Determinants of systematic financial risk exposures of airlines in North America, Europe and Asia

A five-factor asset-pricing model is employed to estimate the systematic financial risk exposure of airlines in North America, Europe and Asia between 1990 and 2010. Our panel data reveal that the risk to North America airlines is positively related to operating leverage and profitability, but while European and Asian airlines also have risk positively related to operating leverage, their risks are significant negative related to earnings growth. The most important systematic risk determinant for Asian airlines however is their size. Looking at the effects of operating leases and government ownership on Asian airlines' risk, we find that leasing is equally important as size but acts in the opposite sign; operating leverage is not significant while earnings growth is significant only for government owned airlines.

► Operating leverage positively affects systematic risk of North America airlines.
► North America airlines' systematic risk is positively related to profitability.
► European and Asia airlines' risks are negatively related to growth.
► Firm size and operating lease affect Asia airlines' systematic risk.
► Government-owned Asian airlines are only exposed to earnings growth.