Southwest to Stop Overbooking as United Uproar Echoes
bloomberg.com
bloomberg.com
I've seen a number of overbooked southwest flights and people can't line up fast enough for a $300 flight credit + next available flight. I can't imagine it ever going over $1k.
IMHO if any airline should continue overbooking it's SWA. No first class, no assigned seats. Most of the flights are short range with multiple flights options every day. You're much more likely to agree to switch to the next flight if it means only waiting 2hrs.
Practically all news outlets are reporting that "United offered $800 in compensation", but the reality is that it's closer to $0 in compensation. It's disingenuous to call it "compensation".
A better move on the airline's part would be to offer some amount of airline credit, and then half that in cold, hard cash, at least up to $2,700 credit / $1,350 cash, which is what they have to give you for an involuntary bump.
Simple solution that fixed a consumer-hostile approach adopted by a cartel of companies. Sadly, the EU rarely gets credit for the great number of consumer protections it has established; instead people like to rant about egregious regulations that either don't exist or have been grossly misrepresented.
Yeah, exactly. They damn well know there is a 90+% chance you aren't going to be able to redeem it. Literally.
http://www.seattletimes.com/life/travel/travel-wise-donrsquo...
>Redemption rates on vouchers hover somewhere between 5 percent and 8 percent
Now that it's too late, United is now offering up to $10k if they can't get someone to volunteer for less.
To top that off, if this happened during a holiday it means I'm getting a bad deal anyway - if I'd want money I wouldn't take vacation days in the first place.
I travel for pleasure about once a year. I can travel more if I wanted to, finances don't hold me back, but once a year is enough for me. Traveling for vacation is usually pretty fun but at the same time just stressful enough that I wouldn't want to do it more than once a year. Airplane travel is really inconvenient.
Plane tickets are just a small part of the cost of a vacation so a free ticket isn't magically going to make them afford extra travel. United isn't paying them for their hotel, rental car, and activities they are going to do when they go on this extra vacation.
Even if you do make use of the vouchers, you better hope that United flies to that place you want to go and you have enough time off saved up at work and your schedule works out to use that voucher before it expires. I know you get a year but people have schedules and usually only have windows where it works out to take vacation.
If you are a business traveler you better hope you actually like traveling for pleasure.
This. Oh so very much this. United could have avoided this whole debacle simply by not imposing price controls on the market for seats when it became a buyer rather than a seller.
This. As a business traveler, I don't know how I would justify this to my finance department and/or management. It would take too much effort to justify the change in travel plans for a shitty voucher that I'd probably never be able to redeem.
Now, I am a frequent traveller and mostly travel on business. Now again, the vouchers are useless to me.
I think the airlines should offer real cash instead of vouchers. More people would be ready to take those instead of vouchers.
I can offer $100k in thanksgiving fun bucks as well every time I screw up majorly. It will be in denominations of $50 and you can use them towards future consulting with me. My consulting starts at $100 per hour with minimum of one hour. You cannot use more that one voucher per transaction.
Status quo: offer increasingly higher flight vouchers until you hit the federally mandated rate of 400% ticket price cash rebate, capped to $1350.
Without regulations: offer increasingly higher flight vouchers until you hit 100% ticket price refund cap.
> For example, an involuntarily bumped traveler who arrives to his final destination more than two hours late (fours internationally) is entitled to an amount worth 400% of his one-way fare (capped at a maximum of $1,350).
There are no regulations forbidding United to offer more when a passenger is already seated, and that passenger thus can't be legally bumped (apart from because of safety reasons maybe).
PR disaster happens at 40,000 feet and gets recorded by smartphones. Since they're still in the air the footage hasn't been uploaded to the internet yet.
The on-board AI supercomputer makes the determination that the negativity of a plane crash would be less than if the footage leaks out so it decides to crash itself in order to maximize profits.
Want never to be bumped? Travel alone but with a pet in the hold. They won't touch you. Or travel with someone in a wheelchair. They are also an expensive awkward person to bump. As I said to one gate person: "We cannot be bumped. My grandmother only has pills for the next 12 hours." That lit a fire under them. Grandma knew to play ball and suddenly looked very much older than she was.
The boner people on HN have for objectivism really does get quite old.
Does the contract of carriage say the service they're selling is a guaranteed flight? Spoiler: No.
I hate the air travel experience as much as the next guy, but for the life of me I can't understand the derangement that seems to take hold of people when they start talking about. All else held equal, reducing airline costs (for example, by increasing utilization as with overbooked flights) brings prices down. It reminds me of when everyone I knew started complaining about airlines charging for luggage. When I'd ask them "I never fly with luggage, why should I bear the cost (fuel, opportunity cost, etc) of you packing too much", the most I got was some sputtering about how they didn't see why prices would be affected, even from people who I know knew much better.
> The boner people on HN have for objectivism really does get quite old.
Don't confuse your economic illiteracy with other people's support of objectivism. The perspective you're describing isn't even particularly libertarian, let alone Objectivist (and no, I'm not personally a fan of either of those philosophies).
I was specifically rebutting the claim that airlines are getting "special treatment" [by the government] by being allowed to sell services they don't fulfill. The service they're selling is not "a guaranteed flight".
Words have meaning and facts matter, beyond "Airlines bad, pick a side". It's possible to think that they're anti-competitive and shitty without making entirely false claims about them (as the gp comment did).
The way it eas handled can definitely be improved, but you can't argue that it is inherently bad.
> but you can't argue that it is inherently bad.
You're simplifying things a bit too much.
You can't go from:
- We want to make air travel more cost effective, and less damaging to the environment.
And arrive at:
- The only way to achieve this, is to sell more tickets than we have physical seats for, to ensure the plane is jam packed when it takes off.
There are always alternatives, Americans just seem to be fucking brilliant at ignoring any possible alternative than their first shitty attempt.
I think you don't understand the law as it currently exists, because what happened on that united flight was in clear violation of that law.
They didn't deny the man boarding, they deplaned him. This isn't something the airline is allowed to do for economic reasons, ever.
For an Embraer 170 aircraft (70 seats) the operating cost of the flight is about $2500-$3000 for the Chicago to Louisville flight. A supplementary flight with the 4 crew and any re-booked passengers would have cost the airline about $5,000 if they flew out-and-back as a non-scheduled flight.
SWA 737s cost around $4,000/Hr to fly, but a non-scheduled (Out and back) flight on a shorter route would still cost less than $12,000 in operating expenses.
The $1000+ flight credits for bumped passengers add up fast, but supplementary flights are relatively rare for airlines, other than for cancellations due to maintenance issues. CEOs like Oscar Munoz need to make supplementary flights easier to authorize, and the negative PR would be significantly reduced.
They are also fanatical about not being late or cancelling flights. I used to work for them, and there are posters everywhere about the 18 minute turnaround times (they recently expanded this to 28 mins, when they introduced pre-booked seats as standard).
But cash is likely to be the main issue here. If united had offered $800 cash, they would've probably found someone to rent a car and drive down there instead of flying.
Compensation is definitely the main issue. If United had offered a decent sum of cash (I mean cash, absolutely not United vouchers) they would certainly find someone willing.
Wait!
I need that car so my brother can drop his kids off at their grandparents house a state over. You don't want to give it back? Tough, the police are on my side. Thanks for your understanding. Here's an $800 voucher for the next time you buy a car off me.
So while your analogy works for the doctor who was dragged off the plane, it doesn't work for the overbooking system in the air travel industry as a whole.
As someone that's never flown it's surprising to me that overbooking is even a thing airlines do, who's out there missing their flights? I can't even imagine cancelling a pre-booked taxi never mind a flight!
It's also very, very easy to miss a connector flight if the plane coming in is delayed, or even if the airline decides to route you through an entirely different city. I've missed a couple that way. You can get held up at customs or security when landing in a new country and that country requires everyone to go through customs and security again.
Then there is illness, accidents, and emergencies that come up all the time.
You also have people oversleeping, getting caught in traffic, getting confused about their flight time. It happens. I've missed a few flights in my life for these reasons. (But just a few.)
Finally, business travelers do make last minute cancelations and changes on a pretty regular basis--for example, to get on an earlier flight out.
Yes. Wendover Productions on YouTube posted an excellent video a while back explaining why airlines overbook their flights: https://www.youtube.com/watch?v=EqWksuyry5w Most of the time it's not an issue.
However, thinking about it more, I think there's a problem with that that's hidden by the nature of the United debacle.
In that situation, the passengers had tickets, and they company was trying to seat their own staff. That is, the potential buyer was the airline, and the sellers were the passengers. So in that scenario, auctioning makes sense, because you can literally flip the buyer and seller roles.
However, in a typical overbooking situation, there are more passengers than seats, so it's unclear who the buyer and sellers are, because none of the "sellers" actually "own" anything definitive. If the tickets are all infinitely valuable to each passenger, no one can get on the plane, and there's a sort of stalemate. Then I suppose there would be a cost to each passenger, and an incentive to accept a price, and it wouldn't be infinite anymore. But in general, the cost dynamics seem weird to me. But then again, I'm not an expert in this.
At some level, overbooking seems indistinguishable from fraud--which can also be profitable for its practitioners.
I'm not quite sure I'm following. When the airline overbooks then tries to pay off passengers to accept a different flight the buyer is always the airline.
They're buying your seat back from you to satisfy their contract with someone else. I can't fathom a situation where every seat is infinitely valuable - out of several hundred people surely at least one person will accept a million dollars for example.
Overbooking can look like fraud, but if the airline offers an uncapped ever-increasing payout for a seat then the risk profile increases significantly for them and they'll do it to a lesser degree.
The trick, of course, is that it has to be actual United States Dollars, not this worthless fun money voucher stuff they usually offer.
In the U.S., plane tickets are a contract where all passengers agree to the standard overbooking process: passengers who don't have a seat are placed in a standby status. If they are bumped from the flight, they can get up to a certain amount of money and are placed on the next available flight.
It's shitty because no airline offers an alternative to this contract, so all passengers have to accept it... until Southwest decided to stop overbooking.
The passengers with tickets are still sellers in your second scenario; to the airline as a buyer. The airline needs to buy back the number of seats that they oversold for which passengers checked in.
Edit: Also, consider that Southwest is very profitable despite the fact that they don't have first class or business class sections on their aircraft. Yes, passengers pay different fares. But as far as I know, they all sit in the same crappy seats.
After landing we discovered that checking in at the right time might get us further ahead in the line but we tried that, checking in within minutes of checkin opening and were still pretty far back in the lines.
We ended up buying an "upgrade" to get us ahead in the line and next to each other. For us to do that for both flights, we'd have been paying ~50% extra for a feature that comes by default with all other airlines.
Also, while interacting with Southwest's famously "better", more "caring" staff, we were met with total disinterest and absolutely no sympathy.
"Minutes" isn't good enough. I travel Southwest with my wife all the time and we have never failed to get seats next to each other. You need to go the the check-in form 24 hours and 2-3 minutes before your flight, have your confirmation number and other info filled out and click "Check-in" the exact second the clock turns over to 24 hours before your flight. That will probably get you a low-numbered B or a high-numbered A boarding group.
This isn't a bad strategy by them as it tends to give better seats to people on long itineraries who have been waiting around, and since those people fly long distances they are also high-value customers.
AirTran (now part of Southwest) used to be really nice.
Ever since I listened to that I cannot stop thinking about it when boarding is slow and get upset about the airline making things actively inefficient. A friend made the good point though that a likely reason for the process being chosen despite actively wasting time is that it feels intuitively efficient to most passengers and keeps them happy.
My experience is that American passengers are just terrible. Planes here in Japan board so quickly in comparison, with a standard back-to-front boarding.
On my last flight, I was traveling with a four year old, but my first flight arrived late, so we were the last ones on the connection. There were only middle seats left (and the flight attendant was rude about it). A woman and her husband were sitting in A & C seats, and one of them moved for us. But they could have sat together if everyone had just sat more efficiently.
Selling the right to sit next to your travel companions seems much sleazier to me than selling other airplane perks, like more luggage or snacks or specific seats.
Also, early bird check in is $15. Only one of you would need it (no one will fight you for a center)... So $30 for a round trip if you don't want to have to check in on time.
They had to abandon this when the TSA started requiring a boarding pass to get through security, which made gate-side check in impossible.
Would be better just to file people in, next seat, next seat, with exceptions for groups to go to the next row. "First available seat or seat group that will seat your group".
i prefer southwest because there's little incentive to fight for position. They give you a complete ordering, so you can wait until the last minute to line up.
(also as others mentioned, it's faster which is great too)
If you care so much about an aisle seat, get early check in, it's $15.
Their boarding procedure is selected because it's scientifically proven to be the fastest (out of the acceptable options). There are more exotic procedures that are even faster but people wont put up with them. Ideally you want back-to-front, outside-in, staggered sides, staggered rows to make it as parallel as possible.
It may be a stretch, but I imagine if United employees felt they had the freedom to circumvent policy to "do the right thing", the situation could've been avoided.
That is damn good.
[1] https://en.wikipedia.org/wiki/Southwest_Airlines_Flight_1248
When I've been boarding on flights, they do the overbooking announcement at the gate and get volunteers to take later flights there, before people board. That makes a lot more sense because, in the event that no one volunteers, the airline can simply refuse to let certain people on.
They don't have to take the seat away from the passenger, they can just not to give it to them. Certainly, psychologically, people are a hell of a lot more attached to something once it's been given to them. I've toyed with the idea of taking a later flight before, but I'd be much less likely to do that once I was all settled into my seat.
How is it that the doctor was already seated when they "volunteered" him to not fly? That seems like the main fuck-up to me.
It's suspicious that they didn't even make an attempt at getting to the maximum offer ($1300) before forcing matters. To me it looks like they were under pressure to avoid a big delay, so they rushed through boarding and just went "fuck this" when nobody picked up the $800 offer.
Their contract of carriage allows them to kick you off under certain conditions, but that's not one of them. "Overbooking" didn't come into play at all in this case.
Yes, it was. Well, that and when he was beaten bloody by the police.
It is. Different parts of FAA rules and even United's contract of carriage apply once you're boarded. Overbooking doesn't even apply here - the doctor had a reserved confirmed seat.
It's been demonstrated in countless other threads (1) and articles (2) how economically important it is to overbook.
Overbooking is central to airline profitability and their ability to provide flexibility - like partial refunds, or SW's "open tickets" policy on business select.
As a consumer I appreciate these things and find them incredibly useful.
United's response of "We'll push the allowance up to $10,000" is completely acceptable to me, that seems like the simplest solution.
(1) http://www.businessinsider.com/overbooking-flights-is-good-f...
I still don't believe this claim. A 727 seats 129, a 787 seats 290, and a 747 seats 366. That means it only makes flights slightly less expensive. I only travel a few times a year and I'd rather pay 2% more than get bumped off my flight.
Why do we allow airlines to overbook but not movie theaters or other industries? This seems like an artificial advantage we've given them and it doesn't seem beneficial at all to the average consumer.
I don't see a reason to waste seats if it can be avoided without hurting consumers. Wasting seats is inefficient economically and bad for the environment.
I think it's the worst when hotels overbook. Typically the replacement hotel is less nice and has a bad location.
Edit: An exception may be Easyjet (though I've never seen it happen and I fly them a lot). They offer flex tickets mainly aimed at business flyers which would make it worthwhile for them to do some limited overbooking.
Let's take two airlines, A and B. Both only sell non-refundable tickes. A never overbooks. B always overbooks. What happens?
A will fly with some number of empty seats on average, because they still get the occasional no-show. B flies with fewer empty seats on average because they overbook.
Which airline can offer more competitive prices? It's B. Because by overbooking B's revenue per plane leg is higher.
If that isn't clear, here's an example. Say the planes have a capacity of 100, and on average 2 people fail to show. A sells 100 tickets for $100.00 each. B sells 101 tickets for $99.02 each. On average, B makes more money on every flight, _and_ is more competitive on price.
Of course with the numbers in my example the compensation paid by B on the odd occasion that everyone shows up probably kills any additional profit. The real numbers matter in order to determine to what extent this really happens in practice. But I hope I've demonstrated that non-refundability of tickets doesn't necessarily or automatically mean that overbooking is not profitable.
So there is some potential level of competitive benefit to overbooking even on non-refundable tickets, assuming that some people still occasionally fail to show (because they miss a connection, become ill, or whatever).
I think Ryanair's approach of not overbooking is sensible as it keeps the operation very easy. Also, they can book every flight to 100%. If you deny boarding, you need to offer alternatives. That's not possible if you're the only airline flying from the airport (Ryanair used to use a lot of regional airports) and your next flights are already at 100%.
As usual, people striving to save one dollar no matter what (in this case, giving up the certainty of flying) are the problem.
> As usual, people striving to save one dollar no matter what (in this case, giving up the certainty of flying) are the problem.
It's not necessarily a problem. Flyers can choose between certainty of flying and other nice things that cost money. Most appear to choose having other nice things instead. Southwest is banking on flyers choosing the other way. There may well be space for both approaches in the market.
After that, you get nothing. It's in the contract. I think it's only been that way for 2 years or so.
The article pretty clearly suggests this policy was under consideration anyway, though the United incident at least seems to have affected the timing, and might have made it easier to pull the trigger.
> Overbooking is central to airline profitability
Flying full is certainly beneficial to profitability, and overbooking makes that more likely. But it's not without costs, and it's quite possible that the cost/benefit has changed since the policy became a norm.
What you lose by renouncing overbooking is the ability to change your ticket without paying for it again (which is what happen with Ryanair - fees to alter bookings are so huge, it's cheaper to just buy a new ticket).
My guess why they don't use overbooking: it's really complicated. Both finding the right balance of overbooking as well as managing the procedures at the airport. Ryanair has simply decided in favor of simplicity forgoing some additional revenue
But risk would also be much higher - as you say, handling overbooking correctly is complicated, and when it goes wrong it can go very wrong. Ryanair didn't just renounce revenue, they renounced risk and the costs associated with managing that risk.
> And some of Ryanair's tickets are certainly below marginal costs
The operational word being some. Much-fanfared rock-bottom prices nowadays are very limited, and the cost of a seat goes up very very quickly after they're exhausted. The cheap tickets are now a marketing proposition for the real ones.
Edit: then again, with their relatively recent business plus fare (which allows ticket holders some flexibility), who knows...
[0] https://www.transportation.gov/sites/dot.gov/files/docs/reso...
Oct - Dec 2016 Passengers Denied Boarding by U.S. Airlines. United's Denied Boarding is 0.40 per 10k passengers vs JetBlue DB of 1.19 per 10k passengers.
Are you sure of that?
I would think that airline profitability is largely dictated by competitive forces, rather than the particulars of in which practices the overall industry is permitted to engage.
(Note that I'm assuming a world where all airlines, or no airlines, overbook. If only some of them overbook, then I agree the practice could affect relative profitability of those who do / don't overbook.)
To an airline, a flight that leaves with an empty seat is basically throwing money away; that empty seat doesn't mean you can take less fuel, fewer flight crew members, or wear out the airplane less. Therefore, the empty seat saves the airline no money.
Furthermore, people often miss their flights.
Overbooking is one way to deal with these two assumptions. Assume a certain number of people will miss the flight, and sell some seats twice. Then you don't fly with money-eating empty seats, and you can lower the ticket price a bit, because you don't have to charge customers the cost of those statistically-likely empty seats.
There are other solutions. Don't offer any refunds or reaccommodation to no-shows. The seat was empty, but someone paid for it, so who cares? But customers probably don't like that. The might even like it less than overbooking. I don't know, I don't run an airline. There are options, but overbooking exists for a reason.
For some numbers, a 777-200 carries 313 passengers, weighs 135k kg, carries up to 100k kg of fuel, and has a max takeoff weight of about 250k kg. 313 passengers and luggage, averaging 100kg, weigh just 31.3k kg. Your ticket therefore pays for your weight, plus 5x your weight in airplane structure, plus (up to) 3x your weight in fuel.
If you don't show up, they're still carrying 8x your weight anyways, so saving 200kg isn't that important.
(PS: apologies for the 'thousands of kg' units. I thought it was more readable than Mg or fully written out numbers.)
Just write tonnes (= metric tons)?
What about if you are flying long haul and linking up to a domestic flight on another airline? "Oh, we can't help you because your previous flight was delayed due to weather/mechanical/congestion.you should have flown on one carrier even if the price was 2x"?
Airport congestion is a big issue in the US, as is weather related delays.
I was under the impression that the fuel load for each flight is calculated based on a formula that averages the weight for each passenger and their expected luggage. Fewer passengers than expected = more fuel left over after the flight.
I honestly think hacker news should implement a feature where your comment is read back to you slowly before you post. Or you have to retype it out twice. Something, anything, to give the blowhards on here pause before they bless us with their cited[0] wisdom.
United lost over $2 billion last year. JetBlue made about $800 million in net income last year. So which strategy is "economically important" again?
It's rather that thanks to the internet we know of stories like these. 10 years ago no one would've known.
Involuntary bumps are extremely rare statistically anyway.
For those who aren't aware, airlines overbook because there are, on average, a significant number of people who miss or skip their flights. It's wasteful (and bad business) to leave those seats empty when instead, you can overbook and have an extremely low percentage of flights end up without enough seats.
Edit: as others mentioned, overbooking also allows airlines to be more flexible with refunds.
But, couldn't they make the tradeoff more explicit and transparent for the customer? "This ticket allows you to be bumped, for which you will be paid $X. You can pay $Y more to make it a permanent you-own-this-slot-we're-not-f'ing-around reservation."
None of this, "oh, you didn't read and memorize the minutiae of overbooking policies and have to figure everything out minutes before the flight you thought you were going to be on!"
But the notion that a company maximizing it's surplus is _always_ beneficial to consumers is tricky but more likely false within the confines of my limited understanding of contemporary economic theory.
United increasing the maximum bump fee completely solves the problem. Short of the apocalypse, you're going to find plenty of takers on any flight for $10k, even if it's a multiple day delay. The people who take the payoff are better off -- if they weren't, they wouldn't have taken the voluntary deal to fly later. Then the airline just needs to gather some statistics about how high the auctions go, and optimize the overbook rate to maximize their revenue. Everyone then is better off. In fact, on a lot of flights, you can probably find multiple people to bump with just a token payment -- they'd rather stay another day.
The other great thing about dynamic overbooking like this is that you never have to have a sold out flight, some of them are just really expensive. Someone who really needs to be on a plane walks up and plunks down $5000 or something, and the airline finds the least disrupted passenger, and pays him a few hundred. The bumped guy is happy to have the money, the last minute guy is happy to be on the plane, and the airline is happy to make $4700 extra.
This works even better with a name-your-price bump question on checkin for flights that are oversold. Even if it's nonbinding, the airline now knows that it has willing passengers to bump and can keep selling tickets.
That said, I think you are conflating a couple of economic principles.
> It's necessary to maximize total surplus as well. If someone wanted to get on the plane, and they took off with a seat empty, that's a deadweight loss.
I think you are confusing utility [1] with surplus somewhat here. If someone wanted to get on and they took off with an empty seat that is a loss in Utility. If the airline turns around and sells that seat to the new person that increases Producer Surplus (and conversely decreasing Consumer Surplus) to increase Utility.
I don't think this situation (empty seat) is DWL in the traditional sense [2]. The traditional DWL scenario is when producers could supply more but don't because of pricing constraints or other artificial ceilings/floors. It is definitely a marketing allocation inefficiency which results in Utility loss and I am kind of interested to see if there are better quantifications of this loss...but it isn't a DWL in surplus technically.
> Everyone then is better off. In fact, on a lot of flights, you can probably find multiple people to bump with just a token payment -- they'd rather stay another day.
It's totally possible that everyone can be better off. The issue isn't about when everyone is better off...it's when the system breaks down and you have situations where no one wants to make that trade.
> The bumped guy is happy to have the money, the last minute guy is happy to be on the plane, and the airline is happy to make $4700 extra.
This is an example of maximizing producer surplus. In my mind it's a variation of Price Discimination [3]. And while this overall beneficial situation is plausible, it isn't really overbooking.
For me, overbooking is basically selling more goods than you actually have and playing on the statistics trying to bank on people not making the flight. If you sell 30 seats and 5 people don't show, you take off with 25 people on board. If you sell 35 seats and 5 don't show, you take off with a full flight and pocket some additional revenue from the 5 no shows.
Now there is a lot of gray area since most no shows are from missed connections and so some of that additional revenue can go back into the system to allow for cheaper cancellation fees as well as accommodating rescheduling costs for these missed connections. But in general I suspect that producer surplus increases more than the gain in consumer utility.
> This works even better with a name-your-price bump question on checkin for flights that are oversold. Even if it's nonbinding, the airline now knows that it has willing passengers to bump and can keep selling tickets.
This is again, Price Discrimination but now adding information imbalance in order to help the airline more effectively Price Discriminate thereby maximizing their Producer Surplus.
Technically the United situation isn't the result of overbooking anyway...but I still think the practice warrants scrutiny. United's recent announcement to increase payouts and mileage compensation is testament to the fact that there was Producer Surplus to spare.
Like I said, all of this is speculative discussion and there is a lot of gray area. It is also plausible that overbooking results in maximizing Utility and an even handed redistribution of benefits to both producers and consumers. But I believe Producers are driven by incentives...and they don't have strong incentives to share the benefits of overbooking altruistically back to the consumer.
I fly from SFO - PDX every other weekend and consistently, no matter how early I book, Virgin America flights are cheaper than United and Virgin doesn't overbook whereas United does. Generally speaking, if United were even slightly returning the added revenue from overbooking to the consumer shouldn't their flights be cheaper than non-overbooked competitors?
Again this observation and subsequent question is anecdotal and broad...but I like it for FFT.
[1] https://en.wikibooks.org/wiki/Principles_of_Economics/Utilit...
[2] https://en.wikipedia.org/wiki/Deadweight_loss
[3] http://thismatter.com/economics/price-discrimination.htm
I gave a more detailed response to cameldrv.
Price discrimination does not necessarily reduce consumer surplus. In this case in particular, there is a large surplus being created by the fact that planes fly more full, and I don't know any reason to think that consumers don't capture much or most of this .
> a large surplus being created by the fact that planes fly more full
I think you are conflating surplus with utility. Full flights have more utility than not full flights...but the market surplus available is unaltered.
Maximizing utility is not a bad goal to have...but it is distinct from Consumer and Producer surplus.
> I don't know any reason to think that consumers don't capture much or most of this .
Because in general most of the surplus is captured by the Producer and the producer doesn't have any incentive to redistribute it back to the consumer. Not having an incentive doesn't mean they don't, I am just pointing out airlines aren't incentivized to reduce the seat cost of a late purchaser by the amount of the cancellation fee for the person that cancelled their flight...or even offer the seat at the price the original person paid.
Anecdotally (as mentioned in my other comment) we can compare United to Vrigin. Let's assume that a whole bunch of "surplus" is created by overbooking. United overbooks, Virgin does not. If the consumer captures most of this than United flights should be cheaper than Virgin ones in almost every way (ticket price, bag check fees, cancellation provisions, etc.). I fly from SFO-PDX twice a month. Virgin America consistently has lower priced fares than United.
This is observational and anecdotal...but the result casts doubt on the hypothesis that the consumer captures most of the surplus generated by overbooking. Admittedly, I wouldn't expect the consumer to do so from a purely theoretical stand point .
For instance, if they continue to have rapidly-expiring vouchers, most travelers will not have any practical way to use the whole reward. Also, the airline could add conditions to vouchers such as a voucher that is completely “used up” by a ticket purchase even for tickets that cost less than the voucher amount. There are lots of ways they can try to create good press by technically giving you something that is hard to use.
Money. Low low prices. That's why people that have paid for tickets are getting beat up and kicked off planes.
In all sorts of other aspects of our world we're expected to gladly accept higher costs as the price of our "values." Higher energy costs, mandates for various types of insurance, taxes to fund one agenda or another and on and on. Perhaps you haven't considered this yet but delivering the seat that a paying customer has paid for and not subjecting any of these otherwise compliant paying customers to the possibility of being thrown off a plane --- by martial force if necessary --- is a "value" we might aspire to.
And if that means maybe you are a little more careful about just how often you bop across the continent in a 600 mph jet because the cost is a little higher, or you can't play ticket games with as much abandon as you're used to well... perhaps that isn't really the end of the world.
For the sake of the discussion let's assume that all seats are in the same class (ie: economy) - there are no business / first class seats.
So the idea would be:
1. All seats are sold at the same price, no matter how early or how late you buy. The price covers all the costs associated with running this flight, given an expected "occupancy rate" (sorry not the right term).
2. All tickets are non-refundable. If a customer changes their mind, they use the airline app to put their ticket up for sale. They can try to sell the ticket at the same price, or at a discount (or maybe even at a higher price?)
3. Airline charges a small fee (something like $10) every time the ticket is transferred to another person.
Since this has never been done - to my knowledge - there must be something wrong with it. But I wonder what it is?
Airlines know that some customers are price-sensitive, e.g. those planning a trip months in advance, and some customers less so, e.g. business people flying out to a last-minute meeting.
So if they just sold all the tickets for the "average" price, they simply wouldn't get as many customers, because all the price-sensitive customers would go to their competitors still doing things the old way, and there's no guarantee that they will attract enough of the less price-sensitive customers, unless they lowered prices even more than the previous average, and if they actually make less than the current average price, this is simply not a viable plan.
In addition, since the customers you have left tend to book later, you won't know for sure if you're filling up your plane or not until closer to the departure date, and that could potentially wreak havoc when allocating planes to routes.
Sure it has. Look at concert tickets. You are basically talking about introducing the scalper into the airline ticket market.
Try to get any tickets to a major act at anything approaching face price - especially for the prime seats. You can't do it. The scalpers always beat you to it.
Now imagine, the only seats left after the scalpers get through are the tickets in the way back.
Now lets just throw in the mix handling flight changes. Because from the airlines' perspective every flight is full. You could never book through the airline....
.... I could go on and on...
But yeah .... bad idea (sorry!)
Most problems with air travel are "last mile" problems, with "last mile" is defined as flying to a location that does not have a critical mass of service to really be a "full service" city.
Buying airline tickets involves multiple checks to minimize the possibility of the buyer blowing up the plane, and resale on the secondary market will weaken those
The problem is, the airlines would rather make more money by selling the new person the ticket at an inflated price (presumably if they cared enough to save money, they'd have bought in advance), and from you as well in ticket change fees. This was sold to us as a post-9/11 fix to ensure terrorists didn't buy tickets, but I doubt that was the underlying reason.
The only scenario where this would be useful is if the the original purchaser is willing to sell their ticket at a loss for some reason, e.g. if they know they can't make it and just need to minimize their losses. But at least Southwest airlines already has a customer-friendly solution here, they will credit you the full price of the ticket for a future flight, for most tickets at least.
As you point out, Southwest lets you do this for free. And JetBlue is something pretty reasonable as I recall. Unfortunately most of the fee-addicted airlines have really ratcheted up their cancellation fee however.
If the airline is flying ~8 flights a day from SFO-SEA, I'd be fine in many cases paying x% less for y% risk of being bumped one or two flights later.
Apart from removing over-booking completely, the Delta "pre-blind-auction" is the best choice. All tickets are sold at their regular prices (no random discounts), and day-of people are able to decide if they are willing to be bumped (ideally: by how long) as well as the price it would take.
There's a huge difference in "I'll take $1000 to be bumped to a later flight today" and "I'll take $1000 to be bumped to a flight that's two days later" (depending on the route, that is something that can happen).
It's a delicate balance between customer service, incentives, and profit, and "guaranteed v. standby" pretty clearly fails.
JetBlue doesn't overbook, but they have removed passengers already boarded who have not violated any rules, other than they wanted to accommodate other passenger(s).
Overbooking is an issue, and they should either stop overbooking (though that means potentially higher ticket costs for everyone), or when they do overbook make sure they don't start boarding everyone until someone has agreed to not fly and offer the appropriate amount to get someone not to fly, such as the max amount or cash rather than a voucher. But once again, that's a different discussion, and SW and others should focus on the bigger issue at hand that UA violated.
So it wasn't really about what the employees themselves wanted or not.
Now if United, AA, or other large airlines that don't offer cancellation did this, that'd be another story.
One reason you'd let people cancel at the last minute is because you overbook flights. If you have 100 seats, book 105 people and then 4 cancel, that cancellation didn't cost anything.
If you book 100 people and turned away other passengers, then 4 people cancel at the last minute, now you lost 4 sales.
That said, perhaps I am dead wrong and overbooking is being used for darker purposes. Perhaps they are deliberately overselling flights at peak times knowing that they will push bumped customers to later less-full flights. If that is being done knowingly, that's a bait-and-switch operation that might be worth more than a couple percent.
No, there's no benefit to deliberately overbooking to fill a later flight given that bumped passengers are compensated. At best they're giving away a seat on that later flight for ~free, and at worst they're eating the cost of another paying passenger that can't book that seat anymore.
*source: a friend working in revenue mgmt at United
The maths of overbooking is that if you have 100 bookings on a 100 seater flight and 97 passengers show up then perhaps you could have sold 103 tickets and still not have to bump anyone. In this case you have increased revenue by 3% without an increase in costs. This can either manifest itself in an increased profit or, on a competitive route, lower ticket prices.
Of course, there will be variations in the number of people who show up and this can lead to more passengers arriving at the airport than there are seats on the plane. In this case, there is a cost to the airline, and perhaps in this big optimisation problem there are some airlines that see a bigger payoff in overbooking and bumping than avoiding overselling and minimising bumping.
I don't know about budget airlines, but full service you might expect somewhere in the region of 5% overselling. For budget, I would expect it to be higher as tickets are cheaper so passengers have less to lose by not showing up.
Nonetheless, even if it were a 1-2% increase in revenue, it would have a much higher impact on profitability. On a budget route, you could have $500 profit per flight, say a couple of dollars per passenger. Every extra ticket that gets sold that the airline doesn't have to pay costs for is a big deal, and part of the optimisations that allow airlines to offer lower fares.
You should probably consider switching to Greyhound in that case. The last few years have generally been good ones for commercial aviation but, historically, the industry lost money as whole since its inception.
One of the problems is that you may be willing to pay a few dollars more but most will just go with whatever is cheapest.
Margins in air travel are small, an extra seat sold on every flight is a huge difference, this will definitely affect revenues and profits, and will likely lead to slightly higher ticket prices. Until the race to the bottom returns and they start overbooking again.
April 22, 2017, page 11
[0] http://www.economist.com/blogs/economist-explains/2014/02/ec...
[1] Economist, April 22 print edition, page 11
Do they actually give cash?
The last time I was bumped it was ~$600 airline voucher, transportation to/from a ski resort (a perk of being bumped in the mountains!), a room for the night and a good meal voucher to cover dinner and breakfast the next day. Plus they still flew me out the next day and took care of rebooking the connection on another airline. I don't know exactly how much it cost them, but I made out like a bandit.