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

Rafiqul Bhuyan, André Varella Mollick and Md Ruhul Amin
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Rafiqul Bhuyan: Department of Accounting and Finance, Alabama A&M University, Normal, AL 35811, USA
André Varella Mollick: Department of Economics and Finance, University of Texas Rio Grande Valley, 1201 W. University Dr., Edinburg, TX 78539, USA
Md Ruhul Amin: Department of Economics, Finance, and Healthcare Administration, Valdosta State University, 1500 N Patterson St, Valdosta, GA 31698, USA

JRFM, 2022, vol. 15, issue 8, 1-13

Abstract: Understanding the risky 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. This negative effect of occupancy is more pronounced if air travel distances are shorter, companies have lower leverage ratios, and companies are smaller in size. Policy implications for both airline managers and investors are provided.

Keywords: airline industry; beta; idiosyncratic risk; occupancy of seats; systematic risk (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
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