Systematic and Idiosyncratic Risks of the U.S. Airline Industry

Abstract

Understanding the risk nature of the airline industry has received attention in the tourism literature from separate angles. Although the systematic risk of the airline industry has been examined before, idiosyncratic risk has largely been ignored. This study fills this gap in the tourism literature by investigating the effect of passengers’ air travel on systematic and idiosyncratic risks of the U.S. airline industry. Using historical air travel data and utilizing both OLS and fixed-effect models, this paper documents negative relationships between the occupancy of airline seats and idiosyncratic risks for 21 U.S. airline companies from 1990 to 2019. This negative effect of occupancy is more pronounced if aircraft travel distances are shorter and companies have lower leverage ratios. Policy implications for both airline managers and investors are provided.

Keywords: G12, G32