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Risk assessment for TransGlobal Airlines to better understand its business environment

When performing an evaluation to determine the performance or health of a company, it is important to identify and evaluate any current or potential risks the company might face.

perform a risk assessment for TransGlobal Airlines to better understand its business environment.

Prompt
Perform a risk assessment for TransGlobal Airlines and write a report describing the results.

Identification: Identify two risks the company is facing, including at least one high-impact risk.
Identify the balanced scorecard component each risk corresponds to.
Classify the risk based on these two types:
Operational
Strategic
Evaluation: Determine whether the probability and impact of each identified risk is low, medium, or high. Justify your evaluation of the impact and probability of each risk.
Mitigation: Recommend a possible risk-prevention or mitigation strategy for each identified risk.
What to Submit

Full Answer Section

Risk 2: Intense Competition from Low-Cost Carriers (LCCs)

Type: Strategic Risk
Balanced Scorecard Component: Customer & Market
- Rationale: LCCs (e.g., Ryanair, Southwest) pressure pricing and market share.
Probability: Medium (industry consolidation may reduce competition).
Impact: Medium (affects revenue but can be offset by brand loyalty).

3. Risk Evaluation

Risk 1: Fuel Price Volatility

Probability Justification: Geopolitical conflicts (e.g., Middle East tensions) and OPEC decisions cause frequent price swings.
Impact Justification: A 10% fuel price increase could reduce profits by ~5% (IATA, 2023).

Risk 2: Competition from LCCs

Probability Justification: LCCs continue expanding routes, but some face financial struggles (e.g., JetBlue’s 2023 losses).
Impact Justification: Price wars erode margins, but TransGlobal’s premium services may retain high-value customers.

4. Risk Mitigation Strategies

For Fuel Price Volatility:

Hedging: Lock in fuel prices via futures contracts (e.g., Southwest Airlines saved $3.5B in 2022 via hedging).
Fuel-Efficient Fleet: Invest in newer, fuel-efficient aircraft (e.g., Boeing 787).

For LCC Competition:

Differentiation: Emphasize premium services (e.g., loyalty programs, luxury seating).
Strategic Alliances: Partner with global networks (e.g., Star Alliance) to offer seamless travel.

5. Conclusion

TransGlobal Airlines faces significant operational and strategic risks. Proactive mitigation—such as fuel hedging and service differentiation—will enhance resilience. Regular risk reassessment is recommended to adapt to industry changes.

Sample Answer

Risk Assessment Report: TransGlobal Airlines

1. Introduction

TransGlobal Airlines operates in a highly competitive and volatile industry. This risk assessment identifies key operational and strategic risks, evaluates their probability and impact, and recommends mitigation strategies to safeguard the company’s performance.

2. Identified Risks

Risk 1: Fuel Price Volatility (High-Impact Risk)

Type: Operational Risk
Balanced Scorecard Component: Internal Processes
- Rationale: Fuel costs directly affect operational efficiency and profitability.
Probability: High (due to geopolitical instability and fluctuating oil markets).
Impact: High (fuel comprises ~30% of airline operating costs).