Delta figured out how to capitalize on United’s failure but it probably won’t help you very much
posted at 2:31 pm on April 15, 2017 by Jazz Shaw
The fallout for United Airlines from their attempt at “involuntary rescheduling and attitude adjustment” for a doctor on one of their flights continues in the public relations department and other airlines seem to be responding. In terms of the endless What Went Wrong discussion taking place on every cable news network, the biggest question which kept being asked was, why didn’t they offer the passengers more money to leave voluntarily? That turns out to be a somewhat complicated question (more on that below) but the folks at Delta were clearly watching. Less than a week after the incident they’ve announced that if you wind up on one of their overbooked flights you might be getting an offer for significantly more cash to wait for the next plane. (Honolulu Star Advertiser)
Delta is letting employees offer customers almost $10,000 in compensation to give up seats on overbooked flights, hoping to avoid an uproar like the one that erupted at United after a passenger was dragged off a jet.
In an internal memo obtained today by The Associated Press, Delta Air Lines said gate agents can offer up to $2,000, up from a previous maximum of $800, and supervisors can offer up to $9,950, up from $1,350.
United is reviewing its own policies, including incentives for customers, and will announce any actions by April 30, a spokeswoman said. The airline would not disclose its current compensation limit.
That’s a significant step up in compensation and if United had been doing that last week we probably wouldn’t be in the current situation. It’s probably an overstatement to claim that the beaten down passenger will wind up being a majority owner of United, but it’s obviously going to cost them a lot more than jacking up the offer on the table to get someone to voluntarily get off the plane. A three digit number like $800 is nothing to sneeze at, but it’s obviously not enough to get most travelers to budge. By comparison, for the vast majority of workers in the country who make less than $100K per year, a sudden cash infusion of ten grand is a serious incentive.
But can they actually do this? Let’s remember that one of the arguments being put forth this week was that the federal government barred the airline from offering much more money. That was explained in this article from the Harvard Business Review.
But the DOT has adopted a rule that encourages involuntary bumping — which is undoubtedly less popular with flyers than voluntary bumping. The regulation specifies that if a passenger is involuntarily bumped, airlines have to pay a penalty amounting to 200%–400% (depending on the delay length) of the one-way fare that they paid with a maximum cap of $1,350. This provides an incentive for airlines to bump passengers who paid the least amount for their ticket, often the poorest travelers on the plane.
So it’s not so much of a “law” as a “rule” from the Department of Transportation. (Which winds up having the same effect as a law, which is a topic for another day.) But let’s assume they can actually offer these levels of cash to get you off the plane. Will you benefit? Possibly, but let’s not start spending that money just yet. Keep in mind that the airlines would be insane to just announce right off the bat that they were offering ten thousand dollars for four people to take the next flight. They would be flooded with offers and find themselves dealing with even more angry passengers who didn’t get a shot at the sudden windfall. Also, they’d wind up paying much more than they would likely have to. (A poor business model in anyone’s book.) Odds are that they will continue to start the “bidding” at four or five hundred dollars and then bump it up incrementally until someone takes the bait. That will probably come at a level well below $10K and the passengers will effectively be put in a game show environment where they keep waiting for the bid to reach their level of comfort while hoping nobody else takes it first. So you might get something better if it happens to you, but the odds are lower and the payout probably will be as well.
The larger question is if this horribly handled debacle is going to actually make the airlines rethink many of their policies and make things better for passengers. Will they stop overbooking? How about bringing back more leg room and amenities? Don’t get your hopes up. Chris Sagers at the Washington Post repeats the same gloom and doom message I’ve been preaching about this subject for a while now. None of this matters and not much is likely to change in terms of airline service beyond some possibly higher compensation for buying seats back.
The reason is the same for why any of our country’s other oligopolistic powerhouses can treat their fellow Americans with such crass indifference: Shareholders don’t really care about consumer opinion or even a company’s larger public image. They care about profits. If there is no competitor to whom consumers can turn, who really cares what they think?
The 2013 merger of American Airlines and U.S. Airways — the biggest and last in a series of dramatic consolidations that federal regulators did little to stop — left the United States with only four major airlines. The overwhelming weight of empirical evidence shows that wherever fewer carriers compete in individual airline routes, fares go up. No factor can fully explain it except market power.
Chris is right. You have no leverage with Delta, United and the few other remaining domestic air carriers. They’ve been allowed to merge into such a small pool of “competition” that they can pretty much do what they want and they know you’ll still have to come to them the next time you have to get anywhere. I have no doubt that United would have preferred not to go through this humiliating exercise and all of the bad jokes being made about them, but they are still in business to make a profit. Doing things differently in a way which might make air travel less unpleasant for you or prevent you from getting bumped off a flight would detract from their bottom line. Your protests about the horrible service aren’t going to change their profit margins measurably so they have zero incentive to improve.
We now return you to your regularly scheduled packing for your next flight. And there’s probably a fifty-fifty chance it will be on United.