Enterprise Risk Management in the Airline Industry

369 Pages·2012·2.1 MB·English

Enterprise Risk Management in the Airline Industry
- Risk Management Structures and Practices

A thesis submitted in partial fulfilment of the requirements of Brunel
University for the degree of Doctor of Philosophy

By

Anna Misiura

Brunel Business School

Brunel University

London

May 2015
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Abstract
This thesis expands on the literature in the under-researched field of airline risk
management by exploring organisational structures and practices of airline risk
management systems and their technical and institutional drivers. In particular, it
focuses on the phenomenon of Enterprise Risk Management (ERM) and its alignment to
the requirements of airline business contexts. The theoretical framework informing this
study combines structural contingency theory with two strands of institutional theory,
namely old institutional economics and new institutional sociology. In this thesis, the
phenomenon of risk management is investigated in situ as an organisational practice
through a two-stage empirical study. Firstly, an exploratory field study was undertaken
in a panel of ten international airlines. Secondly, the field study was complemented with
findings from two explanatory case studies.

This study explains how in developing risk management systems airlines balance the
sometimes conflicting technical and institutional demands of their respective task and
institutional environments. The adoption and implementation of ERM in airlines are
found to be driven primarily by coercive and normative pressures, and expectations of
improved organisational effectiveness and efficiency. This study additionally improves
general understanding of the nature of ERM and its coupling and fluidity in the
organisational settings of airlines. It lends evidence for systematic variations in roles,
uses, and organisational design choices of ERM systems. It shows the interdependent
nature of airlines’ ERM systems and other management systems. The study also
demonstrates that the adoption of ERM in airlines drives development of new
institutions, rules, and routines for comprehensive management of risks. Consistent with
the tenets of contingency theory, this study conveys lack of a universally appropriate
design of an airline ERM system.

The main contribution of this thesis is to assess airline risk management systems,
identify core drivers of effective risk management practice, and provide a framework
with the aim of guiding airlines in the development of enterprise-wide risk management
approaches aligned with the requirements of their institutional and technical contexts.
Furthermore, this research overcomes the limitations of previous, mostly quantitative
studies of ERM coupling and dynamics in organisations, as it explores and explains the
structures, practices, and rationales of airline risk management systems within wider
organisational contexts through the use of qualitative methodologies.
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Dedication

To my parents, Teresa and Leon, for their everlasting love and endless support.
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Acknowledgements

First and foremost I would like to thank Dr Abraham Althonayan and Dr Mirna Jabbour
for their support and encouragement throughout the duration of this research.

I would also like to express appreciation to academic and administrative staff at Brunel
Business School.

My heartfelt gratitude especially to Fernando, Julita, and Kamil, for their love.

Last but not least, my special appreciation to all my friends who sustained me with their
encouraging words and wishes over the years of study.
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Declaration

I, Anna Misiura, hereby declare that the contents included in this PhD thesis are entirely
my own work, have been developed specifically for this research, and have not been
previously submitted for any other qualification.
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Table of Contents
Chapter 1: Introduction ................................................................................................. 1
1.1 Background ............................................................................................................. 1
1.2 ERM concept ........................................................................................................... 4
1.3 Risks and challenges in the airline industry ............................................................ 6
1.4 Research problem .................................................................................................... 9
1.5 Aims and objectives of the study .......................................................................... 12
1.6 Significance of the study ....................................................................................... 14
1.7 Outline of the thesis............................................................................................... 16
Chapter 2: Literature Review ...................................................................................... 17
2.1 Introduction ........................................................................................................... 17
2.2 Evolution of the risk management discipline ........................................................ 18
2.3 Risk management in the airline industry .............................................................. 20
2.3.1 Airline business environment and risk management practice ........................ 21
2.3.1.1 Key areas of airline risk management practice ..................................... 23
2.3.1.2 Operational risk management in airlines .............................................. 27
2.3.2 Trends and new directions in research and practice of airline risk
management ............................................................................................................. 32
2.4 Adoption and implementation of ERM and their driving forces .......................... 39
2.4.1 Drivers of ERM adoption and implementation .............................................. 39
2.4.2 ERM implementation ..................................................................................... 41
2.5 Overview of landmark ERM frameworks and risk management standards .......... 44
2.5.1 Australian and New Zealand Standard for Risk Management
AS/NZS 4360 ......................................................................................................... 48
2.5.2 COSO Enterprise Risk Management – Integrated Framework ...................... 49
2.5.3 ISO 31000 Standard ....................................................................................... 52
2.5.4 Alignment of ERM frameworks and risk management standards to
organisational contexts ........................................................................................... 55
2.6 Limitations of literature ......................................................................................... 58
2.7 Conclusions ........................................................................................................... 59
Chapter 3: Theoretical Framework ............................................................................ 61
3.1 Introduction ........................................................................................................... 61
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3.2 Theoretical approach: Duality of technical and institutional environment ........... 62
3.2.1 Contingency theory perspective ..................................................................... 64
3.2.2 Institutional theory perspective ...................................................................... 66
3.3 Theoretical model ................................................................................................. 70
3.3.1 Components of the theoretical framework: analysis under the contingency
approach ................................................................................................................. 72
3.3.2 Components of the theoretical framework: analysis under the institutional
approach ................................................................................................................. 78
3.4 Conclusions ........................................................................................................... 81
Chapter 4: Research Design ......................................................................................... 83
4.1 Introduction ........................................................................................................... 83
4.2 Research paradigm ................................................................................................ 83
4.3 Research methodology .......................................................................................... 86
4.3.1 Field study ...................................................................................................... 87
4.3.2 Case study ....................................................................................................... 89
4.4 Definition of units of study ................................................................................... 91
4.4.1 Field study sampling ...................................................................................... 91
4.4.2 Case study sampling ....................................................................................... 96
4.5 Research methods .................................................................................................. 97
4.5.1 Data collection methods ................................................................................. 98
4.5.2 Data analysis methods .................................................................................. 104
4.6 Ethical considerations ......................................................................................... 107
4.7 Limitations of the field study and case study research, and reliability
and validity considerations ........................................................................................ 108
4.8 Conclusions ......................................................................................................... 112
Chapter 5: Field Study: Airline Risk Management Structures, Practices,
and their Determinants .............................................................................................. 114
5.1 Introduction ......................................................................................................... 114
5.2 Determinants of airline risk management approaches ........................................ 115
5.2.1 Institutional pressures ................................................................................... 115
5.2.2 Contingency factors ...................................................................................... 121
5.3 Review of airline risk management systems ....................................................... 125
5.3.1 Characteristics of airline risk management systems ..................................... 126
5.3.2 Maturity and advancement of airline risk management approaches ............ 133
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5.4 Conclusions ......................................................................................................... 138
Chapter 6: Case Study: ERM System in Alpha Airlines ....................................... 142
6.1 Introduction ......................................................................................................... 142
6.2 Outline of the case study ..................................................................................... 143
6.3 ERM model ......................................................................................................... 144
6.3.1 ERM governance structures ......................................................................... 145
6.3.2 ERM technologies ........................................................................................ 150
6.3.3 Pillars of the ERM model ............................................................................. 157
6.3.4 ERM internal environment ........................................................................... 166
6.4 Conclusions and lessons learnt ............................................................................ 168
Chapter 7: Case Study: Risk Management System in Beta Airline ....................... 172
7.1 Introduction ......................................................................................................... 172
7.2 Outline of the case study ..................................................................................... 174
7.3 Risk management model ..................................................................................... 175
7.3.1 Risk management governance structures ..................................................... 179
7.3.2 Risk management technologies .................................................................... 181
7.3.3 Functionality of Beta´s risk management system ......................................... 193
7.4 Conclusions and lessons learnt ............................................................................ 196
Chapter 8: Discussion ................................................................................................. 199
8.1 Introduction ......................................................................................................... 199
8.2 ERM framework in the airline industry .............................................................. 200
8.2.1 Risk governance structures ........................................................................... 203
8.2.2 Management of enterprise-wide risks: ERM process and airline risk
profile .................................................................................................................... 207
8.2.3 ERM architecture ......................................................................................... 210
8.2.4 ERM internal environment ........................................................................... 212
8.2.5 Context-specific design of an ERM system ................................................. 215
8.3 Determinants of airline risk management and ERM systems ............................. 217
8.3.1 Institutional determinants of airline risk management systems ................... 217
8.3.2 Technical determinants of airline risk management systems ....................... 224
8.4 Maturity, roles and uses of airline risk management and ERM systems ............ 231
8.5 Conclusions ......................................................................................................... 235
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Chapter 9: Conclusions .............................................................................................. 239
9.1 Introduction ......................................................................................................... 239
9.2 Research questions revisited ............................................................................... 240
9.2.1 Determinants of adoption and implementation of risk management
systems in airlines ................................................................................................ 240
9.2.2 Organisational structures and practices within airline risk management
systems ................................................................................................................. 242
9.2.3 Assessment of airline risk management systems ......................................... 244
9.2.4 Recommendations for improvement of airline risk management systems ... 246
9.3 Contribution of the study..................................................................................... 247
9.3.1 Contributions to theory ................................................................................. 248
9.3.2 Contributions to methodology applications ................................................. 249
9.3.3 Contributions to knowledge and practice ..................................................... 250
9.4 Research limitations ............................................................................................ 254
9.5 Recommendations for further research ............................................................... 257
9.6 Final remarks ...................................................................................................... 258
References .................................................................................................................... 259
Appendix A: Theoretical Framework ....................................................................... 288
Appendix B: Coding Scheme .................................................................................... 297
Appendix C: Analysis of Field Study Findings ........................................................ 299
Appendix D: Extension of Findings from Alpha Case Study ................................... 326
Appendix E: Interview Agenda Designed for the Field Study.................................. 335
Appendix F: Interview Agenda designed for the Case Studies ................................. 341
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List of Tables

Table 2-1: ICAO’s Safety Management System Framework ..................................... 31
Table 4-1: Airlines participating in the empirical research ........................................ 95
Table 4-2: Field study and case study interviewees .................................................. 103
Table 4-3: Organisation and analysis of empirical data ............................................ 106
Table 4-4: Triangulation............................................................................................ 109
Table 5-1: Institutional pressures influencing airline risk management systems...... 117
Table 5-2: Contingency factors influencing airline risk management systems ........ 123
Table 5-3: Perceived status of risk management development ................................. 127
Table 5-4: Characteristics of airline risk management systems ................................ 129
Table 5-5: Maturity and advancement of airline risk management systems ............. 134
Table 8-1: Drivers of effective risk management in airlines ..................................... 203
Table 8-2: Review of key findings ............................................................................ 237

List of Figures

Figure 2-1: Airline risk management matrix ............................................................... 23
Figure 2-2: Evolution of safety risk management ....................................................... 28
Figure 2-3: Research trends in airline risk management ............................................. 33
Figure 2-4: Evolution of airline risk management approaches ................................... 35
Figure 2-5: Implementation of ERM ........................................................................... 42
Figure 2-6: Risk management process - AS/NZS 4360 .............................................. 48
Figure 2-7: COSO`s Enterprise Risk Management Integrated Framework. ............... 51
Figure 2-8: Relation between the components of the ISO 31000 standard ................. 53
Figure 3-1: Schematic representation of the theoretical model ................................... 71
Figure 8-1: ERM framework in the airline industry ................................................. 201