You’re Never Going to Get $10,000 for Your United Airlines Seat
(Bloomberg) -- The world was horrified to watch a bloodied United passenger dragged off a jet in Chicago earlier this month. While the assault by O’Hare security personnel had zero to do with an oversold flight, linkage to that longstanding policy of putting profit over the occasional ticket-holder was swift. It’s been under attack ever since.
On Thursday, United and the victimized passenger, Dr. David Dao, settled their dispute out of court. But the repercussions have been much wider, triggering modified overbooking policies and even elimination of the practice altogether at some carriers. Now the bid by airlines to mollify an outraged flying public has culminated with promised, eye-popping payments for your seat when a flight is oversold—up to $10,000 at United Continental Holdings Inc. and Delta Air Lines Inc.
But if you’re suddenly hatching a scheme to snare 10 large by purchasing a ticket on a peak Monday morning or Friday night flight, you may want to hold off. There is no “$10,000 jackpot” at the airport waiting to be hit. Not really.
Overbooking has become a fundamental component of how carriers manage revenue. It’s a rational way to fill every seat in the face of inevitable, everyday issues that cause passengers to miss or skip their flights. Historically, when it happens, volunteers are sought with the promise of a free hotel stay and travel vouchers. If no one pipes up, unlucky passengers are selected from among cattle class in back (the wealthy and business travelers up front rarely get bumped.) Those selected get the same hotel room, and maybe some money and other goodies, as the volunteers.
But about that new, big payout: Neither Delta nor United is likely to dole out $10,000 to solve an oversold flight. For one thing, they won’t need to. Two people on the United Express flight to Louisville where Dao received his injuries got less than $1,000 for giving up their seats. A third offered to do so for $1,000. Thus, some amount greatly under $10,000 appears to be a suitable market price for an airline to free up whatever few odd seats it might need.
American Airlines, meanwhile, doesn’t disclose a maximum compensation but sets the amount “properly in order to obtain the correct number of volunteers,” spokesman Ross Feinstein said.
Secondly, in this casino, the house holds all the cards. The airlines decide which flights will be oversold and by how many seats, based on past data. They can curb, expand, or stop the practice as they see fit. United, for one, plans to reduce overbooking; currently only 4 percent of its flights have more ticketed customers ready to board than available seats, the airline said Thursday.
Besides, it’s a safe bet that the United incident has caused a thorough review of overselling protocols at every carrier that does it. None wants to create customer hostility at the gate, given all the smartphone video cameras, and none wants to write sizable future-travel vouchers. And no one wants the public relations disaster United brought on itself in Chicago, its hometown. Just ask Chief Executive Officer Oscar Munoz.
Sizable compensation almost always comes into play when a carrier is facing an “involuntary denied boarding” scenario. That means the volunteer supply has been exhausted and the gate agent is about to force people off a flight.
Scrutinize the government data on these two groups—volunteers vs. the involuntary—and the former group dwarfs the latter. Last year, this was about 434,400 and 40,600 people, respectively. At Delta, the world’s second-largest airline, only 1,238 of its 129.3 million passengers were bumped involuntarily last year.
These data mean that most bumped passengers took an airline’s initial offers, not a more lucrative one that likely came when the airline was confronted by an indignant passenger whose seat was nicked against her will at the last minute. These payments are typically in future travel vouchers, not cash, but it depends.
On Thursday, Southwest Airlines Co. announced it would stop overselling as part of its transition to a new reservation system. The Dallas-based carrier said the new information technology, from Amadeus IT Group SA, will make its seating forecast “dramatically” more accurate, largely obviating the need for overbooking.
Even with the shift, some denied boardings will still occur—at Southwest and elsewhere—for reasons as varied as swaps from larger to smaller aircraft to, as in the case of United and Dr. Dao, the need to accommodate flight crews.
“As time has gone by we have been fortunate to have fewer and fewer no-shows, so the gross amount of the problem is far less today than it was 20 years ago,” Southwest CEO Gary Kelly said on a quarterly conference call. He conceded that the United incident had moved the issue onto his spring agenda.
Overbooking is an airline tool to boost revenue, but it’s not a necessity; its costs will be very closed managed. That magical maximum payout? It’s more P.R. than promise—you have a better shot at picking up $10,000 in Vegas.
To contact the author of this story: Justin Bachman in Dallas at firstname.lastname@example.org.