Airlines are tightening their belts, trying to cut what it costs them to give out denied boarding compensation to passengers when they overbook a flight. Both United and American have copied Delta in soliciting ‘bids’ from customers for what compensation they’d accept, hoping to avoid bidding wars at the gate.
In the wake of United’s April 2017 passenger dragging incident – where David Dao was told to give up his seat for two crewmembers and refused, winding up bloodied by airport – there was a huge public backlash against bumping passengers off of overbooked flights. And airlines started paying out far more compensation to avoid involuntarily denying boarding to passengers.
The Public Was Outraged At Involuntary Bumps
Public reaction to the David Dao incident focused less on (1) airlines outsourcing their customer service problems to law enforcement in the post-9/11 environment and (2) excessive force by law enforcement and more on (3) airline denied boarding policies. There was a sense that if you buy a seat on a flight you’re entitled to that seat and if the airline has a problem and needs you seat, it’s up to them to pay whatever it costs to get passengers to volunteer to be taken off.
Airlines overbook because they know not everyone will show up for a flight, and it’s a huge wasted resource to have a plane take off with an empty seat that a passenger would have preferred to pay for and travel in. Airlines do a great job of anticipating no shows and not selling more seats than there are passengers, but very rarely they screw this up and have more passengers than seats.
That’s not the only way airlines wind up having to bump passengers. When a mechanical problem, weather or other issues causes them to substitute an aircraft that doesn’t have as many seats on a route they can wind up with more passengers than seats
Airlines – recognizing the public reaction to David Dao – started paying out more than the legal minimums required by the Department of Transportation.
Bump Compensation Skyrocketed After David Dao
It became news when Delta paid a woman $4000 to take a later flight the same day (which was perfectly convenient for her). Even more so when United paid out $10,000 to a passenger.
This is how badly United didn’t want to give me cash: pic.twitter.com/sI7vmbeB2Q
— Allison Preiss (@allisonmpreiss) March 22, 2018
I also got two $10 meal vouchers. I am going to go INSANE at Pizza Hut
— Allison Preiss (@allisonmpreiss) March 22, 2018
When American Airlines swapped out a Boeing 787-9 for a smaller Boeing 787-8 they may have given out $250,000 in compensation to passengers who had to take a later flight, even though Department of Transportation rules wouldn’t have required compensation at all.
American Has Started Trying to Rein In These Costs
Compensation costs were about what passengers now thought was fair, but more than airlines wanted to spend. American launched a new bidding system to hold down costs and has recently started holding people to their bid amounts (rather than paying everyone the highest amount necessary to get enough volunteers). They’re calling it “Pay What You Bid.” The intention is to no longer announce dollar amounts soliciting volunteers, with different passengers getting different amounts for volunteering.
Customers place their bids without knowing how long it will be until the next flight they’re able to get on, so it’s not really possible for a customer to know in advance what amount they’d accept for inconvenience. Gate agents may still need to solicit volunteers at the gate, they just aren’t supposed to announce amounts. Once the flight takes off everyone getting a voucher will be standing there learning what everyone else got, turning a rewarding experience into a resentful customer interaction.
The Post-David Dao Era is Over
Before David Dao airlines offered modest compensation and if nobody took it, they didn’t much care, they would pay out DOT-mandated cash. It was bad policy and bad economics but highly regulated industries, especially with barriers to entry as significant as U.S. aviation, often act in complacent fashion.
Dao changed the dynamic, and airlines adapted, willing to spend more than before to avoid involuntary bumps. Now the pendulum is swinging back, as they work to control costs.
Almost no one who said they were going to boycott United after David Dao still does so. There are plenty of people who haven’t flown United, but is David Dao the real reason why? United has certainly outperformed American.
And involuntary denied boardings are so rare – indeed they were extremely rare 45 years ago – that consumers don’t make decisions on the basis of avoiding the chance it could happen to them. Airline promises not to overbook don’t even factor here if consumers were trying to avoid the result, since no airline operates every flight, every day without disruption or change of aircraft. (Delta does earn a revenue premium in part because they’re more reliable than United and American.)
David Dao wasn’t enough to change the mindset where every customer is a security threat, though United’s policy is still that they won’t call police on customers unless there’s a security threat (which is whenever they say it is). And it wasn’t enough to keep the era of $10,000 bump vouchers either.