A method for reducing information asymmetry in destination–airline relationships |
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| Authors: | David T Tan Tay T R Koo David T Duval Peter J Forsyth |
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| Institution: | 1. School of Aviation, University of New South Wales, Sydney, Australia;2. Faculty of Business and Economics, University of Winnipeg, Winnipeg, Canada;3. School of Business, University of Otago, Dunedin, New Zealand;4. Department of Economics, Monash University, Melbourne, Australia;5. School of Business and Tourism, Southern Cross University, Gold Coast, Australia |
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| Abstract: | We propose a measure of business risk in air travel demand at the route level that can reduce information asymmetry during route development negotiations between tourism destinations and airlines. Aviation-exposed risk (AER) conveys information about the level of uncertainty with regard to air travel demand from an airline’s perspective. Using AER, tourism destinations and air service development teams can evaluate their risks from the perspective of the airline and its network. From there, an assessment can be made as to the value of air services in certain circumstances, including whether a direct underwrite or risk share between airlines and destinations is viable and necessary. By applying a portfolio analysis to an airline’s network, we find evidence that AER does indeed mimic the actual capacity distribution of the network. This provides support for AER as a useful risk measure to be used in practice. |
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| Keywords: | aviation airlines risks tourism risk management route development |
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