Coping with Cancellations
Airlines typically can offset revenue losses for cancellations due to bad weather either by saving on fuel and salary costs or rerouting passengers on other flights, but this year’s revenue losses from the worst winter storm season in years might be too much for traditional measures.
At least one broker said the time may be right for airlines to consider crafting custom insurance programs to account for such devastating seasons.
For a good part of the country, including many parts of the Southeast, snow and ice storms have wreaked havoc on flight cancellations, with a mid-February storm being the worst of all. On Feb. 13, a snowstorm from Virginia to Maine caused airlines to scrub 7,561 U.S. flights, more than the 7,400 cancelled flights due to Hurricane Sandy, according to MasFlight, industry data tracker based in Bethesda, Md.
Roughly 100,000 flights have been canceled since Dec. 1, MasFlight said.
Just United, alone, the world’s second-largest airline, reported that it had cancelled 22,500 flights in January and February, 2014, according to Bloomberg. The airline’s completed regional flights was 87.1 percent, which was “an extraordinarily low level,” and almost 9 percentage points below its mainline operations, it reported.
And another potentially heavy snowfall was forecast for last weekend, from California to New England.
The sheer amount of cancellations this winter are likely straining airlines’ bottom lines, said Katie Connell, a spokeswoman for Airlines for America, a trade group for major U.S. airline companies.
“The airline industry’s fixed costs are high, therefore the majority of operating costs will still be incurred by airlines, even for canceled flights,” Connell wrote in an email. “If a flight is canceled due to weather, the only significant cost that the airline avoids is fuel; otherwise, it must still pay ownership costs for aircraft and ground equipment, maintenance costs and overhead and most crew costs. Extended storms and other sources of irregular operations are clear reminders of the industry’s operational and financial vulnerability to factors outside its control.”
Bob Mann, an independent airline analyst and consultant who is principal of R.W. Mann & Co. Inc. in Port Washington, N.Y., said that two-thirds of costs — fuel and labor — are short-term variable costs, but that fixed charges are “unfortunately incurred.” Airlines just typically absorb those costs.
“I am not aware of any airline that has considered taking out business interruption insurance for weather-related disruptions; it is simply a part of the business,” Mann said.
Chuck Cederroth, managing director at Aon Risk Solutions’ aviation practice, said carriers would probably not want to insure airlines against cancellations because airlines have control over whether a flight will be canceled, particularly if they don’t want to risk being fined up to $27,500 for each passenger by the Federal Aviation Administration when passengers are stuck on a tarmac for hours.
“How could an insurance product work when the insured is the one who controls the trigger?” Cederroth asked. “I think it would be a product that insurance companies would probably have a hard time providing.”
But Brad Meinhardt, U.S. aviation practice leader, for Arthur J. Gallagher & Co., said now may be the best time for airlines — and insurance carriers — to think about crafting a specialized insurance program to cover fluke years like this one.
“I would be stunned if this subject hasn’t made its way up into the C-suites of major and mid-sized airlines,” Meinhardt said. “When these events happen, people tend to look over their shoulder and ask if there is a solution for such events.”
Airlines often hedge losses from unknown variables such as varying fuel costs or interest rate fluctuations using derivatives, but those tools may not be enough for severe winters such as this year’s, he said. While products like business interruption insurance may not be used for airlines, they could look at weather-related insurance products that have very specific triggers.
For example, airlines could designate a period of time for such a “tough winter policy,” say from the period of November to March, in which they can manage cancellations due to 10 days of heavy snowfall, Meinhardt said. That amount could be designated their retention in such a policy, and anything in excess of the designated snowfall days could be a defined benefit that a carrier could pay if the policy is triggered. Possibly, the trigger would be inches of snowfall. “Custom solutions are the idea,” he said.
“Airlines are not likely buying any of these types of products now, but I think there’s probably some thinking along those lines right now as many might have to take losses as write-downs on their quarterly earnings and hope this doesn’t happen again,” he said. “There probably needs to be one airline making a trailblazing action on an insurance or derivative product — something that gets people talking about how to hedge against those losses in the future.”
It’s All About Content
A more immersive reading experience? We’re glad you asked. A cleaner layout and typographic design keeps your focus on the content. The “infinite scroll,” simplified navigation and Google search make finding interesting articles easier. And no matter your screen size – PC, tablet or phone – the site is optimized to ensure the same great experience.
The benefits of the site are mostly self-evident. But a few features are worth highlighting to help get you started:
Current Section: Displays the issue, topic, author or section you are currently viewing.
Content Ribbon: Lists all of the articles in the current section. Easily browse the articles and click on any tile to load that article into the infinite scroll.
Infinite Scroll: Read each article from top to bottom without having to click to continue. The next article loads automatically so you can continuously read/browse an entire issue or section – similar to how you read a print magazine.
Full Screen: Click the arrow to hide the content ribbon and create a clutter-free article reading experience. Also handy for smaller screens or tablets.
More Ways to Explore
Nav Bar: Click the gray bar to reveal several filters, sections and topics that tailor articles to your interests.
Authors/Topics: Reading an article you like? Click on the author’s name to see all of their content or click on one of the topics to load that section.
Google Search: Still not finding what you want? The search bar slides out to help you find it.
Responsive Design (Mobile Optimized)
The site utilizes a responsive design. That means the layout automatically adjusts to different screen sizes. You can see the technology in action by adjusting the size of your browser window. It’s pretty cool.
But responsive design is more than just a neat trick. It ensures that our new site looks great and works well on all screen sizes. Call us a website or, if you like, a web app – the site combines the benefits of the free and open web with the elegance of an application.
More to Come
But we are not done yet. The site enables us to integrate new content types into our stories. Over the next year, you will see more charts, graphs, infographics, videos, photos, etc. And an entirely new editorial program called “Risk Insider” is launching in April.
Be sure to sign-up for one of our newsletters to stay abreast of all these developments as well as the latest articles and content we publish.
In the meantime, we would love to hear your feedback about the new site or anything else we do. Write to us at email@example.com.
Passionate About Technology
If you overheard the passion and enthusiasm that Brit Waters uses to describe his most important business technology, you would immediately assume it was the latest smartphone or tablet. But it’s not Apple or Google that generates so much enthusiasm, it’s the Riskonnect risk management platform.
“Riskonnect revolutionized how our department does business. This system changed the way we gather, analyze and communicate information. It’s made us more efficient, effective and reliable,” said Waters, Manager, Risk Management at Avery Dennison Corporation. “These are not bandages, but complete solutions.”
Avery Dennison is a multinational company offering labeling and packaging materials and solutions whose applications and technologies are an integral part of products used in every major market and industry. The company operates in more than 50 countries with over 26,000 employees and $6 billion in revenues in 2013.
“Riskonnect revolutionized how our department does business. This system changed the way we gather, analyze and communicate information. It’s made us more efficient, effective and reliable. These are not bandages, but complete solutions.”
– Brit Waters, Manager, Risk Management, Avery Dennison Corporation
The company partnered with Riskonnect, the provider of premier, enterprise-class technology platforms. In just 18 months, the system not only revolutionized the department but also delivered wide-ranging value for plenty of other parts of the organization. Those departments utilize the system to manage financial assets, keep track of vehicles and will soon oversee facilities requests.
‘The Simplicity is Unreal’
For global property insurance renewals, Riskonnect changed the way Avery Dennison collects data on its 300 manufacturing facilities, warehouses and other properties around the world. Gone are the days of sorting through hundreds of separate emails with information about the properties and merging hundreds of separate spreadsheets into one.
Not only was the old process cumbersome, it left lots of room for error.
With Riskonnect, the process is automated. It sends emails to the more than 100 individual contacts and the users insert the information into the Riskonnect portal themselves — something that makes Waters’ life a whole lot easier.
“I hit a button once and it runs the report for me. The simplicity is unreal,” he said. “Plus, it gives us better information that we can communicate to our insurance carriers, and gives them increased confidence about the risks they’re insuring.”
Waters said it’s a big time-saver. “Before, the process could take up to three months, and now we get it done in less than a month.”
One thing he’s particularly excited about is the configurability of the portal. If he wants to customize it, he can easily do so without going through a computer programmer or contacting an account executive.
“It gives you the power to set up the system as you need it, not as someone else envisions you need it,” said Waters.
The Riskonnect portal is also the primary source for reporting workers’ compensation claims. Again, the Riskonnect system simplified the process. Before, employees had to call a 1-800 number or fill out a long form and fax it to the Third Party Claims Administrator (TPA). Now they just log on and use the claims reporting portal, which is equipped with drop-down menus and other efficiencies that help expedite the process.
“We take the guessing game out of their hands,” said Waters. “In a matter of minutes, they get a confirmation email that the claim has been submitted to the TPA.”
Through the Riskonnect dashboard tools, Waters and his department can learn a lot about trends in workers’ comp claims. The system tracks claims year-to-date, costs, causes of injury and even the top body parts that are hurt. Then risk management communicates that information to local managers to make sure that safety-and-prevention programs are appropriate and will help reduce the amount of claims and their costs.
“The Riskonnect dashboards layout all this valuable information in easy-to-use tables and charts, making it simple for us to study the data and implement necessary safety changes,” said Waters.
ROI on a Values Collection Module
At the start of the process, Waters never imagined just how many other departments would use the tool. The finance department uses the system for asset management. The fleet administrator uses it to have drivers sign off on its manuals. Even the facilities department is jumping on board, using the Riskonnect system to identify when properties need repairs to big-ticket items like roofs or windows.
The company is also looking to report global property claims, transit claims and employers’ liability claims through the platform. It’s even evaluating if it can use it on the shop floor with health-and-safety team members having easy access to the system via iPads.
”The Riskonnect platform can help many different departments with a wide variety of tasks,” said Waters. “It’s really making risk management a much more strategic contributor to the company.”
“I hit a button once and it runs the report for me. The simplicity is unreal,” Waters said. “Plus, it gives us better information that we can communicate to our insurance carriers, and gives them increased confidence about the risks they’re insuring. Before, the process could take up to three months, and now we get it done in less than a month.”
Waters’ enthusiasm for the product is clear, but he’s not alone. End-users are raving about how easy, intuitive and customizable it is. For example, training end-users used to consist of holding approximately 15 different webinars to walk everyone through the process. Now, it’s accomplished in one easy-to-understand mass communication through the Riskonnect portal.
The end users even helped Waters and the Avery Dennison team add efficiencies that improve the entire process. On the property reporting side, they suggested adding an attachment tool for adding spreadsheets – so the information is easy to find the following year.
“It’s amazing when you give the end users a product and you see how they come back to you with advice that you never even thought of,” said Waters. “That speaks volumes for the system.”
In just 18 months, Riskonnect changed the way Avery Dennison does business — something Waters can’t hide his enthusiasm about.
“I don’t consider them just a vendor,” said Waters. “I consider them a long-term strategic partner.”