Ching Him (Ivan) Kwok's Blog

Source: http://finance.yahoo.com/news/u-n-aviation-body-reaches-190028348.html;_ylt=A2KJNTvua1NSbHYAFSbwFAx.

Plane forming smoke patterns from engines.

As global warming become increasingly concerned world-wide, a lot of industries tried to play their “social responsibility” which is known not existance, unless it was an individual act; the only social responsibility of business is to earn profits while following the law and basic ethical customs, else the Executive would go aginst the shareholders will.
Therefore, in order to ensure the social responsibility is achieved, regulations are required in order to force the businesses ot minimise their negative externalities.

By enforcing such regulations Like Emission Trading System (ETS) will add variable costs to the company, as it penalise every single flights performed. This is an act of imposing tax.
Imposing tax, which was suppose to target businesses to become more efficient, its ultimate burden is at the expense of employee and customer. Either they will cut cost by reducing the employees or dismissing employees as profit margin has narrowed, or at the customer will bare partial if not most of the cost through the form of Surcharge in this case.

As Clarisa’s blog (https://blogs.ubc.ca/clarisamadilao/2013/09/26/corporate-ethics-are-outrageous-ex-ceo-payouts-justified/) commented, in such a complicated world, ethics may only be practised voluntarily, or by law.

When a national flag career, Japan Airlines collapse, where the value of the firm is just “$150m – less than the price of a new jumbo jet.”. What could have went so wrong?

“JAL will have to replace some of the older, less fuel-efficient planes in its fleet and reduce the number of routes it flies.” -The error can be caused by lack of communication / Co-ordination with-in JAL.
There are a total of 6 airlines running under JAL,

which we can consider this as dis-economy of scale when it makes a lose. This error may be caused by marketing / Business Development, since they are responsible for opening different routes or simply acquiring the subsidaries.
However, their decision most probably based on statistical data from the Accounting department. There are a few limitations that apply to Accounting,
– considerable amount of judgement and estimation used
-> They may have over estimated their revenue and under-estimated their cost.
– based on historical cost principle
-> The most significant cost in an airline is the fuel cost, it accounts around 27% of the cost, they may have fail to estimate the rising fuel cost.
Or even Operation, as they may fail to use the right aiccraft type for different routes.

Source: http://news.bbc.co.uk/2/hi/8466997.stm