People Are Betting On Flight Cancellations—Airline Insiders Could Wager On Outcomes They Control

Kalshi was preparing to let customers bet on the percentage of flights that will be cancelled at an airport over a given period of time. But they’re pulling the idea for now amidst an uproar that airline employees may know or even help determine the outcome. While Kalshi may not launch this immediately, the idea is already in the market at Coinbase. Traditionally, betting markets encouraged insider participation. The idea was that these were the best predictors of future events. Early bettering markets were even supported by DARPA, the Defense Advanced Research Projects Agency. They were going to help identify threats. But now betting markets are really about sports and politics. Aviation is political, and what better sport than betting on the airlines? We just saw the person who operates the President’s teleprompter accused of more than $100,000 in insider betting on words the President woud use. The betting site wasn’t going to offer markets in whether your specific flight will be delayed, though the contract is called “AIRPORTDELAY.” Instead, the exchange had filed a reusable contract template with the Commodity Futures Trading Commission that can ask whether the cancellation rate at an airport will be above, below, between or exactly at a specified percentage. Kalshi already offers markets on the total number of U.S. flight cancellations during a week. What’s new here to Kalshi was the ability to create much more targeted airport-specific contracts. Although from my read the mechanism to resolve the winner is flawed. They do take steps to address manipulation: Kalshi freezes the number of scheduled arrivals and departures two days before the relevant period. Flights cancelled after that remain in the denominator and count as cancellations. Flights subsequently added to the schedule are ignored, while a cancelled flight that is reinstated and operates does not count as cancelled. This prevents someone from changing the denominator after betting has begun, but airlines often pre-cancel flights ahead of a major storm. Anything removed from the schedule before Kalshi takes its snapshot disappears from the calculation, while an otherwise identical cancellation made afterward counts. The rules exclude deliberate acts intended to disrupt airport operations, including false threats, tampering, trespassing, malicious cyberattacks and interference with navigation. If such an event determines the outcome, Kalshi can settle the contracts at the last fair market price rather than paying either side $1. So deliberately causing a cancellation should not produce the expected payoff. However, at a small airport, for instance one with 20 takeoffs and landings, one cancellation changes the result by five percentage points. Kalshi’s template permits contracts at any commercial airport and does not establish a minimum number of flights. The concern is someone in crew scheduling, dispatch, maintenance control or station operations who knows about a cancellation before the public or who has some influence over whether a flight operates. That’s against the rules but it appears to happen quite regularly in other betting market contracts. Here’s a political candidate trading on an outcome he could influence and an employee of MrBeast trading with material nonpublic information. And while Kalshi designated FlightAware as its primary source, the Bureau of Transportation Statistics is supposed to be the fallback, but BTS data is normally reported monthly, with a lag. FlightAware objected to Kalshi using their data. In truth, Seinfeld’s Kramer was ahead of his time. In the episode “The Diplomat’s Club,” Kramer bets on whether arriving flights will beat their scheduled times. Jerry then creates an airport disturbance that delays a flight, and the wager is treated as tainted. They didn’t just foresee the product, they even understand the central market-integrity problem more than 30 years ago. An airport cancellation market is not useful insurance for most travelers, but could actually be a good hedge for travel insurers, event organizers, and airport hotels. A robust market could also provide a real-time estimate of the likelihood of severe disruption. Topics on this page