Obligatory mention - United Airlines, frequent flier, and "how United turned a PR crises into a total disaster" - Granite Grok

Obligatory mention – United Airlines, frequent flier, and “how United turned a PR crises into a total disaster”

UAL logoAs I have said in the past, I’ve flown over 500,000 miles for business and most of those on United.  In the past, I was a Premier Exec level frequent flier for multiple sequential years in the past.  Most of the employees I came into contact with were always cordial and polite (even if getting harassed by folks that had lost their minds and sense of “adultness”).

This event, where a doctor was knocked out by airport security / police and then dragged up the aisle simply because he wouldn’t “voluntarily” give up his seat so that a United employee could sit in it instead of him (a paying customer)?  Totally out of bounds.

  • Yes, because of the “carriage laws”, an airline has the right to remove you for whatever reason they want.
  • Yes, they’ve deserved their $750 million whack in their valuation during the day (even at a $22+ billion valuation, it should get the Board of Directors’ attention).
  • Yes, their CEO is a complete fool.  I can understand backing your employees, but knocking out a paying passenger??  And the video kinda throws water on the CEO’s claims.

I’ve been in that passenger’s shoes – the flight was overbooked and they were looking for folks that would willingly bail out.  I always had a pact with TMEW – I’d never volunteer on the outbound flight (and usually flew out from MHT as early as I could in case something like this happened and I had no choice) but if the reward was large enough, I’d take it (a few hundred dollars, you put me up in a hotel, and upgrade me – and they generally would given my Premier Exec status) and did so a couple of times.

UAL tried to cheap it out by offering only $800 (more than I was ever offered) but given that he had to see patients in the morning, HIS price was logically higher and as it turned out, no one else’s price to disembark either.  UAL did not want to meet that price – they failed a free market price where an exchange of value is only complete when BOTH sides reach an agreement that is of value to BOTH.

Instead, UAL resorted to force, a force that Government had given them (to remove paying customers from a plane).  In this, they were very wrong on using their “price fixing”.  They’ll be paying for this YUGE mistake for years as potential customers think “that could be me” and fly elsewhere.  There is probably going to be some backlash from customers that make up a lot of profit.  No, not the First Class folks but the frequent fliers (my 80-90,000 miles / per year of steady consuming of their product did pay them rather well).

Frankly, I think Hahved Economics Prof Greg Mankiw has the right of it (emphasis mine):

The story about United dragging a passenger off an overbooked plane highlights how crazy the current system is. I would not go so far as to say that airlines should never overbook, but it seems that when they overbook, they should fully bear the consequences. They should be required to keep raising the offered compensation until they get volunteers to give up their seats. If $800 does not work, then try $1600 or $8000. I am sure volunteers will appear as the price rises.

This alternative system would have three benefits:

  • Those who can delay their travel at least cost will be the first to give up their seats so the allocation of available seats will be efficient.
  • Those who are delayed will be compensated so won’t feel harmed.
  • The airlines will face better incentives when deciding how much to overbook.

Well, that will mean that Congress will have to change the law that ALLOWS UAL and other airlines to kick paying customers off a plane.  When you think about it, that’s most of it – get Government out of this part of that marketplace. Right now, there is no downside when airlines overbook – this would reverse that by letting people act in their own self-interest and counter-balance that of the airlines.

Instead, do a less intrusive law – make it illegal to kick people off the plane.  That will set the stage for the above.

Update: this from IBD says the same differently (emphasis mine):

Supply and Demand: After forcing a paying customer off a flight to make room for an employee, United Airlines is catching hell, and rightly so. But what’s really disturbing is that no one at United understood the most basic principle of free market economics.

The story goes like this. United overbooked a flight from Chicago to Louisville, Ky., on Sunday night. That’s hardly unusual. But in this case, United wanted to make room for four employees who needed to be in Louisville the next day, and the next flight to Louisville wasn’t until Monday afternoon.

According to news accounts, United offered passengers at the gate $400 and a hotel to give up their seats. But nobody took them up on it. After everyone had boarded the plane, United upped the offer to $800 for anyone willing to get off. Again, it got no takers.

Again, the passengers perceived value of getting to their destinations on THEIR time schedule was worth more to them than what United was offering.  If it was THAT important (and they probably were part(s) of flight crews which meant that if they didn’t arrive, it would cost United a whole lot more than 4 x $800 for canceling that flight. And about this next “fair” part?

So, the airline decided to do the “fair” thing and have a computer randomly pick four passengers, who were then told to get off the plane. When one refused, United called in cops. Another passenger recorded that man being yanked from his seat and dragged off the plane.

The only party for which this was “fair” was United – all it was doing with its definition of “fair” was spreading its misery to its paying customers.  They, in good faith, paid the asking fair and in return, expected United to keep its part of the bargain.  A part, as it turns out, that United had no intention of keeping and KNEW that based on their “overbook” software.

A high school student just learning about economics could explain what United did wrong. Namely, it tried to ignore the supply and demand curve and the market clearing price. Clearly, the combination of an overnight stay and the reason for being bumped (to accommodate United workers) pushed the market price for giving up a seat above $800.

United spokesman Charlie Hobart said the airline tries to come up with a reasonable compensation offer, but “there comes a point where you’re not going to get volunteers.”

That’s simply not true. Yes, United’s contract of carriage gives them the ability to bump passengers. But United could have — and given the circumstances should have — continued to increase its offer price until it got enough volunteers. At some point, there would have been a rush to give up seats.

The result: Everyone would have gone away happy. The passengers who agreed to get off the flight would have received something they valued more than arriving on time, and United would have been able to get its own employees where they needed to be without raising a fuss.

But United decided that it would turn from its capitalistic ways (offering a ride at a price that customers accepted) and acted like Government does.  Will the Left see that parallel amongst all the calls now for a Congressional hearing?

Er no.  Let’s continue:

Instead, United tried to impose its own form of price controls and then have the police enforce its nonmarket decision. Does that sound familiar to anyone?

It should, because this is precisely what happens when government interferes in any market, either by forcing prices higher or lower, or mandating businesses offer this or that, to accommodate some other alleged social goal — and then forcing everyone to abide by these rules. The result is economic inefficiency, rising animosity and a growing police state.

Price controls are why there were gasoline shortages in the 1970s and doctor shortages in Medicaid today. They explain why the individual insurance markets are failing under ObamaCare, and why Venezuelan grocery store shelves are empty.

 

And no, Congress ought to stay the heck out of this other than what I said before – that passengers that have paid for their flights cannot be FORCED to leave the seats they have bought.  Then the capitalism in this, a mutually agreeable value on both sides(“market clearing price”), can be re-established.