Qantas Ground Crew

IDEA ANALYSIS BLOG 4: RISK MANAGEMENT AND PASSENGER SAFETY

Earlier this week, I read about a Cypriot low-cost airline that coincidentally went by the name of Helios Airways. The airline ceased operations in 2006 due to a tragic accident caused by an inadequately prepared flight crew – an event that ultimately led to the manslaughter convictions of five senior officials for their oversight in risk management and compliance. The story of this airline was a sobering reminder of just how risky this industry is. After reading the article “Startups Rarely Do Anything Well” by Eric Paley, I feel that my “boundless ambition” as an entrepreneur in the last few weeks has led me to overlook the one aspect that is ultimately paramount to success in this industry: customer safety. Unlike most other service-based firms, airlines have responsibility over their customers’ lives. This is a major part of the competitive landscape: airlines with the best customer safety procedures will thrive, and a single event caused by even the smallest oversight can serve to tarnish an airline’s reputation and send it into bankruptcy overnight.

Qantas Airlines has built one of the industry’s strongest brands around its accident-free record, by implementing one of the most complex and rigorous safety compliance systems in the world. From checking every bolt on every aircraft, to training flight crews in crisis management, Qantas has invested millions of dollars in ensuring that its passengers are safe. Here is the airline’s risk management model:

Qantas Airlines: Risk Management Model

Qantas Airlines: Risk Management Model

What this says to me is: at the end of the day, you can invest in the highest capacity, most fuel-efficient aircraft out there, but neglecting to invest in passenger safety and crew training is a recipe for failure. Managing the increasingly complex external risk environment is key to market dominance. Aviation entrepreneurs tend to avoid the subject of accidents – after all, no one ever wants to even imagine it happening to their airline. But this is something that needs to be discussed. I did a small analysis of the accident rates between helicopters and fixed-wing aircraft, using US data from the National Transportation Safety Board.

Type of Aircraft Accidents per 100,000 flight hours
Helicopter (rotorcraft) 9.47
Fixed-Wing (single or multi-engine) 8.38

Although the accident rates are very similar between aircraft type, the worldwide perception is that helicopters are far more dangerous than fixed-wing aircraft. A simple Google search will yield one of the largest passenger concerns: whether a “helicopter will drop like a rock if the engine dies,” although there is a significant body of evidence against this. Clearly, it would take a lot more than several compliance procedures to convince individuals that Helios Air will get them to their destination safely.

To be honest, I am fairly certain at this point that my idea for Helios Air will not come to fruition. Given the serious pricing issue I raised last week, along with other factors such as the immense amount of capital and operational risk involved, it is hard to think that a successful business plan could be crafted to offer profitability and market penetration within a reasonable industry framework. However, I am glad that I rationally considered the factors that ultimately falsified my various hypotheses. This meant that I didn’t remain “overly fascinated or over-committed to a product idea,” one of the key entrepreneurial pitfalls discussed in Chapter 8 of New Venture Creation.

In preparing for the ‘Venture-palooza’ on March 17, I intend to conduct some research on a specific substitute product for Helios Air: high-speed rail (HSR). This is a fast-growing mode of transportation in various regions such as Germany and Japan, and is currently being proposed in India. The StartupBoeing team doesn’t view HSR as a threat to commercial aviation, since the network of global aviation routes is approximately 4000% larger than that of trains. However, for short-haul routes where regular rail services already operate (such as Pune-Mumbai), HSR could be the service that beats even the fixed-wing airlines in this incredibly competitive travel market. More to come soon.

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One comment

  1. LONGEST MGMT230 COMMENT IN HISTORY OF MGMT230

    What’s up man, let me comment on Helios Air. First, I was impressed by the level of due diligence and your cross-comparisons with various aircrafts, fuel costs, and flight range. I think given the costs you have to change you’re route from Pune-Mumbai, and I’ve gone the one route for you that I think yields the biggest advantages for Helios Air. I’ve never been to the Hamptons but a 100 mile flight from Manhattan to a helipad in the Hamptons is by far your best route. I’ve chosen this route to incorporate our advantage in time (Chinook took 34 minutes versus train took 3 hours), need for low capacity, and need for a well-paying segment that values time.

    First, Laguardia or JFK are 85 miles away, and taking a taxi would cost at least $300 to $400 from just the airport. The East Hampton Airport only services private planes. Ground travel is a nightmare because of New York City traffic and jet travel isn’t really feasible…welcome Helios Air. There are luxury Bus Services that cost $40 and a train to Long Island, but think about your demographic. These are people that would likely be willing to pay more for a helicopter if it saves time and is a more luxurious way to travel.

    I would also include this into the branding of Helios Air: it is luxury travel. Helicopters and helipads already seem to convey an element of sophistication and speed or at least “these people are important.” I think if there’s one route that Helios Air could work, it would be Manhattan to the Hamptons because it negates your cost disadvantage (taxis or car services are very expensive for 100 miles in that traffic), many forms of travel aren’t feasible like large jets (only small capacity aircraft like helicopters would be used), and this is a demographic that doesn’t like mass transit alternative of rail service and buses.

    Best,
    Andy Waldman

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