As Nouriel Roubini tweeteed, 2013 economics Nobel Prize winner Robert Shiller was involuntarily denied boarding on United Express flight from Denver to Aspen.
United’s Express partners offer 5 flights a day between Denver and Aspen. Troubled Republic Airlines operates four Bombardier Q400 turboprops each day on the route, and Skywest flies a CRJ700 at least once daily. It’s a 181 mile drive.
United offers to pay passengers in the form of vouchers to take a later flight (a ‘voluntary denied boarding’ or ‘bump’). When they don’t have passengers willing to do so, and they have more passengers than they can carry (sometimes because they have oversold the flights, other times because weight and balance issues will restrict them to fewer passengers than they have seats) they will involuntarily deny boarding to the passenger.
The Nobel Prize winner and his wife were each given $1350 as a result of the involuntary denied boarding. Passengers are entitled to quadruple their fare, or a maximum of $1350, if they aren’t given transportation scheduled to arrive at either their first connection or final destination within 2 hours of schedule.
Shiller’s wife makes the simple point that United should have been willing to offer more than a few hundred dollars in voluntary compensation in order to save themselves from paying out $2700 to two passengers.
It would have made more sense for United Airlines staff to offer a larger incentive for passengers (who did not have to be at their destination that evening) to agree to take a later flight, she adds. Virginia Shiller says the staff were only permitted to offer volunteer an amount totaling several hundred dollars, but it may not have been enough of an incentive to persuade volunteers to take a later flight. “It was totally irrational. They probably could have gotten a volunteer to take $2,700. They have these formulas. It’s like something they do in socialist countries.”
Where United Should Improve, and What Other Airlines Have Done
However the fundamental problem airlines face is one of time. They do want to offer the least amount of money necessary to induce volunteers. Three years ago Delta introduced a bidding system. When they think they might need volunteers, they inform passengers at checkin and solicit bids. Then they take the lowest bidders.
Without such a system, airlines offer a fixed amount and sometimes raise the amount offered if they don’t have enough takers. But they don’t go over certain maximums. Airlines also set rigid guidelines, otherwise individual gate agents might offer more than necessary (or face agency problems if they allow the people working the gate to adjust compensation).
Whether or not volunteers are needed, and how many, is ultimately something determined at the last minute based on how many passengers are checked in and present themselves for a flight on time. There are both check-in cutoff times to consider (often just 30 minutes prior to flight) and also late-connecting passengers who are checked in but may not take their seats.
There’s little time to bid up the offer of voluntary compensation. And there’s little time for a Coasian solution, such as paying Shiller $2700 and letting him pay some amount less than that to other passengers on the flight (or for that matter, topping off the maximum denied boarding compensation if it’s really important for him to get where he’s going).
United needs to get better at anticipating the need for volunteers (in this case it appears Shiller was taken off the flight, so perhaps weight and balance issues were in play although there’s an outside possibility this was done to accommodate a very high revenue customer) and preparing by taking volunteers earlier and improving its algorithms for soliciting bumps at the lowest cost the way Delta has done.
Taking their current systems as a constraint — and improving involuntary denied boarding processes is likely very low on the list of needed systems improvements at United — United’s approach probably makes sense.
- United involuntarily denied boarding to 1647 passengers in the second quarter (.pdf). That annualizes to 6588.
- If we assume they could have saved $500 per passenger with a more efficient system, that’s ~ $3.2 million per year.
It’s worth getting better here, and there may be savings in out years, but United has much bigger low hanging fruit and likely recognizes there would be substantial IT and training costs to improve.
How Often This Happens, and How to Protect Yourself
In 2014 only 0.08% of passengers were involuntarily denied boarding.
The folks at the bottom of the totem poll, at risk, are those without advance seat assignments. If a flight is oversold, and so seats are available to assign, those are generally the ones who will need others to volunteer or no show in order for them to get onto a flight.
Of those without seat assignments, fare, elite status, and check-in time will determine priority to get a seat among those without a seat assignment. If it turns out the airline needs to pull someone off the plane, similar criteria are used to determine who will be taken off.
Being an airline’s frequent flyer helps. Being on an expensive ticket helps. But the most important thing you can do to protect yourself – which apparently isn’t something that would have helped Professor Shiller in this case – is to get a seat assignment at the time you buy your tickets.
(HT: Loyalty Lobby)