Less Profitable Airlines Are More Safety Conscious

Airlines with lower profitability are more concerned with survival and sell airplane models perceived as less safe

Following recent accidents, low profit airlines change their fleet composition more than higher profitability airlines according to new research from INSEAD, the Business School for the World.

In their recent study Safe or Profitable? The Pursuit Of Conflicting Goals, Vibha Gaba, INSEAD Associate Professor of Entrepreneurship and The INSEAD Fellow in Memory of Erin Anderson, and Henrich Greve, INSEAD Professor of Entrepreneurship and the Rudolf and Valeria Maag Chaired Professor of Entrepreneurship, look at the way organisations prioritise and pursue conflicting objectives.

Using empirical evidence from the airline industry, they examine air carriers’ dual goals of safety and profitability, and the influence of both on the costly decision of whether to change the makeup of their fleet by selling off models perceived as being less safe following incidents that damage planes beyond repair.

When examining airlines’ behaviour, Gaba and Greve were particularly interested in how a firm’s financial performance affected its focus on safety.

“Given the intuitive theory that safety becomes less of a priority when it conflicts with profitability, it might be assumed that more profitable firms would be more likely to make decisions in the pursuit of safety,” Gaba said.