Chris Sununu Calls Flight Cancellation Markets ‘Completely Insane’
Kalshi briefly announced plans to offer prediction market contracts on flight cancellations at JFK Airport.
Those plans were quickly dashed and quietly pulled after a wave of social media backlash and after FlightAware, the airline-tracking service Kalshi intended to use as its settlement data source, said it would not allow its data to be used for that purpose.
The decision to withdraw came after social media users raised concerns that bad actors could interfere at airports to collect a payout, and after FlightAware declined to provide the data necessary to resolve the contracts. Among the loudest critics was Chris Sununu, president and CEO of Airlines for America and former New Hampshire Governor, who called the concept completely insane in a Fox News appearance, tying the market to existing FAA staffing problems and arguing that anyone betting on cancellations has perverse financial incentives to see more of them.
The episode lasted less than a week from announcement to withdrawal. It was brief enough that the product never actually launched at scale. But it surfaced a set of questions about prediction market design that the industry has not fully answered and that regulators will eventually have to address.
The Moral Hazard Problem That Could Lead to Chaos
The core objection to flight cancellation markets is a classic moral hazard argument: when someone has a financial stake in a bad outcome, they have an incentive, at the margin, to produce or worsen that outcome. For most prediction markets, this concern is theoretical. A trader who bets on whether a politician wins an election has no meaningful ability to influence the result. A trader who bets on whether a sports team covers a spread faces a similar limitation.
Flight cancellations are different in one structural respect. They are not purely determined by large-scale forces no individual can influence. A passenger who refuses to board, a crew member who calls in sick, a baggage handler who slows down a turn, a disruptive incident that triggers a gate hold: none of these individually causes a mass cancellation event, but some of them, at the margins, can affect whether a specific flight on a specific day crosses a threshold. It is similar to the fan who wagers on someone running onto the field at the Super Bowl, then takes on the task of disrupting the game and charging the field. At scale, across a large number of traders with positions in cancellation markets, the aggregate marginal incentives are not zero.
The objection certainly comes with limits. The same structure that makes a flight cancellation contract a hedge for a business traveler who needs certainty about reaching a meeting turns it into a speculative bet for someone else. Options markets on commodity prices, weather derivatives, and catastrophe bonds all create financial positions in bad outcomes. Insurance, which pays out when the insured event occurs, has the same theoretical moral hazard structure. The relevant question is not whether the financial incentive exists but whether it is large enough to materially influence behavior, and in the case of flight cancellations, that question has not been studied in the context of tradable derivatives, and that carries considerable importance.
What Sununu added beyond the moral hazard argument was the operational context: he noted that the FAA is currently dealing with 24,000 more flight cancellations than in the same period last year, driven substantially by air traffic controller staffing shortages. Introducing a financial product that pays out on cancellations into that environment, he argued, was not a theoretical problem but a practical one.
FlightAware Made A Swift and Final Decision
Whatever the philosophical merits of the moral hazard debate, the more immediate reason the product never launched was much simpler. Kalshi had planned to use FlightAware’s data to determine when and how contracts would settle. FlightAware opted not to be involved and declined to allow its data to be used for that purpose.
This is the same resolution mechanism problem we covered in the Giants-Angels bonding bot incident two weeks ago. Prediction market contracts are only as reliable as the data sources they settle against. When the intended data source removes itself from the arrangement, the contract has no clean settlement mechanism. FlightAware’s refusal was not a regulatory objection or a moral stance.
It was a business decision about how it wanted its product used, and it was sufficient on its own to kill the contract regardless of what Sununu or anyone else said about moral hazard and responsibility.
Controversial Prediction Markets Have No Signs of Slowing
The flight cancellation market is gone, but it is a preview of the product expansion logic that makes prediction markets’ critics nervous and that we covered in our piece on the Nevada Gaming Control Board’s prediction lounge warning last month. If a federally licensed exchange can offer contracts on anything with a binary, objectively verifiable outcome, the category of potential products is essentially unlimited. Flight cancellations, weather events, power outages, anything that can be measured has the potential to be a prediction market contract. And as user bases grow, wild and controversial markets will continue to pop up.
Most of those products raise no moral hazard concerns because no individual can influence the underlying event. Some of them do raise those concerns, and the regulatory framework for distinguishing between them is not fully developed. The CFTC’s proposed rulemaking, whose comment period closed last week, addresses gaming contracts and certain politically sensitive categories but does not establish a framework for evaluating products based on moral hazard potential.
Kalshi withdrew the flight cancellation contracts because FlightAware said no and because the reputational cost of the backlash exceeded whatever trading volume the product would have generated. Neither reason is a durable regulatory barrier to the concept. The next exchange to try a version of this, or Kalshi itself in a different form, will presumably think more carefully about settlement data sourcing and social media timing. The underlying question of whether markets that pay out on disruption should exist will still be waiting.
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