Innovation, climate change and managing future growth are among the risks likely to challenge the aviation industry in coming decades.
Prospects for the aviation industry look good, with growth in passenger numbers expected to reach 16 billion by 2050, a 384% increase on today’s numbers. Air freight is expected to increase to 400 million tons from just 50 million today, according to the International Air Transport Association (IATA).
Growth in air travel will have ramifications for the industry’s risk profile. For example, there will be a shift in flying and large hubs towards Asia and the Middle East, where populations are growing and where there have been large increases in infrastructure in recent years.
Mergers and acquisition among ground support companies and aerospace firms has picked up in recent years as companies look to expand overseas. Regional consolidation of airlines is on-going, but while there has not been a large cross-continental merger – between a European and US or Asian airline, such a move is only a matter of time.
Longer term, the aviation industry may have to explore more revolutionary forms of technology. If they are to achieve the expected growth potential, airlines will need to address the high financial and environmental cost of traditional fossil fuels.
“The next big challenge for the aviation industry will be to keep flying affordable and find a way out of pure fuel-driven propulsion,” says Josef Schweighart, Head of Aviation, Germany, AGCS.
Climate change could also have more direct effects on flying. Scientists predict that turbulence on the North Atlantic flight corridor could increase by 40% to 170% if carbon dioxide emissions double by 2050, as the International Energy Agency forecasts.
“Macro trends reaffirm the need for large global aviation insurers, and for underwriters that understand the changing nature of aviation risk,” adds Henning Haagen, Global Head of Aviation, AGCS.
Risk management challenges
Outside of a terrorist threat, business interruption and supply chain risks are among the greatest concerns for the aviation industry, according to the Allianz Risk Barometer 2015, an annual study of risk consultants, senior managers and claims experts.
“A problem with a component, engine or airframe can now lead to the grounding of an entire fleet,” says Haagen. For example, technology problems on-board the new Boeing 787 Dreamliner saw the entire fleet grounded for three months while a solution was found.
In addition to the increasing risk of business interruption, there are a number of emerging risk challenges for the aviation industry, including those posed by new technologies – like composite materials – and human factors, such as how best to counter the potential downsides of increasing automation and information in the cockpit.
With growing demand for air travel, pilot training will become an even bigger issue than it is today. Boeing estimates that some 498,000 new commercial airline pilots will be required over the next two decades, raising concerns over the industry’s ability to fill quotas.
Pilot lapses and automation have been implicated in a number of recent incidents including the Asiana Flight 214 accident in San Francisco in 2013, suggesting that continuous training should help prepare pilots to fly and recover aircraft when automation fails, as well as addressing passivity in the cockpit from a reliance on automation.
Two other technology-related emerging risk areas for aviation likely to feature increasingly in coming years will be the threat a cyber-attack could pose to the aviation sector as well as the increasing use of Unmanned Aerial Vehicles (UAVs), more commonly known as drones.
Cyber: “the biggest focus”
The aviation sector now relies on computers for almost every aspect of its business. And with this growing reliance, the industry faces an increasing threat from cyber risk, including cyber terrorism, extortion, data breaches and network outages.
“In the next five to 10 years, cyber will become the biggest focus of the aviation industry,” predicts Haagen. Cyber risks are not currently excluded in aviation insurance policies, however, the aviation industry and its insurers will need to develop their understanding of the risk to prevent losses and risk accumulation, he adds.
UAVs: excitement and concern
The advent of UAVs is causing excitement in the aviation world, and concern among airline pilots. The majority of UAV systems are operated by the military but as the technology matures, increasing numbers of units will find commercial uses, like conducting surveys of pipelines, border patrols, and filming sports events and movies. The US’ Federal Aviation Administration (FAA) has predicted the number of UAVs in the US will rise to approximately 15,000 units by 2020 and 30,000 units by 2030.
However, the growing use of UAVs is a safety concern for the British Airline Pilots’ Association (BALPA). It notes that in 2014 alone, an American Airlines pilot reported narrowly missing a quadcopter at 2,300 feet above Florida while a drone was flown within 20ft of an A320 landing at Heathrow.
Currently, most UAVs are small and light (under 20kg) but capable of reaching around 2,000 feet and posing a risk to passenger aircraft. BALPA believes that large remote aircraft – the size as a Boeing 737 – could operate commercially within 10 years.
Many countries either prohibit or severely restrict the use of UAVs, although the European Union and the US are both looking at ways to safely integrate drones into airspace, including appropriate level of liability and insurance. In the case of the US, its FAA recently proposed a framework of regulations that would allow routine use of certain small unmanned aircraft systems (under 55 pounds [25kg] in weight) in today’s aviation system.
Such moves mean that many now believe drone technology is here to stay. And despite concerns for safety, there are also many benefits if drones can be safely integrated and accommodated.
“UAV’s could change the aviation world for the better by supplementing the more mundane and dangerous missions, such as surveying pipelines and search and rescue,” says Jon Downey, Head of Aviation – US, AGCS. “There is a tremendous opportunity to reduce the more hazardous forms of manned flight,” he says.