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The contract working based on a share of cancellations is pretty smart. Avoids the most egregious incentive problems.

On the other hand, it exposes you to a worse case scenario as a form of travel insurance: your specific flight is cancelled but the airport was just fine

precisely. Maybe there could be various levels -- 10%/1%/0.1% of flights? That would shrink the gap quite a bit. Again, @Undisciplined ever-echoed point about granular liquidity here is gonna be a problem

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Some airline could experiment with refund policies that they back up against the prediction market.

An insurer might not offer them a policy since it’s in their power to cause cancellations.

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