170410 24BOX United Overbooked 02 - The Passenger Dragged Off a United Plane Is a Symptom of Airlines’ Ridiculous, Outdated Overbooking System

The Passenger Dragged Off a United Plane Is a Symptom of Airlines’ Ridiculous, Outdated Overbooking System

 

United Airlines is weathering a public relations horror show of its own making. A United flight from Chicago to Louisville, Kentucky, late Sunday night was overbooked. Several stand-by United employees needed to get to Louisville that night. Offering passengers monetary rewards to get off the flight—first $400, then $800 plus a hotel room and a promise to get on a flight at 3 p.m. the next day—didn’t produce enough volunteers. And so United employees randomly selected paying customers to be ejected, and ultimately sent in armed law enforcement officials to drag a man off the plane after he refused to go. The horrifying incident was caught on video.

How could this happen? There may be no explaining away or accounting for the forced removal of a passenger (whose face was bloodied in the process). That should never have happened—not just for passenger-safety reasons, but because United must surely know that its overbooking practices are outdated: The economy has been too good for too long, and the airlines and the passengers have simply become too self-optimized and economically self-aware, for the usual incentives to work.

For an airline, every empty seat on a flight is an economic tragedy—an airline seat is a perishable item that can be sold only once. So over the years air carriers have become ruthless about increasing their load factor: switching to smaller planes, cutting capacity, and of course, routinely and strategically overbooking. Everybody knows that a certain percentage of people who make reservations—at hotels, restaurants, cruises, and flights—don’t show up for one reason or another. But they can still be monetized.

These efforts have worked. The load factor, which was at 79 percent in 2006, has hovered at around 83 percent for the past several years.

The airlines want to optimize to the point that, whenever possible, 100 percent of every flight is full. And if that means building overbooking into the system, and having to compensate or induce people to get bumped to later flights, so be it. It’s worth the cost. And as they deploy software and algorithms, airlines have improved their management of overbooking. In 2000, the data shows, 1.12 million people (or .2 percent of all travelers) were denied boarding, almost all of them voluntarily. By 2010, the figure had dropped to about 746,000. However, in 2015, after having fallen for four straight years, the number of bumps rose 15 percent to 552,000, of which 46,000 were involuntary.

We don’t have the numbers for 2016 and early 2017, but my guess would be that the incidence of bumping has risen—and that it is becoming harder and harder for airlines to convince people to get bumped.

Economic times are good and people are feeling better. Unemployment is at 4.5 percent; we’ve had 78 straight months of jobs growth. Several years ago, an offer of $200 in exchange for several hours of inconvenience might have been a compelling proposition for a lot of people. Today, not quite as much.

And there’s something else going on. Just as the airlines have optimized their operations and their movement of people—United needed to bump passengers in part so it could get several of its employees to Louisville just in time to staff their next flight—so have American workers. Some 145.9 million Americans have payroll jobs—16 million more than did in February 2010. Which means more people in the system are likely to be flying for work. Many of these people are constantly tallying up what their time is worth and figuring out how to get to where they need to go with no wasted time or needless overnights.

So for lots of people sitting on planes today, there is simply no price at which it would make sense to get bumped, especially on sparsely traveled routes. Sure, if you get bumped from a shuttle from LaGuardia to D.C., you can catch a flight in an hour. But if you’re on the last flight of the day, or if there are only a couple flights daily, it’s a different calculus. This United flight was on a Sunday night, and the airline was offering people a flight that left the next day at 3 p.m. Getting bumped would have killed an entire working day. News reports said the man dragged off the plane against his will was a physician who said there were patients waiting to be seen. The $800 offer was a nonstarter.

If you’re flying into Chicago first thing in the morning to give a speech for which you’ll be paid $5,000, getting bumped for a few hours would mean you lose the income from the speech, harm your reputation, and hurt your ability to get more business. If you have a lunch appointment in San Francisco scheduled with the CEO of a company that represents $10 million in business for your employer, getting bumped means missing an appointment, disrespecting a client, and putting the account in jeopardy. Same thing if you’re an academic giving a talk in Ithaca, New York. Or if you’re a hirer going to interview prospective employees at a career fair in Durham, North Carolina.

The same calculus holds, of course, for leisure travelers. In February, I was on a direct flight from JFK to Salt Lake City that was overbooked. I was astonished as agents kept on raising the reward for being bumped without getting any takers: $800, $1,000, $1,200. Eventually, JetBlue paid a couple of people $1,500 each to get off the plane. In retrospect, it made sense. Many of the passengers were families heading for long-planned ski weekends. Given the vagaries of the weather, waiting several hours could mean losing an entire day. And if you’ve already paid for the ski rentals, ski school, a hotel, and a rental car, you’re throwing away money by delaying your trip. Americans famously don’t take much vacation, so you can understand their reluctance not to lose a day. For people flying to get on a cruise or bike trip or a tour for which they’ve already paid, getting bumped might mean getting left behind.

But none of this should be news to the United executives whose business is understanding the American air traveler. The next time there’s an overbooked plane and a passenger won’t budge, they need a better way.