Let’s face it: Boeing have not had a good week but it is much worse for the airlines who have done nothing wrong, argues our editor Lauren Gow.
The power of perception is a curious thing. Following news that Boeing had grounded its entire 737 Max 8 fleet after the Ethiopian Airlines crash that killed 157 people last week, some commentators have hypothesised, Boeing has acted ‘too little, too late’ when it came to making the decision to ground the fleet, thereby losing control of the narrative and increasing risk of further reputational damage. Some have even argued that consumers are likely to rally against Boeing for the perceived mishandling of this incident.
I don’t believe that for a second. Consumers, myself included, are not quite as sophisticated when it comes to selecting which planes to fly on. I don’t know anyone that researches the exact model of the plane they will be travelling on before booking and paying for tickets. Most consumers care more about firstly, price and secondly, the safety record of the airlines in question, rather than exact plane models that will be taking them from point A to point B.
What we are actually talking about here is a question of perception. There is undeniably a reputational issue on safety plaguing Boeing this week, however I don’t believe this will affect the multi-billion dollar earning potential of this firm in the long-term. In fact, Boeing shares actually ended up 0.5% at $US377.14, recovering from a more than 3% fall in the afternoon, when the United States announced it was grounding Boeing’s 737 MAX jets following Sunday’s fatal crash in Ethiopia.
According to a January 3, 2019 report regarding Dutch aviation consultancy To70 figures analysing fatal air crashes in 2018, “there are as many accidents within the Airbus 320 family as there involving 737s.” On the day the report was released, Airbus shares dropped to a year-low of €81.21 but have since bounced back to a 5-year-high of €116.88 on March 1, 2019. Similarly, Boeing’s share price crashed following the Lion Air disaster in October 2018 but had rallied to a 5-year-high of $440.62 on March 1. Clearly, reputational issues don’t concern investors long term.
I think the real reputational risk losers here are the airlines, often through no fault of their own. Following air disasters, consumers tend to shy away from affected airlines, particularly in the budget airline market, according to experts. Whilst consumer and investor confidence in the aircraft manufacturers themselves is likely to remain largely unaffected by these latest tragedies, the same thing is unlikely to be said for Lion Air and Ethiopian Airlines.
This situation presents a unique opportunity for risk managers in the airline field. On one hand, it is good news for airlines not affected but on the other, consumer confidence in air travel, in general, is shaken after a fatal crash. Managing a type of risk that is likely to be as damaging, if not more damaging to your firm than the accident is to the aircraft manufacturer is difficult, to say the least. But ultimately, it comes down to perception. If consumers believe your airline has a strong safety record, regardless of the type of aircraft flown, the more likely they are to trust your brand. The importance of reputational risk and the power of consumer perception should never be underestimated.
For more on the Boeing crisis, click here.