AIRLINES AND VACCINES: STILL AN OXYMORON… OR NOT?

BY Shin.H,Kang.J,Sharma.A, & Nicolau J. L

This research emerges from the need to shed light on the ongoing debate about vaccine passport policies for dealing with COVID-19. We analyze the way two essential airline stakeholders assess vaccine passports: investors—for whom the following question is posed: Is the implementation of vaccine passports positively evaluated by airline investors?—and passengers, for whom the question to be examined is To which extent do vaccine passports help in reducing perceived health risks?. Let’s imagine that Andrew and his friends, Emily and Sarah, are planning their next summer vacation overseas. When surfing the web to book a flight ticket they run into the following information that Airline A is showing on its website:

“Airline A will demand all passengers provide a vaccine passport, as a proof of immunity that they have antibodies to COVID-19. Without the vaccine passport, boarding is not allowed. In addition, the airline is implementing a range of measures to provide advanced levels of disinfection and support social distancing by leaving middle seats open in all flights. In addition, all passengers and flight crews are required to wear face masks.”

The three friends agree that, by looking at the big picture, the vaccination requirement plus the implementation of advanced risk-reduction measures would be, theoretically, the safest alternative. They also find Airline B that also requires vaccination but does not carry out advanced mitigation measures, Airline C that does not demand vaccination but implements advanced risk-reduction measures, and Airline D that requires and does nothing.

Andrew, who has always characterized as being very cautious, immediately discards Airline D, but is uncertain about how to rank Airlines B and C in terms of safety.

From this anecdote, we can state that the adoption of vaccine passport policy has a positive impact on airline passengers’ booking intention. Notice that the agreement reached by all three friends about perceiving Airline A as the safest, apart from expected, is confirmed by empirical evidence. Regarding the dilemma that Andrew faces about Airline B and C, empirical results show that the vaccine passport policy has a positive impact on airline passengers’ booking intention irrespective of the adoption of advanced risk reduction measures. This means that the safety perception of Airline B is not that different from Airline A: as long as the vaccination requirement is in place, the other mitigation measures become less relevant. However, when vaccine passport policy is not adopted, airline passengers’ booking intention only increases when advanced risk reduction measures are adopted. This result entails that Airline C, which only implements advanced risk-reduction measures, is perceived to be a little less safe than Airline B, although empirical evidence shows that this difference is not substantial.

According to these results, unless airline managers opt for a policy that demands vaccine passport and implements enhanced mitigation measures, they may consider an optimal use of resources by deciding whether they just require vaccination passports and do not invest much in mitigation measures, or the other way around: they do not require passport but are willing to substantially enhance risk-reduction measures. Both alternatives—exemplified by Airlines B and C—favor customers’ booking intention in a similar way.

Emily, who has always been sharp and the most quick-witted of the friends, poses a question that goes beyond their booking decision: “We, as customers, may feel safer with the requirement of vaccine passports—in fact, the three of us ranked the airlines in the safety order as A, B and C—but, considering the controversy that the vaccine requirement may raise, how are the airlines investors going to react to this company’s decision to require vaccine passports?”—said Emily. Sarah, who concurs with Emily, reinforces this remark: “Yes, Emily, you are right; moreover, by looking at investors’ reactions, we are not just merely observing their perceptions or intuitions, but looking at their reactions means that we look at the way they have put their own money in action; so, there is a high degree of involvement when they make decisions about investing. In other words, if we see how shareholders buy and sell airlines shares, we are focusing on real decisions rather than mere opinions.”

The empirical results show that airlines’ announcements about the vaccine passport policy has a positive impact on airline performance, as reflected in an airline’s market value; market value that shows the investor’s reaction to such an announcement. This finding suggests that airline management can more confidently implement vaccine passport requirement for passengers. The decision-makers’ uncertainty of whether the requisite of a vaccine passport can bring up demand or can be a deterrent is reduced by the results obtained in the analysis of the market value: the vaccine passport announcement seems to increase the airline’s market value. The argument that prompts investor to favor this policy is that these passports appear to increase consumer confidence in air travel, and in turn provide a much-needed boost to airline performance.

To sum up, in response to the first question stated in the introduction, the findings of this study show that the implementation of vaccine passports is positively evaluated by airline investors; and regarding the second question, the results highlight the role of vaccine passports in reducing perceived health risks, which is integral to decision-making.

Importantly, note that by looking at the two main stakeholders involved—customers and shareholders—we can better capture two complementary perspectives of the same situation. Customers act according to their risk perceptions and shareholders make their decisions according to their perception of the alluded customers’ risk perceptions; thus, to know whether shareholders are correct we need to look at what customers perceive.