KOLEJ UNIVERSITI TUNKU ABDUL RAHMAN
FACULTY OF ACCOUNTANCY, FINANCE AND BUSINESS
SEMESTER DECEMBER 2017/2018
BBMF 3073 RISK MANAGEMENT
TUTORIAL 3 (WEEK 4)
Case study
Jetz, a limited liability company, was incorporated in Sepiana on 1 April 20X6. In May, the
company exercised an exclusive right granted by the government of Pewta to provide twice
weekly direct flights between Lyme, the capital of Pewta, and Darke, the capital of Sepiana.
The introduction of this service has been well advertised as ‘efficient and timely’ in national
newspapers. The journey time between Sepiana and Pewta is expected to be significantly
reduced, so encouraging tourism in Sepiana.
Jetz operates a refurbished 35 year old aircraft which is leased from an international airline and
registered with the Pewtan Aviation Administration (the PAA). The PAA requires that engines
be overhauled every two years. Engine overhauls are expected to put the aircraft out of
commission for several weeks.
The aircraft is to carry 50 Business Class, 15 First Class and 76 Economy Class passengers.
The aircraft has a generous hold capacity for Sepiana’s numerous horticultural products (eg.
cocoa, tea and fruit) and general cargo. All meals are prepared in Lyme under a contract with
an airport catering company. Passengers are invited to complete a ‘satisfaction’ questionnaire
which is included with the in flight entertainment and shopping guide. Responses received
show that passengers are generally least satisfied with the quality of the food especially on the
Darke to Lyme flight.
Ticket sales are made by Jetz and travel agents in Sepiana and Pewta. On a number of occasions
Economy seating has been over-booked. Customers who have been affected by this have been
accommodated in Business Class as there is much less demand for this, and even less for First
Class. Ticket prices for each class depend on many factors, for example, whether the tickets
are refundable / non-refundable, exchangeable/ non-exchangeable, single or return, mid week
or weekend, and the time of booking.
Required:
a) Identify and explain the business risks facing Jetz.
b) Recommend how the risks identified in (a) could be managed and maintained at an
acceptable level by Jetz.
c) Recommend TWO measures of operational performance and the evidence that should
be available to provide assurance on their accuracy.
Answer for case study:
a) 1) Leasing of equipment and specialist staff:
As Jetz leases its equipment and the most specialised of its staff from another airline, there
is a risk that its equipment and/or pilots could be withdrawn leaving it unable to operate.
2) Age of aircraft:
The aircraft being leased is old. This raises operational risk (it may not always be able to
fly due to necessary maintenance), finance risks (it may require regular repair) and
compliance risk (it may not meet environmental or safety standards).
3) On-board services:
Customers are dissatisfied with the food provision on the flight and there is a risk that food
prepared in Lyme may become less appealing and even dangerous when served on a
Darke to Lyme flight (when it has been prepared a substantial time earlier). If the food
makes customers ill, Jetz might be faced with compensation claims.
4) Safety:
The airline industry has stringent safety conditions and Jetz may face customer boycotts or
difficulty in recruiting staff if safety requirements are not met, as well as the threat of not
being allowed to fly.
5) Fuel:
The aircraft cannot fly without fuel, which can be a scarce or high-cost resource. If fuel
