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Redefining possibility in the aviation industry

The impact of geopolitics, supply chain, and labor shortage headwinds may offset the benefits to the aviation industry of surging passenger air travel demand.

The impact of geopolitics, supply chain, and labor shortage headwinds may offset the benefits to the aviation industry of surging passenger air travel demand. At the same time, the aviation industry is contending with megatrend challenges, including macroeconomic uncertainty, technological innovation, changing workforce dynamics, and the focus on net zero targets. How the industry responds to these challenges will speak volumes about its resiliency and adaptability.

These were some of the themes considered at Marsh’s inaugural aviation summit in April 2024, where aviation industry experts, suppliers, and risk and insurance specialists came together to share insights on strengthening approaches to risk identification, management, and transfer. The summary below outlines some of the pressing issues discussed.

Benefiting from technological advancements

The aviation industry has always been at the forefront of technological development. Advancements in autonomous vehicles, AI technology, and electric vertical take-off and landing (eVTOL) aircraft are no exception.

Airport construction, expansion, and redevelopment projects will require significant future-proofing as the rate of change in technologies gathers pace and the unpredictability of what an airport of the future looks like and how it functions become more pronounced.

Navigating political uncertainty

Political tensions, trade disputes, and economic sanctions can have far-reaching consequences for businesses, particularly for a global sector like aviation. Geopolitical instability coupled with political and economic actions can lead to uncertainty and require the industry to act quickly to modify processes, operations, and business strategy, for instance by canceling flights or changing flight paths.

A changing geopolitical landscape is also seeing governments abandon or violate international governance treaties, for instance the Cape Town treaty, with varying impacts on the aviation industry. Emerging markets experiencing economic growth are seeing a significant increase in air travel demand, which presents ample opportunities for airlines, manufacturers, and finance providers.

Responding to supply chain disruption

The aviation industry relies on a complex network of suppliers and service providers to ensure smooth operations. However, this intricate supply chain has its challenges. Rising costs, geopolitical uncertainties, and the need for sustainable practices all contribute to the supply chain pressures facing the industry.

Creating a sustainable future

As passenger demand ramps up and net zero goals edge closer, aviation stakeholders should embed environmental, social, and governance (ESG) initiatives, sustainability, and the UN Sustainable Development Goals into business-as-usual operations. Innovative approaches to mitigate aviation’s environmental impact and promote sustainable practices were discussed, including reconsidering the shape of aircraft.

One speaker said that “sustainability policies must be married with partnerships”. While sustainability practices are starting to dictate future planning, in general, it was thought that the aviation industry’s path to net zero lags behind other sectors and achieving sustainability goals will require more research, development, and funding for it to catch up.

Ensuring a resilient workforce

The industry’s demanding nature, including long hours, irregular schedules, high-pressure situations, and time away from home, contributes to the industry’s human capital challenges. Amid a rapidly changing environment, organizations will need to create purposeful employee propositions.

Putting safety first

In safety-critical industries, such as aviation, the traditional view of safety as the absence of accidents or incidents is no longer sufficient. True safety encompasses the presence of robust capabilities that enable organizations to effectively manage risks and ensure operational excellence.

Reconsidering the risk landscape

By reconsidering the risk landscape and potential possibilities, the event demonstrated how businesses can proactively identify, assess, and transfer risk, ensuring the safety and success of operations. Understanding the nature and magnitude of risks allows you to make informed decisions, implement appropriate risk management measures, and ultimately enhance your organization’s resilience and profitability.

A common thread throughout the event was the critical role of the insurance sector in supporting the growth and sustainability of the aviation industry. Reinsurance was also recognized as a key, although often misunderstood, element of the aviation insurance ecosystem. A more meaningful comprehension of reinsurance and its interconnection, influence, and role within the aviation insurance ecosystem can help aviation businesses better understand the complexities and challenges faced by insurers and reinsurers in providing comprehensive coverage.

Further insights from the conference will be shared in due course.

Please contact us for more information on these themes or to discuss effective risk management solutions in the aviation industry.