Lecture 10
The Economics of Aviation Safety and Security
Course Outline
1. Incentives for aviation safety
2. Causes of aviation accidents
3. The economics of aviation safety
4. Accident prevention in aviation
Commercial aviation has become one of the safest modes
of transportation, with the International Air Transport
Association (IATA) reporting a significant decrease in
major accidents and passenger fatalities in 2011. This
improvement means that for every 7.1 million
passengers, there was approximately one passenger
death. However, it's essential to understand that safety is
not an absolute concept but rather context-dependent
and influenced by the inherent risks of any given
situation.
While maximizing safety is a commendable goal, doing so
at any cost would lead to absurd outcomes, such as
banning numerous everyday activities where there is even
a remote risk of fatalities. The benefits of aviation safety
are not only moral but also economic, including increased
consumer demand, a robust labor supply, reduced
insurance costs, lower capital expenses, decreased
liability risk, and fewer costs associated with government
fines or penalties.
INCENTIVES FOR AVIATION SAFETY
1. Passengers' Reaction: Airlines that are perceived as less safe due to
accidents or investigations may experience reduced demand. Passengers'
perception of safety is a key factor in their decision-making.
2. Labor Reaction: Employees, especially flight crew, may leave the airline
or demand higher wages if they perceive the airline as unsafe. This can
result in higher labor costs and difficulties in attracting quality employees.
3. Financial Concerns: Aviation accidents lead to equity losses and
increase the cost of capital, making it more expensive for airlines to raise
funds. This can have a significant financial impact.
4. Insurance Costs and Liability Risk: Insurance premiums
increase substantially following an accident, and these
increases can persist for several years. Airlines also face
higher liability risks after accidents, affecting their overall costs.
5. Government Enforcement: Government authorities like the
FAA have the power to impose substantial fines on airlines for
safety violations, potentially reaching millions of dollars. The
threat of fines and the authority to temporarily shut down
airlines for severe safety violations serve as strong incentives
for airlines to adhere to safety practices.
CAUSES OF AVIATION ACCIDENTS
Flight Crew Error: Human error is the leading cause of aviation accidents. Despite advances
in technology, human errors by flight crews can still lead to accidents. Training and
management improvements are essential to reduce such errors.
Aircraft Malfunction: Malfunctions related to the aircraft itself, including engine failures,
system malfunctions, or structural issues, can lead to accidents. Modern aircraft are designed
with safety in mind, but malfunctions can still occur.
Weather-Related: Adverse weather conditions can contribute to accidents. Jet engines and
instrument landing systems have reduced weather-related accidents, but they can still pose
a risk.
Airport/Air Traffic Control: Errors made by air traffic controllers, such as fatigue,
stress, or communication issues, can lead to accidents. The air traffic control
system faces challenges in managing increasing aviation traffic.
Maintenance: Incorrect or inadequate maintenance, although relatively rare, can
result in accidents. Strict maintenance standards and regulations aim to prevent
such incidents.
Miscellaneous/Other: This category includes a range of causes, with hijackings
being a significant portion. Terrorist attacks, like those on September 11, 2001,
can result in aviation accidents. However, excessive security measures can also
be detrimental to the traveling public.
"The Economics of Aviation Safety."
The Economics of Aviation Safety
● Definition: The economics of aviation safety involve assessing the costs and benefits
associated with safety regulations in the aviation industry.
● Importance: Striking the right balance between ensuring safety and considering
economic factors is crucial in the aviation sector. It impacts airline operations, ticket
prices, and passenger choices.
Challenges in Safety Regulation
Complex Nature: Aviation safety regulations are multifaceted, considering
technical, operational, and human factors. These complexities make it challenging
to assess their economic impact.
Influence of Public Perception: Public perception and political pressure often lead
to the creation of safety regulations, sometimes without a thorough economic
analysis.
Safety vs. Economic Efficiency
Societal Impact: Regulations that increase costs for airlines can lead to higher
ticket prices. This may affect travelers' choices, potentially causing some to opt for
riskier travel modes, like driving.
Balancing Safety and Affordability: Striking a balance between safety and
affordability is crucial for both passengers and airlines to ensure safe and
accessible air travel.
Accident Prevention in Aviation
● Collaborative Efforts: Aviation safety has greatly improved since the 1950s due to cooperation
between regulators, airlines, and aircraft manufacturers. This has not only made air travel
safer but also more appealing to travelers.
● Economic Incentives: Safety enhancements in aviation, such as regulations for aging aircraft,
collision avoidance systems (like TCAS), wind-shear detection, de-icing, and addressing
human factors, carry significant economic benefits.
● Aging Aircraft: To address the safety concerns associated with aging aircraft, regulatory
bodies like the FAA and JAA introduced regulations requiring specific component overhauls at
set intervals, well before they would be expected to fail. Some countries also restrict
commercial aircraft based on age, though this can raise costs for passengers.
● Collision Avoidance: The development and deployment of TCAS (Traffic
Collision Avoidance System) have reduced midair collisions. However,
human errors can still lead to tragic incidents, as seen in the 2002 DHL and
Bashkirian Airlines collision.
● Wind-Shear Detection: Wind shear, a significant threat to aircraft, was
previously undetectable. Research efforts have led to the creation of
warning systems for pilots. Regulations are also in place to prevent flying
during dangerous wind-shear conditions.
● De-Icing: Fatal accidents caused by wing icing, like the American Eagle
ATR-72 incident, have decreased due to advancements in anti-icing
technology, including anti-icing boots and ground de-icing methods.
Thank you for your time 😊
