مدیریت ریسک آب و هوا در اسکی : مصون سازی مالی و تنوع بخشی جغرافیایی
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|758||2011||11 صفحه PDF||سفارش دهید||محاسبه نشده|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : International Journal of Hospitality Management, Volume 30, Issue 2, June 2011, Pages 301–311
As weather volatility increases, weather risk has become a critical management issue in weather sensitive industries. This study uses ski resorts as an example to examine two promising weather risk management strategies: geographical diversification and financial hedging. The empirical analysis results suggest that financial hedging might be a more effective strategy for ski conglomerates. Guidelines for ski conglomerates to achieve better weather risk management outcomes are provided based on simulating the interactions between geographical diversification and financial hedging. Although based on ski resorts and snowfall risk, the methodology is also applicable to other weather sensitive hospitality businesses.
1.1. Impact of weather volatility As a result of climate change, the volatility and intensity of shorter-period weather patterns have increased (Intergovernmental Panel on Climate Change, 2007). Beyond ecological and social challenges, volatile weather increasingly poses economic ramifications as well (Chichilnisky and Heal, 1998). The Chicago Mercantile Exchange (2005) estimates that nearly 20% of the U.S. economy is directly affected by weather. The impact of weather volatility is especially significant on nature-based tourism businesses because the natural setting determines not only demand and supply but also the quality of tourism offerings (Scott, 2003). As weather volatility grows, managing weather risk, especially in weather sensitive industries, has become a key component of creating shareholder value. The ski industry has long been identified as vulnerable to weather risk. First, the number of visit is closely tied to snow depth (Fukushima et al., 2002) and daily ski lift ticket sales are highly influenced by weather variations (Shih et al., 2009). Second, capacity and quality of the tourism offerings are determined by the amount of snowfall because snow has to be at least 30 cm deep to be skiable (Scott et al., 2003). While the uncertainty in demand and supply poses direct challenges for ski resort management in terms of planning facilities, operations, and marketing programs, based on financial theories (Smith and Stulz, 1985), higher cash flow volatility could also cause additional financial burdens such as bankruptcy and financial distress costs, taxes, external financing costs, and higher underinvestment costs. Reducing cash flow volatility could decrease these financial costs, therefore increasing firm value. Empirically, Allayannis and Weston (2001) demonstrated that firm value can increase 4.87% just by reducing cash flow volatility caused by foreign exchange fluctuation. 1.2. Purpose and contributions of the study A number of studies have examined the impact of long-term climate changes on tourism demand (e.g. Gomez Martin, 2005 and Hamilton et al., 2005) and the ski industry (e.g. Hamilton et al., 2007 and Scott and McBoyle, 2007). Yet, few studies have explored strategies that could address shorter-term weather volatility and the interaction between long-term and short-term strategies. In this study, we aim to fill this gap by examining the interaction between two promising weather risk management strategies in the context of ski resorts: geographical diversification and financial hedging. Theoretically, this study extends the literature of weather risk management by incorporating multiple risks in weather risk hedging. In the finance domain, many researchers have studied the effect of basis risk on hedging effectiveness, but most studies (Castelino et al., 1991, Figlewski, 1984 and Netz, 1996) consider only one basis risk and are based on price risks, such as stock index futures and commodity futures. Golden et al. (2007) extended the literature by studying the interaction between credit risk and basis risk for weather derivatives, but they still considered only a single basis risk. This study fills this gap in the weather risk management literature. Practically, the study provides decision making guidelines for coordinating geographical diversification and financial hedging strategies. Although the present study is based on ski resorts and snowfall risk, the methods and results are applicable to all nature-based businesses sensitive to weather risks. With this study, we hope to provide a stepping stone towards the integration of these two weather risk management strategies. Specifically, there are two objectives in this study: (1) exploring the effects of geographical diversification on the exposure of company-level cash flow to snowfall risk and (2) examining the effects of geographical diversification on snowfall risk hedging. Ski resorts provide an ideal platform for our analysis because weather risk is a major business risk for ski resorts and can be managed by either geographic diversification or financial hedging. Furthermore, the outcomes of these two strategies are interrelated due to their correlations with snowfalls, providing an opportunity to examine the interaction between the two strategies.
نتیجه گیری انگلیسی
This study set out to analyze the effects of geographical diversification on risk exposure and the hedging effectiveness of multi-property ski resorts. The results provide theoretical and empirical evidence that geographical diversification can effectively reduce the risk exposure of a single-property ski resort, while ski conglomerates may benefit more from reducing snowfall risk through financial hedging. For a single-property ski resort the choice between financial hedging and geographical diversification would depend on its goals and the availability of capital. Resorts with ample capital that want to expand would be better off choosing geographical diversification as a means for risk reduction. On the contrary, if the firm is financially stressed and looking to reduce only short-term snowfall risk, financial hedging would be a good option. Furthermore, it could be more effective to use a contract that covers only a quarter or even a month instead of the entire season because the trend in Fig. 1 and results in Table 4 show great fluctuation in cash flows over time. Since a ski conglomerate cannot gain meaningful risk reduction through geographical diversification, financial hedging emerges as a sensible approach. The fact that ski conglomerates own properties in various locations also mandates the consideration of the effects of geographical diversification when implementing financial hedging. The graphical presentations of the simulation offer some practical guidelines for improving the hedging effectiveness of multiple-property ski resorts. First, the correlations between snowfalls and between bases are more important than the cross-correlations between snowfalls and bases for improving hedging effectiveness. Second, the choice on the direction of moving correlations for improving HE depends on the relative position of the actual correlation to the minimum HE point. Third, business diversification in ski resorts could improve the outcomes of financial hedging for snowfall risks. These findings further support our argument that the benefits of risk management strategies could maximized if these strategies are coordinated. Although this study is based on ski resorts and snowfall risk, the methodology and results are applicable to all businesses sensitive to weather risks, such as beach resorts, amusement parks, and golf courses. Considering that most leisure and tourism businesses need to expand geographically for future growth, these results have broad implications. Specifically, for a company that is planning to add new properties, the results could function as a guideline for choosing a location that could provide the most effective financial hedging. This study contributes to the literature theoretically and practically. Theoretically, this study extends the literature of weather risk management by incorporating the consideration of multiple quantity risks. Practically, decision making guidelines for coordinating geographical diversification and financial hedging strategies are also provided based on simulation outputs. One major limitation of this study is the lack of property-level cash flow data. A more direct measure of the correlations between snowfall and cash flow could improve the validity of the analysis. In this study we focus on the effects of geographic diversification on financial hedging. Other risk mitigating mechanisms such as snow making are not considered. The next logical step would be examining financial hedging as a component of corporate risk management programs. The relationship between hedging and financing, investing, and operating decisions could be considered together to provide a more complete picture.