Normalization of Airline Companies’ Internal Management System

Rui Sun

Civil Aviation Flight University of China, Guanghan, Sichuan, 618307, China

Keywords: Airline companies, Internal management system, Internal control, Risks, Normalization.

Abstract: With the economic development of China, the environment of global economy is changing fast, which

brings unprecedented challenges and chances for airline companies. Therefore, it is necessary to strengthen

the normalization of airline companies’ internal management. This study focused on relevant concepts of

internal management and the relation between internal management and management system. Problems of

airline companies’ internal management system and corresponding influencing factors were analyzed to

help normalize the internal control of airline companies. These analysis and suggestions could be useful for

the normalization of airline companies’ internal management system.

1 INTRODUCTION

With the rapid development of Chinese navigation

industry, the internal management of civil airline

companies is faced with great changes. Normalizing

internal management system is the most effective

way to tackle complicated economic environment.

Nowadays, the internal and external environment of

airline companies is complicated and the

management of airline companies has many

uncertainties. Therefore, airline companies need to

strengthen their competitive power and normalize

their internal management system. The lack of

internal management system leads to the fact that

airline companies do not have comprehensive plans

on plane purchasing and flight management (Liu

Weigang, 2012). For example, the internal

management of airline companies is scattered and

contradictory, leading to loss of state assets,

uncontrolled cost and ineffective budget system. All

these problems provide chances for accounting fraud

and corruption, so airline companies cannot

effectively control their risks. Therefore, in

complicated economic environment and fierce

competition, airline companies should establish a set

of internal management system, enabling them to be

successful in competition.

2 RELEVANT CONCEPTS

ABOUT INTERNAL

MANAGEMENT SYSTEM AND

THE RELATION BETWEEN

INTERNAL MANAGEMENT

AND MANAGEMENT SYSTEM

2.1 Relevant concepts about internal

management system

The normalization of internal management system

mainly relies on the establishment of companies’

internal control system, which is based on the

effectiveness of companies’ risk management.

Internal control refers to the system that high level

of companies, including board of directors, board of

supervisors and senior managers, guarantee the legal

management, safe assets of companies and real

financial information, effectively enhancing business

efficiency and realizing sustainable development

(Song Guixiang, 2011). The normalization of airline

companies’ internal management system depends on

the legality and rationality of internal control

system, which can bring unprecedented effects to

business of airline companies. The goal of internal

control is risk control. Risk management means that

companies can reasonably identify, evaluate and

assess various risks in advance. For those predicted

risks, companies should take economic and

reasonable measures to control and guarantee the

safety of companies’ assets to the large extent. Risk

166

Sun R.

Normalization of Airline Companiesâ

Z Internal Management System.

DOI: 10.5220/0006446201660169

In ISME 2016 - Information Science and Management Engineering IV (ISME 2016), pages 166-169

ISBN: 978-989-758-208-0

management mainly includes three aspects, namely,

risk identification, risk evaluation and risk solution.

Companies are supposed to avoid risks in time and

reduce uncertainties in their business. Risks in this

study refer to the negative influence on companies’

business and the goal of risk management is to

reduce uncertainties, enhancing companies’ risk

control abilities and their business performance.

2.2 Relation between internal control

and management system

Internal control of companies is closely related to

internal management. Companies will always face

various uncertainties and undergo risks from both

internal and external environment. In this process,

companies need to transform uncertainties into

certainties within their control. The normalization of

internal management refers to applying risk

management to internal control system and closely

relating risk management to internal control (Xie

Yunshuang, 2004). Thus, the normative internal

management system can be formed. Internal control

system consists of authorization and liability, a

working standard with high logic. Internal control

mainly includes accounting, management, business

and law enforcement. The more normative of

internal control system, the less risk companies will

face and the internal management of companies can

be more normative.

3 PROBLEMS OF AIRLINE

COMPANIES’ INTERNAL

MANAGEMENT SYSTEM AND

CORRESPONDING

INFLUENCING FACTORS

3.1 Problems of airline companies’

internal management system

Firstly, the internal management consciousness is

weak since the internal control is negative. People’s

consciousness determines their behaviors. Currently,

the consciousness of airline companies’ staff is weak

and most of them lack the consciousness of internal

control, resulting in the deficiency of airline

companies’ internal management and a series of

problems. The senior managers of airline companies

do not deeply recognize the important role of

internal management for the long-term development

of companies. Some of them regard internal

management system as accounting system or

effective measures to prevent embezzlement, so they

do not correctly understand the true meaning of

internal control and fail to educate their staff on

internal control. Therefore, companies should take

initiative to implement internal control management.

Passive implementation of internal control is one of

the important reasons that lead to serious

management problems. Lack of internal control

initiative largely influences the risk control abilities

of airline companies.

Secondly, internal management system can not

adapt to the changes of environment. The fast

development of economy brings more uncertainties

to companies. If airline companies want to be

successful in changing environment, they should

constantly normalize their internal management

system and strengthen internal control, adapting to

current economic environment. However, the

internal management of most airline companies can

not adapt to the changing economic development

and identify potential risks, greatly lowering the

management level of companies.

Lastly, internal management has big leak. The

normalization of internal management mainly relies

on internal control, which is a way l to achieve

business goals. Internal control is a comprehensive

control process and it needs the cooperation of

companies’ different levels. For airline companies,

safety in production and management is the priority

among priorities. The core goal of business is entire

process control of service management. Currently,

airline companies mainly emphasize pre-control and

neglect process control, exposing them to great risks.

Therefore, the internal control system and internal

management are not perfect, which can not

effectively normalize internal management.

3.2 Risk factors of airline companies

Firstly, interest rate volatility has great influence on

airline companies. The main assets of airline

companies are fixed assets. No matter how these

assets are acquired (purchase or lease), they are all

debts for airline companies. High asset-liability ratio

will expose airline companies to greater interest risk.

Secondly, Exchange-rate flexibility exposes

airline companies to some risks. Since 2005,

Chinese government has been adopting floating

exchange rate system based on market supply and

demand. The flexibility of RMB rate is influenced

by domestic economy, international situation as well

as supply and demand. In future years, the RMB rate

is likely to have big changes. The business of airline

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companies basically covers many countries and

regions and the transaction money can be foreign

currency apart from RMB. Most airline companies

have their assets purchase or lease fixed settled in

US dollars. Therefore, the flexibility of RMB rate

will influence the costs of fixed assets and expose

airline companies to greater rate risks.

Finally, the flexibility of aviation oil price brings

some risks for airline companies. In recent years, the

price of oil has been changing frequently and the oil

price in China has been soaring. The influencing

factors of oil price include the regulations of

National Development and Reform Commission and

Civil Aviation Authority as well as the global oil

supply and demand. Aviation oil is the main

component of airline companies’ operational cost.

Therefore, airline companies are greatly influenced

by the oil price. The continuous changing oil price

brings more risks to airline companies and the rising

oil price will add to operational cost of airline

companies.

4 WAYS TO NORMALIZE

INTERNATIONAL

MANAGEMENT SYSTEM OF

AIRLINE COMPANIES

4.1 Strengthening aviation safety

education and enhancing staff’s

consciousness of internal control

The establishment of internal control relies on the

formation of internal control environment. The

formation of internal management system of airline

companies should begin with management ideas of

internal control. Any business decision ought to be

made within normative internal management.

Contrary to other companies, airline companies are

related to aviation safety, which mainly depends on

perfect internal management. Airline companies

should strictly follow their internal management and

have a correct recognition of their internal

management system, which can reduce risks of

airline companies and help airline companies

achieve their goals.

4.2 Analyzing key points of internal

management and strengthening

regulations on weak points

The normalization of airline companies’ internal

management needs effective internal control system,

thus enhancing risk response abilities of staff and

their working efficiency. In order to follow the pace

of economic changes, airline companies should

timely analyze key points of internal management.

Risk points need to be solved in time, strictly

following accounting standards and financial

management system to strengthen risk regulations.

Airline companies also should timely identify risks

and take effective measures to control them, further

improving internal management and enhancing risk

response abilities. In addition, when airline

companies manage their special businesses, they

should have targeted internal management on these

businesses, emphasizing relevant internal control

and risk supervision. Airline companies need to

timely check their internal management and

strengthen regulations on weak points. Problems

should be solved in time and responsibility person

should be punished, thus enhancing risk response

abilities of airline companies and normalizing their

internal management.

4.3 Establishing perfect governance

and organization of airline

companies

The normalization of internal management first

needs to confirm the normalization of organization

structure, the management goals and reasonable

internal control system. The establishment of

governance structure and organization structure of

airline companies should include following aspects.

First aspect is about scientifically and reasonably

definition of duties and powers of decision-making

level, management level and executive level. Airline

companies should strictly follow the separation

principle of management and supervision as well as

decision-making and implementation, ensuring clear

powers and duties among different levels. Then, in

the implementation of airline companies’ affairs, the

balance of powers can be realized to avoid autarchy.

Second aspect refers to the three centers of airline

companies, namely, profit, cost and investment.

Airline companies should entitle investment center,

profit center and cost center with different powers

according to their working liabilities. Internal

incentive should be unified with constraint

mechanism to arouse the initiative of different

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departments of airline companies, thus encouraging

staff from different departments to do their work

with high efficiency and realizing the goal of

internal control. The normalization of airline

companies’ internal management should ensure clear

powers and duties relation, avoiding unnecessary

disputes.

4.4 Normative management of business

behaviors

Airline companies should follow the principle of

concision and high efficiency and integrate their

management mechanisms, finally forming an

effective management structure. The systems of

airline companies mainly include financial control

system, human resource system, safety production

system, marketing system and assets management

system. On the basis of these systems, airline

companies can establishment internal management

system and realize procedural business process.

Financial control system should regard financial

management as a core. Fixed assets purchasing and

sales department performance should form effective

communication with financial department, allowing

financial staff to participate in daily affairs of airline

companies. Then, airline companies can effectively

reduce their cost and enhance their economic

benefits. The safety control and production system

should be established to confirm all pilots of airline

companies follow safety rules and regulations,

guaranteeing flight safety based on flight standard

and procedure.

5 CONCLUSIONS

The normalization of airline companies’ internal

management is an important part of management

affairs of airline companies. Airline companies

should highly emphasize the effectiveness of

internal management system. Normative internal

management can offer effective guarantee to basic

management of airline companies. Nowadays,

market environment and economic environment is

constantly changing. If airline companies want to

protect their economic benefits, normative internal

management is indispensable because it is an

important guarantee for airline companies to have

safe production and sustainable development. The

normalization of internal management is also the

most effective way for airline companies to face

competition and changes, wining a place in fierce

competition.

REFERENCES

Liu Weigang. Strengtheninf Airline Internal Control

System and Improving Risk Management. Modern

Business, 2012(17):119-120.

Song Guixiang. Airlines (Air China) under the Internal

Control and Audit Operations. China Chief Financial

Officer, 2011(5) 124-135.

Xie Yunshuang. Construction and Operation of Airlines

Interior Control Management System. China Civil

Aviation, 2004 (9):64-65.

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