Managing Common and Catastrophic Risks in the Airline Industry

ABSTRACT

This chapter discusses risk management with a focus on the airline industry. The world has become acutely aware of major supply chain disruptions due to the COVID pandemic. Consumers, airline passengers, and companies are scrambling to understand and respond to these events. In that light, we begin the chapter with a brief overview of risk management, highlighting both common and catastrophic risks faced by companies and their supply chains. We then discuss approaches that companies employ to mitigate them. Our primary goal is to explore the risks that airlines face and the approaches they take to manage them, including fuel hedging, capacity management, and ticket pricing. Based on company interviews and our firsthand experience, we note that the airlines typically make these decisions in silos. Therefore, we introduce an analytical model that explicitly integrates them. We derive analytical results and propose directions for future research. We conclude with summary comments about managing risks once the world moves past COVID. © 2022, The Author(s), under exclusive license to Springer Nature Switzerland AG.