Whether Contingency Planning is Essential for Airlines | AQA Q3.3, Paper 2 2018

Here is a suggested response to the 16-mark "open" question on whether it is essential that airlines should undertake contingency planning, in the AQA A-Level Business Paper 1 in 2018.

Contingency planning ought to be an important activity for any complex businesses like airlines, although the extent to which this essential will depend on a variety of factors, including the scale of their operations and the resources an airline has.

Taking the case of GA, there are several issues which suggest contingency planning is important. The potential strike by the increasingly unionised cabin crew creates a risk of significant disruption to GA flights, particularly if management’s contingency plans for leasing planes and temporary staff are ineffective. Even if the existing contingency plan works, it would be sensible for GA management to plan for the effects of a longer-term decline in the employer-employee relationship and potentially also for a loss of some customer goodwill if cabin crew are able to get customers on their side in a prolonged industrial dispute. The ability of an airline like GA to sustain its contingency plan of using alternative plans and staff might depend on the financial resources of the business, since management’s contingency plans are likely to be more costly than agreeing a deal with the UAS on cabin crew pay.

Other than industrial action, there are lots of factors outside the control of an airline that argue for contingency planning. The significant impact of the drone incidents at Gatwick airport is a great example of an external factor that affected all airlines leading to significant extra costs. Similarly, natural disasters such as the Icelandic ash cloud can lead to unexpected disruption where the value of effective contingency planning by some airlines (e.g. looking after customers caught up) might give them an advantage over competing airlines who were less prepared. It can be argued that larger airlines with greater resources are best-placed to benefit from contingency planning in these situations, since they can better afford the costs of handling disruption and looking after customers, whereas smaller airlines with fewer resources are less able to respond in the way they might light.

So, can an airline afford not to undertake contingency planning? There might be some risks that an airline decides are not worth planning for. For example, changes in oil prices have a big impact on costs but are outside of the control of the business and affect all competitors. Similar, why should an airline bother to plan for industrial action? If it happens, it won’t happen overnight and the airline will have time to respond. Contingency planning takes up management time which might be better spent focused on the day-to-day decisions that impact performance rather than speculating about what “might happen”. That is not to say that management of an airline should ignore contingency planning (they might be accused of being negligent if something happened that they should have planned for) but they should be selective about the risks that justify contingency planning.

As argued above, airlines are complex businesses that are particularly exposed to risks like natural disasters and industry disruption that many other industries are less affected by. This factor alone suggests that contingency planning by airlines is an essential management task, although the scale of that planning will to a large extent be determined by the scale and complexity of the individual airline and the management’s attitude to risk. Airlines with widespread operations and whose financial performance is reliant on continued customer goodwill and positive employee/employer relationships should take contingency planning particularly seriously.