tourists which could affect the chart on the picture – average fares. While Ryanair is on the top of the international schedule chart, it is at the bottom on average fares chart, which gives us understanding how low the prices are for Ryanair’s customers.
Ryanair’s performance over the past year has demonstrated yet again the strength of Ryanair’s unique “lowest fares/lowest cost” model in Europe.
Their strategy is ‘Ryanair’s objective is to firmly establish itself as Europe’s biggest scheduled passenger airline, through continued improvements and expanded offerings of its low-fares service. In the highly challenging current
operating environment, Ryanair seeks to offer low fares that generate increased passenger traffic while maintaining a continuous focus on cost-containment and operating efficiencies.’ Annual Report (2011).
Crisis Management is regular practice for most of the tour operators in order to improve general quality level of the business. In some cases it includes crisis management departments responsible exclusively for this study area. Ryanair, is still one of the cheapest airlines, but changes in fuel costs and fuel availability can affect company’s results and increase crisis risk. According to Ryanair’s annual report (2011:43), ‘Jet fuel costs are subject to wide fluctuations as a result of many economic and political factors and events occurring throughout the world that Ryanair can neither control nor accurately predict, including increases in demand, sudden disruptions in supply and other concerns about global supply, as well as market speculation.’
Prices increased in 2009 and 2011, and these changes had a significant impact on Ryanair’s costs and affected the profit. Based upon Ryanair’s fuel consumption for the 2011 fiscal year, a change of $1.00 in the average annual price per metric ton of jet fuel would have caused a change of approximately $1.5 million in the Company’s annual fuel costs. Ryanair’s fuel costs in the 2011 fiscal year, after giving effect to the Company’s fuel hedging activities, increased by approximately 37% from the comparable period ended March 31, 2010, to $1,227.0 million, primarily due to higher market prices per metric ton and growth of the airline. Ryanair
estimates that its fuel costs would have been approximately 1,275.1 million dollars in the 2011 fiscal year, as compared to $916.6 million in the 2010 fiscal year, had Ryanair not had any fuel hedging arrangements in place in either fiscal year. As international prices for jet fuel are denominated in U.S. dollars, the company fuel costs are also subject to certain exchange rate risks. Price increases, adverse exchange rates or the unavailability of supplies, including any such events resulting from international terrorism, may adversely affect Ryanair’s profitability. In the event of oil imports, any shortage would increase fuel prices and would create a risk for companies strategy. Past fuel price increase already affected Ryanair customers with higher price for their baggage that they can carry with them while travelling, from 30 pounds per bag to 50 pounds per bag per person.
‘Because of Ryanair’s low fares and its no-fuel-surcharges policy, as well as
the Company’s expansion plans, which could have a negative impact on yields, its ability to pass on increased fuel costs to passengers through increased fares or otherwise is somewhat limited. Moreover, the anticipated expansion of Ryanair’s fleet will result in an increase, in absolute terms, in Ryanair’s aggregate fuel costs’
(Annual Report, 2011:43)
Another risk to think about is being successful in reducing business costs to offset reduced fares. Ryanair operates a low-fares airline, as It was mentioned earlier, the success of its business model depends on its ability to control costs and deliver low fares while at the same time earning profit. The Company has limited its fuel costs and already has comparatively low operating costs. In periods of high fuel costs operating profits are likely to fall, if the Company is unable to further reduce its other operating costs. This is why the Company cannot offer assurance regarding its future profitability in a highly competitive environment. There are numbers of low-fare airlines competing throughout the route work. Primarily airlines compete with respect to fare levels, diversity of service, name recognition, passenger amenities and others. Ryanair’s name is known all around the world as a low-cost airline, but at the same time it is known as airline providing the lowest service while on board. In addition to traditional competition among airline companies and charter operators who have entered the low-fares market, the industry also faces competition from ground transportation (including high-speed rail systems) and sea transportation alternatives, as businesses and recreational travellers seek substitutes for air travel.
While looking at Ryanair’s Annual report (2011), it is clear that Company is aware of the risk of crisis, maybe not that much prepared for them.
Chapter 4
4. Conclusion
This report was to provide a reader with a good insight into risk management subject study area, its tools and definitions as well as aims and objectives. To do that, secondary data was used to collect the information. To give a better understanding, Ryanair’s airline was chosen as a case study for this research.
Ryanair has a very good understanding about the risk management and are trying to fight against higher jet fuel prices within the industry to avoid the crisis of not being able to stay on the market as the lowest-fare airline.
Being big, worldwide organisation, it is crucial to ensure that appropriate training and guidance is given to all the employees.
In the era of terrorism, natural disasters and economic meltdowns, every organisation is at the constant risk of losing money, customers or reputation, therefore risk management came to be a very important part of every organisation that is conscious of potential threats. It is also worth remembering that crisis does not always indicates negative result – with good risk management plan it can be easily turned into a positive outcome.
As mentioned before, crisis in tourism industry occurs on almost everyday basis, therefore, reassuring existing and potential customers of wide set of tools that Ryanair operates in order to avoid or handle crisis would be an extremely appealing marketing device.
4.2. References
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Annual Report (2011) [Internet] Available at: <> [Accessed 18 March, 2012]
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Beirman D (2003), Restoring Tourism Destinations in Crisis a Strategic Marketing Approach, CABI Publishing
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Cooper, C., Fletcher, J., Gilbert, D., Wanhill, S. (2008) Tourism. Principles and Practice. (4th edition) Harlow, Prentice Hall.
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Glaesser, D. (2006), Crisis Management in the Tourism Industry (2nd ed.), Oxford: Butterworth-Heinemann
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Henderson, J. (2007), Tourism crises; causes, consequences & management, Oxford, Butterworth-Heineman
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Institute of Risk Management (2011) [Internet] Available at: < >[Accessed 6 March 2012]
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Jaynes, J. (2002) Risk Management: 10 Principles. Oxford, Butterworth – Heinemann.
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Kajuter, P., Linsley, P., Woods, M. (2008) Risk Management, Internal Control and Corporate Governance: International Perspectives. London, Cima.
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Reuvid, J. (2009) Managing business risk: A practical guide to protecting your business. London, Kogan Page.
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Saayman, M., Snyman J.A. (2009) Tourism Review. Emerald Group Publishing Limited
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United Nations (2011) [Internet] Available at:< > [Accessed 12 March 2012]
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Wilks, J., Page, S.J. (2003) Managing tourist health and safety in the new millennium. Oxford, Elsevier.
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Wilks, J., Page, S.J. (2003) Managing tourist health and safety in the new millennium. Oxford, Elsevier.
