US Airlines Engage in Cost Reduction Campaigns

(The Strategic Sourceror, 27 January 2012)

In Brief: Over the course of the last ten years, the airline industry has struggled in the face of higher fuel prices and other factors. In an effort to protect profit margins, a number of airlines have engaged in initiatives to reduce costs and increase efficiency. Earlier this week, two of the United States’ largest airlines reported stronger-than-expected fourth quarter results as a result of these initiatives.

Our View: As companies face an increasingly uncertain economic environment, many are once again turning to cost management, process efficiency, and prudent planning to steward their organizations through turbulent conditions. However, our research shows that cutting costs will become increasingly difficult in 2012, as there is little scope for further reduction and many companies cannot implement reactionary cost cutting without affecting strategic priorities. We advise Internal Audit to identify business areas impacted by planned cost reductions and adjust audit plans and fieldwork to provide additional assurance in these areas. Also, examine cost-reduction measures to ensure that they do not undermine company performance and the integrity of existing controls.