Sustainable airline strategy using portfolio theory: A case study of remote islands in Japan

The thin and fluctuated market generally characterizing air transport to remote islands involves greater business risks for airlines. But air transport often plays an important role in the life and economy of such islands. This paper applies portfolio theory to explore how it can reduce business risks to air transport in this context. The concept of Tourism β is introduced to represent the risk associated with each island market relative to overall tourist demand in the region looking as at 31 airports on remote islands in Japan. The results showed that a well-diversified portfolio of multiple remote islands could reduce the score commercial risks for carriers.

Research highlights
► Applying the concept of Tourism β, it is found that offering a well-diversified portfolio of services could reduce the commercial risk of proving air services to 31 small island airports in Japan.
► A more stable market associated with an appropriate portfolio of air services could both reduce the costs of providing these services and allow them to contribute more fully to the tourist industries of Japan’s remote islands.