By Liying Gu
The ACI-NA Insurance and Risk Management Committee kicked off the New Year with its 12th annual Insurance and Risk Management held in Atlanta with 106 pre-registered attendees, up almost 12 percent over last year’s attendance.
The first session today highlights the business of risk management and important issues that the aviation risk management is facing today. Stephen Caldwell, Director of Financial Analysis, Budgeting, and Risk Management of the Atlanta airport presented an airport’s perspective; while Rick Price, Director of Risk Management and Insurance of Delta Air Lines addressed the session from an airline perspective.
Price discussed Delta’s global network and route growth. He is confident of Delta’s traffic growth in 2011 as he sees lots of gross domestic product growth. According to him, Delta is trying to match capacity in line with GDP growth. In 2011, Delta is looking to add 2 percent capacity, just a little below the US GDP growth as Wall Street likes to see capacity discipline. The wild card is fuel even though the airline hedges 50 percent with 90 days out.
From fleet perspective, Delta is implementing an “up gage” strategy – moving away from smaller regional jets in the domestic U.S. market, which takes the frequency down and increases the seats. Other airlines may employ an opposite strategy depending on their existing route network. By implementing an “up gage” strategy, they are focusing on increasing the margin even though unit revenue may go down. Other airlines may implement a “down gage” strategy, i.e. moving to smaller regional jets, the focus of which is on improving unit revenue.
Staying informed on a carrier fleet plan is important in airport-airline relationship as a key example of information sharing, Caldwell said, as it takes long time to build airport infrastructure.
The risk of a terrorist attack exists as U.S. is a target. The U.S. security system is built on the idea that everybody is a suspect. Price does not quite agree with the “trusted traveler program” as he thinks this may become a weak point. He acknowledges that the airline benefits from FAA’s war risk program and keeps monitoring any change in the program.
Caldwell reported that Atlanta Airport has an Owner Controlled Insurance Program in place aiming to generate more financial benefits under one program. It generated savings of 3 percent of the total $6.5 billion capital improvement program. What’s more, it allows small business and minority companies to get involved in the airport’s Capital Program.