BA Travel & Tourism Management Module: Risk Management Module code: 6SZ011

Risk Management within Ryanair

Flight Global (2012)

A tourism destination is confronted with sudden, unpredictable, catastrophic changes over which it has little control (Beirman 2003:4).

Module leader: Geoff Shirt Student Number: 100130707

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Content Page

Chapter 1
1.

Introduction

2. Aims and objectives

Chapter 2 2.1.Risk Management overview 2.2. Risk management process Chapter 3 3. Ryanair Chapter 4 4. Conclusions 5. References

Chapter 1 1. Introduction
This report is to represent collected information about risk management process within Ryanairs company. Risk is a part of every industry and good understanding about it is essential to create and maintain successful business. The twenty-first century has been through terrorism attacks and disease outbreaks. Since the terrorist attacks of 11 September 2001in the United States, the term risk management has become strongly associated with psychical safety and security of travellers [] While there are many types of risk to which the tourism industry must respond, the focus of the new millennium centres on the physical safety of customers and staff Taylor cited in Wilks and Page (2003:7). Many of these accidents had not only local or regional, but global impact and prompted tourism crises at corporate, industry and destination level (Henderson, 2007:1) . This report will represent understanding of risk management area as well as give an insight into risk management process with the use of the secondary data. Risk management is increasingly recognised as being concerned with both negative and positive aspects of risk. Risk can be defined as the combination of the probability of an event and its consequences. In all types, there is the potential for the event and consequences that constitute opportunities for benefit or threats to success. (Risk Management Organisation, 2002) Therefore this standard that risk management is recognised with both positive and negative aspects of risk, it considers risk from both perspectives. According to Saayman et al. (2009), in the safety field, it is generally recognised that consequences are only negative and the management of risk is focused on prevention and mitigation of harm. Risks in the tourism industry can be divided into paternal and external. Internal (domestic) risks include crime, transport risks at the destination. External (international) risks include terrorism, economical and political
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issues, natural disasters taking place outside the border of a destination but that impact upon travel to a destination. As Cooper et al (2008:296) states, risk can occur in several ways and is common in every industry. There is always risk associated to travel, they can be mitigate by choosing destination with lower risk perception, however it is rather rare that perception of risk is equal to risk itself. The way that media report any accidents or terror incidents influence the perception of risk and at the same time influence economy of the destination of incident. Other than risk management there are disaster and crisis which should be identified in order to avoid misunderstanding between those three different areas. Anticipatory crisis management plays a particular role anywhere where competitive advantage is easily open to attack or can be destroyed by negative events. This applies in general for tourism, which like no other industry works with values and making dreams come true. Tourism is a phenomena of the modern era and describes everything in general that is associated with travelling. According to Glaesser (2006:15), tourism should be understood as the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business or other purposes. When it comes to disasters, it is a serious disruption of the functioning of a community or a society involving widespread human, material, economic or environmental loses or impacts, which exceeds the ability of the affected community or society to cope using its own resources United Nations (2011). The immediate effects of disaster (e.g. earth quake, hurricane, etc.) could be destruction of tourist infrastructure and superstructure. Apart from the direct effect of the disaster on the destination, it is common that places where disaster took place suffer long-term damage if travel risk-perceptions are generated (Cooper et al, 2008:279). 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.
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1.2. 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
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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 organisations 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:
1. Premises where the firm is located, type of premises available for use,

amenities, distribution routes, access for customers; 2. Product industry sector, features of product or service offered, life cycle and fashion trends, materials used in production, green issues, quality; 3. Purchasing access to supplies, storage and warehouse facilities, stock control, payment terms, cost 4. People the workers in the organization, skills, training needs, motivation and commitment, incentive packages available, employment contracts; 5. Procedures production procedures, record keeping and reporting systems, monitoring and review, use of standards, emergency procedures; 6. Protection personal protection of workers and others, property and vehicle security, insurance cover, information systems, data security; 7. Processes production processes, waste and scrap disposal, skills technology and new materials; 8. Performance targets set, monitoring, measurement tool, consistency, validity of data; 9. Planning access to relevant data, management skills, external factors and levels of control, short- and long-term planning, investment options; 10. Policy range of policies that support the strategic plans of the firm. (Jaynes, 2002:5).
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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. Domain Economic External Recession Currency fluctuations Taxation Political Government policy International
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Internal Rising costs Falling revenues Unprofitability

relations Instability Terrorism Socio-cultural Unrest Crime Environmental Natural phenomena Natural disasters Pollution Health scares Technological Computer system failure Mechanical failure Commercial Design faults, fire Regulations Government intervention Competition Labor disputes Management decisions Human error (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.
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Staffing Cultural conflicts Environmental degradation

Transport accidents

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).

2.2. 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 organisations 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 3.1. Ryanair

As it says on the main page on the Annual Report (2011) of Ryanairs company it is The Worlds Favorite Airline. To get an idea on where Ryanair is standing between other airline companies, some brief charts will be presented.

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(Source: Annual Report, 2011)

As the top picture shows, Ryanairs 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 Ryanairs customers. Ryanairs performance over the past year has demonstrated yet again the strength of Ryanairs unique lowest fares/lowest cost model in Europe.
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Their strategy is Ryanairs objective is to firmly establish itself as Europes 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 companys results and increase crisis risk. According to Ryanairs 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 Ryanairs costs and affected the profit. Based upon Ryanairs 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 Companys annual fuel costs. Ryanairs fuel costs in the 2011 fiscal year, after giving effect to the Companys 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 Ryanairs profitability. In the event
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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 Ryanairs low fares and its no-fuel-surcharges policy, as well as the Companys 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 Ryanairs fleet will result in an increase, in absolute terms, in Ryanairs 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. Ryanairs 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 Ryanairs 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

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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, Ryanairs 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

Annual Report (2011) [Internet] Available at: <www.ryanair.com/doc/investor/2011/Annual_Report_2011_Final.pdf> [Accessed 18 March, 2012]

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. Glaesser, D. (2006), Crisis Management in the Tourism Industry (2nd ed.), Oxford: Butterworth-Heinemann

Henderson, J. (2007), Tourism crises; causes, consequences & management, Oxford, Butterworth-Heineman

Institute

of

Risk

Management

(2011)

[Internet]

Available

at:

<http://www.theirm.org/publications/documents/ARMS_2002_IRM.pdf >[Accessed 6 March 2012]

Jaynes, J. (2002) Risk Management: 10 Principles. Oxford, Butterworth Heinemann. Kajuter, P., Linsley, P., Woods, M. (2008) Risk Management, Internal Control and Corporate Governance: International Perspectives. London, Cima. Reuvid, J. (2009) Managing business risk: A practical guide to protecting your business. London, Kogan Page. Saayman, M., Snyman J.A. (2009) Tourism Review. Emerald Group Publishing Limited

United Nations (2011) [Internet] Available at:< http://www.un.org> [Accessed 12 March 2012] Wilks, J., Page, S.J. (2003) Managing tourist health and safety in the new millennium. Oxford, Elsevier.

Wilks, J., Page, S.J. (2003) Managing tourist health and safety in the new millennium. Oxford, Elsevier.

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