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Flight risk

18 July 2014 By Una Galani

Fatal air accidents almost never happen, fortunately for both passengers and investors in airlines. Yet Malaysia Airlines has been struck twice by tragedy in little over four months. The aviation industry may have its own set of challenges, but it is a reminder that even more robust businesses need to consider political risk carefully.

A long-range surface-to-air missile is suspected to have brought down flight MH-17 killing all 298 people on board when it crashed over eastern Ukraine on July 17. Another Malaysia Airlines flight en route to Beijing disappeared in March without a trace. The chances of either were vanishingly small. Fatal accidents per a passenger departure have more than halved in number since 1990, according to the International Air Transport Association.

The airline industry is one of the least able to financially absorb shocks. High oil prices and intense competition for market share have already driven several close to the brink. In Asia, high levels of government ownership set the scene for undisciplined expansion. State-controlled and loss-making Malaysia Airlines was already planning to announce a major restructuring within the next year. That may now need to be accelerated.

Yet woes of Malaysia Airlines will resonate more widely as geopolitical risk continues to boil. A year ago, the rise of al-Qaeda offshoot, the Islamic State in Iraq and the Levant (ISIL), across Syria and oil rich Iraq was not on the global agenda. Nor were the acts of separatist terrorism seen recently in China. Even in Hong Kong, one of the world’s richest and most modern cities, calls for democratic reform have emerged as a threat to its stability that few would have foreseen.

Investors and companies can minimise risk, where they can identify a threat in the first place. Several international carriers say that they had shifted the route taken by flights operating in Ukraine months ago amid increasing tensions between Kiev and pro-Moscow rebels, even though the area was not subject to official restrictions. Malaysia Airlines’ misfortune may be a tragic reminder of the dangers of underestimating the likelihood of the unthinkable.


This story has been updated to correct the date of the Beijing-bound flight in the second paragraph.


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