Keeping it simple in complex times

A record number of delegates attended this year’s Willis Towers Watson aviation conference, and one of the event’s hot topics saw attendees explore ways in which insurance products could change to better reflect the integrated nature of modern risk.

The escalating pace of technological change has increased the complexity of most business models in the aviation sector, adding both tangible and intangible risks. Delegates felt that insurance providers would benefit from responding to the new environment by offering more integrated risk solutions.

A marketplace for ideas

The escalating pace of technological change has increased the complexity of most business models in the aviation sector

During last month’s conference in Singapore, Rohit Philip, Chief Financial Officer for IndiGo, a domestic airline carrier in India, said that the event’s core value was its ability to attract the global underwriting community. Insurance purchasers for the airlines get a chance to see the market’s latest products and gain insights into what insurers feel are the primary risks facing the industry.

But primarily, the event creates a unique central marketplace for access and ideas.

“The conference gives us access to all the underwriters in one location.” Philip said. “It is helpful for us to present our story and have it heard by the key people all at once.”

A complicated business

Running an airline has become an increasingly complicated business in the digital age. Rapidly changing technology is adding new entry points for risk daily and is raising business model concerns in many corporate board­rooms.

However, IndiGo’s ability to keep its business model simple has allowed it to become India’s largest domestic airline. “We didn’t have to reinvent anything,” Philip said. “We just had to look at global airline models and identify what had proven to be successful – which is not overcomplicating the product offering or business model.  Keeping it simple.”

Where simplicity starts

If the value proposition is simple, then you align the operating model and the employee value proposition that supports delivery of the promise to the customer

Simplicity starts with the value proposition an airline promises to customers, says Philip.  “If the value proposition is simple, then you align the operating model and the employee value proposition that supports delivery of the promise to the customer.”

New concepts or opportunities should be run through a process of no more than three filters, or core corporate principles. If they are aligned with those principles, they are accepted.  “If not―not matter how good an idea may be―it doesn’t belong in our business model. This is easy to say, but it is not easy to be consistently disciplined enough to execute in that manner,” Philip said.

He also credits being fortunate enough to operate in a market that is “hugely underpenetrated” with unique growth potential. “We have the right business model applied to a substantial growth opportunity,” he said.

The right formula

The formula proved attractive enough to warrant becoming a launch customer for Airbus’s new A320 Neo, with IndiGo ultimately ordering 430 units in two separate tranches.

Philip believes IndiGo’s aircraft acquisition strategy was another key to its success. Combined with a simple but proven business model, detailed planning and negotiation, IndiGo was able to establish a low aircraft ownership and maintenance cost structure “that would be very difficult to replicate”, Philip said. “Ultimately, our low cost structure is fundamental to our ability to successfully navigate through business cycles.”

About Mark Hue-Williams

Mark Hue-Williams joined Willis in 1991 and since that time he has held a variety of roles in the Aerospace divisio…
Categories: Aerospace, Supply-Chain Risk | Tags: ,

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