The author seems to be upset by this, but why? If you don't want to sell your seat back to the airline, don't.
Personally, I can't get upset with a situation where I have 100% control. Amazon's pricing experiments are similar; if I don't like Amazon's price + value add, I can just buy from one of their many competitors. So no need to get mad at them for changing their prices randomly. Similarly, I would probably be willing to give up my $50 seat for $2000, so I'd type that number in. If I got my $2000, great; I would walk over to the competitor's counter and pay the $500 walk-up fare. If not, travel proceeds as planned.
The system will never accept more than about 75% of the fare (or, potentially less). This is also a tactic employed by legacy airlines - the newer ones don't promise a seat, so you get bumped till later, no comp.
So you're faced with a flight with 105% passengers, you have to figure out who's not flying. The schmucks who'll take a $50 bump (free drinks at the bar later?) or those who'll hold out for $400?
When no-one takes a deal, or there isn't budget, then it becomes involuntary, with minimum comp. That sucks the most. It's like wheel of fortune, except the airline _always_ wins.
When no-one takes a deal, or there isn't budget, then it becomes involuntary, with minimum comp.
I don't believe this is true. At least in the US, the compensation for being involuntarily bumped is usually much better than the voluntary, and as a result it is almost in the airlines' interest to find a volunteer. Also, the involuntary compensation involves cash, whereas the voluntary (on the US airlines I'm familiar with) is a voucher for future travel.
I believe these are the current rules:
"If the alternate transportation is scheduled to arrive between one and two hours after the original planned arrival (between one and four hours on international flights), the compensation equals 100% of the passenger’s one way fare to his or her next stopover or final destination, with a $200 maximum additional cash compensation . If the airline cannot get a passenger to the destination airport within two hours (four hours on international flights), the compensation rate doubles to 200% of the passenger’s one-way fare, with a $400 maximum additional cash benefit. This compensation is in addition to the value of the passenger’s ticket, which he or she can use for alternate transportation or have refunded if not used.
The last time the rule was substantially changed was in 1982, and the last time the maximum additional cash benefit was raised was in 1978. For 2008, the DOT made several changes, the most important was a doubling of the maximum cash compensation to $400 for domestic flights and $800 for international flights."
That's actually not a good deal; again, this replies to legacy airlines. They don't refund your fare, as it's used to pay for your replacement flight, and most legacy flights are > $200 R/T.
That leaves you with $200-$400, which is not a particularly great ROI. (miles, however, are usually MUCH better comp). Note at that point, a delay could easily be "next flight" which may be the following day -- which could incur another hotel night or extra costs for parking, both which kill the comp.
Again, I think you are mistaken. This may be partly my fault due to the missed quote above, but I don't think you understand the way bumping works in the US. Perhaps this page will be clearer: http://airconsumer.dot.gov/publications/flyrights.htm#overbo...
The law definitely applies to domestic flights. It's actually international where it gets trickier.
Whether it's a good deal or not depends on your urgency in getting to your destination. I've probably successfully volunteered to be bumped about 6-8 times in my life, and have been satisfied with compensation offered, which usually is equivalent to a voucher for a free round-trip ticket. It has also included an overnight hotel voucher in couple of cases where it was necessary.
I've never been bumped involuntarily, likely because there is always a volunteer willing to take some offer the airline will make. The highest I've received (international with the next flight in the morning) was an $800 voucher, presumably because the alternative to the airline was $800 cash. But as always, your mileage may vary.
DOT has not mandated the form or amount of compensation that airlines offer to volunteers. DOT does, however, require airlines to advise any volunteer whether he or she might be involuntarily bumped and, if that were to occur, the amount of compensation that would be due. Carriers can negotiate with their passengers for mutually acceptable compensation.
In other words, it's very much down to how you can negotiate with the airline to derive value. :)
I tend to doubt you'd be able to negotiate very far with the gate agent. Negotiation is rare in consumer-business transactions in the US, and in the few cases where it is normal practice, consumers absolutely loathe it (generally because there's no real "negotiation" going on anyway, I guess). Americans don't like to barter, they just like things automatically as favorable as possible, and I'd be surprised if your gate agents have any authority to do anything other than follow a three-step simple elevation process like: "Will you take $50? $100? $200?" If high number is rejected, the agent is probably obliged to move on.
This is not really negotiation, but a scripted process of elevation that some know how to exploit for maximum benefit and some don't.
It is usually done as a uniform price auction, with the airline upping the offer until they have enough volunteers. All volunteers usually receive the same (best) compensation regardless of what level they first agree to give up their seat. At least in my experience, you are right that it is not possible to negotiate directly with a gate agent, but then again I'm sure those with superior negotiating skill can negotiate just about anything.
Yes, if you volunteer the compensation is entirely negotiable: you could even choose to take nothing. Whereas if you are bumped involuntarily there is a legally mandated compensation scheme. These rules apply to all flights departing from a US airport.
Except if they can somehow argue "act of god." A friend was bumped from a flight because an earlier flight that day was canceled due to weather. He called and complained about it and was told by some gov't agency that in that case his bump was due to weather. Even though my take on it was... he was bumped because the airline decided to give his seat to a more valuable customer.
And the opposite nearly happened... My dad, his wife and my half sister were flying down to meet me in Florida a few months ago. In his case, an earlier flight was canceled due to mechanical breakdown. It looked like they would all 3 be bumped and he was a little pleased over the idea of a $1200 windfall. In the end he got on the plane. I suppose there weren't enough Mileage Plus Elite members on the earlier flight that needed seats.
I suppose there weren't enough Mileage Plus Elite members on the earlier flight that needed seats.
Hah, I've done this before. I was in Orlando and missed my flight back to Chicago, so I had to stand by for the last flight of the day. The list was 100 people long, but since I had the top-tier status, I went to the top. Some family trying to go home from their vacation was stuck in an airport overnight, all because I could not get to the airport in a timely manner. I still feel bad about this.
I don't think you actually read Delta's policy. Volunteers get vouchers/miles good only on Delta (or partner) flights, but involuntarily bumped passengers get comped in accordance with the US DOT rules.
Those rules require the airlines to pay for hotel costs incurred because of the involuntary bump. The cash compensation is in addition to reimbursement for costs borne by the traveler because of the bumping.
Also, miles only trump cash if you are close to reaching a significant plateau (i.e., upgraded frequent flyer membership). Otherwise, the restrictions on miles make them much worse then cash you can spend anywhere.
Firstly, there are almost never involuntary bumps. Someone will always take money. It's basic economics and it'll always work. The involuntary bumping is really only ever experienced when there is mass delay (e.g. the snowstorm in nyc here recently). This is because there is significant seat inventory (again, think legacy airlines) and usually people can be re-routed with not much more than a few hours delay and a couple hundred bucks in their pocket.
Hotel costs (and food coupons) are only required (for domestic flights) if the delay is overnight or past a certain time-window. Often, again, once you opt-in for voluntary bumping, you agree to be denied access to any other offer that may be made via DOT guidelines.
Finally, miles are almost always worth more, if you're on an airline that values them properly (aa & united especially). Note that Citi have often invested in AA's holding company by buying miles:
"A total of $2.9 billion in additional liquidity and new aircraft financing was obtained. The $2.9 billion consists of: $1.3 billion in new liquidity, including $1 billion in cash from the advance sale of AAdvantage ™ frequent flyer miles to Citibank and $280 million in cash under a loan facility from GE Capital Aviation Services (GECAS) secured by owned aircraft; and $1.6 billion in sale-leaseback financing commitments from GECAS for Boeing 737s previously ordered by the Company." - http://www.aa.com/i18n/amrcorp/newsroom/network_enhancements...
Clearly they're not worth nothing.
The tipping point however is that it's almost always cheaper for the airline to give you miles than money; the cost of miles can be deferred (and you might not even use them!). This makes them a better deal, as you can almost always exchange them for a greater dollar rate later on (e.g. to get a better hotel rate discount, a free flight elsewhere, etc).
(finally pro-tip, most airlines distinguish between miles claimable for status, and miles spendable on flights/services).
(finally pro-tip, most airlines distinguish between miles claimable for status, and miles spendable on flights/services).
There are people on Flyertalk who churn through those Citi AA Mastercards like crazy, collecting hundreds of thousands of miles from each card's signup bonus (usually 25-75,000 miles depending on the promo used to open the account).
While AA can distinguish between qualifying flight miles for status, when it comes to redeemable miles they distinguish between flight miles and other earned miles from charge cards/etc.
Since you can earn lifetime status on AA by collecting 1MM or 2MM redeemable miles, you can conceivably get status for life this way.
FWIW I flew last week and encountered the same auction screen as the OP. It indicated that the maximum bid was $400. Coincidentally, I did have some flexibility in my schedule, so I went for it. Turned out the flight was not actually overbooked, so there was no chance of getting that voucher. I was kind of disappointed. :-/
Seems like a great idea to me. Creating a market where one doesn't currently exist. As a weekly passenger, I've always wondered why the airline can bribe someone to take the next flight, but I can't.
If I want to get on a full flight and another traveler is willing to sell his seat for [Cost] + $50 and I'm willing to buy it for [Cost] + $75 everybody wins. The traveler gets $50, the airline $25, and I get home a little sooner for a price I'm willing to pay. I don't know why people are casting this as "airline greed".
John Galt, I should hardly have to explain to you that some small number of people simply hate free markets, and a much larger number have no idea how they actually work.
I'd say it's more an attitude of entitlement. "The airline used to give you $200 to rebook, now they give you less!" As if the airline owed them the opportunity to take the next flight.
If anything this will allow the airline to overbook much more aggressively. Giving people the opportunity to take that money more often, and if anything make more than the old method overall. Of course when that happens the story will change to "The rich get to travel whenever they want and the poor are stuck waiting!" Or "Ticket speculators are increasing ticket prices so the poor can't travel!"
There once was an airline which operated under those principles. PeopleExpress, Bus of the American Skies, used to line people up and simply ship them off on the next available flight. People could (and would) jump ahead in the line by paying someone ahead of them to switch places. You had to pay additional fees for everything except your seat.
Like all a rabid experiments in brutal capitalism, PeopleExpress went bankrupt.
I wonder if this could be used as a part time business. You could buy several tickets on days when flights are usually overbooked months ahead of time. Good time to do this would be Thanksgiving, Christmas, Memorial Day, etc.
Then show up at the airport that day and sell each ticket for a premium above what you paid for.
Growing up, a large number of people travel from my home town twice a year (religious conference). One year I planned to make the pilgrimage, as well, and booked a flight with a friend. Sitting in our seats after boarding, over the intercom, passengers were invited to give up their seats. Such is customary, complete with compensation.
After several attempts by the airline, the cash got high enough that my companion and I practically stood up at the same time.
Each six months for several years we booked, boarded, and got cash. The worst being that we'd make the flight and take the trip we'd intended.
Oh, clever idea, but probably wouldn't work. First off, it's labor intensive (you have to go to the airport and check in, it's not like you can speculatively buy 500 tickets), and the amount you could potentially make is bound not only by the ticket price but by the fact that you can probably only reliably make a profit during rush times (i.e., Thanksgiving, December). Also, if you guess wrong and a popular flight did not fill up -- you have to take the flights!
>you can probably only reliably make a profit during rush times (i.e., Thanksgiving, December)
Still, it'd be a nice way to get a bolus of cash for buying, say, December holiday presents.
>Also, if you guess wrong and a popular flight did not fill up -- you have to take the flights!
You don't have to take the flights... Last I flew, there wasn't anybody forcing people to get on the plane. As long as you're willing to eat the loss (which you have to be in a speculative endeavor), you can skip boarding the first available flight and still try to win auctions on the rest of them.
I suspect the real problem with doing this is the relatively large up-front capital investment: depending on the flights, you're looking at the 100-500 dollar range per-ticket which they hold for at least a month.
Wait... what? They're making it so that overbooking will happen more often and so that people will get less compensation for being bumped from their flights.
I'm curious as to why you think that's good for me, the consumer? More "effective" pricing means that the price I pay will get closer to the maximum price I'm willing to pay. In short, it means that I'll pay more. The article discusses this, with the airlines taking away as much of the "consumer surplus" as possible--i.e. getting people to pay them more money.
I'm really, really confused right now as to why you think that having to pay more would make me want to fly more? Surely I would want to do things where the benefit to me is higher than the price, not where the benefit and price are as nearly equal as possible. After all, I can do only so many things, so the opportunity cost of doing that instead of something with more benefit (e.g. taking a road trip instead of flying, or taking a cruise at sea) makes flying a losing proposition all around.
The trick will only have the effect described in the article if the airline is a monopoly. With competition they won't be able to extract all the gains. So you will have to pay less, eventually, and profit from other people's willingness to get off an overbooked flight.
Remember: Overbooking is usually not a problem, since a few people don't turn up anyway.
Compare an English auction to a straight sell: In the latter, the supplier just guesses a price, and you can accept it or not, and unless they guess right, there will be surplus left. In an auction with multiple bidders who value the item in question at similar levels, the supplier doesn't have to guess. The bidders will make sure that almost all surplus goes to the supplier; essentially the winner will pay slightly more than the second highest bidder was willing to pay.
Still, auctions are good for buyers, if there's competition between suppliers.
If they actually lower their prices, yes, that would make me slightly more willing to fly. Though, actually, I'd prefer that they lower their absurd fees (and that all the places to compare flights would give us a way to add up all the fees up front in order to expose such shenanigans).
I don't really expect them to do that, though, even with this sort of setup. There would be little reason to get rid of a customer surplus if they planned to give it back to us.
If you're selling your ticket then it's not likely you'll be undercut since others actually want to fly. But if you're selling a willingness to be bumped to a later flight, I can see this scheme failing for sure.
Reckless overbooking can get mightily expensive for an airline in Europe (or, to the best of my knowledge, non-European operators flying into, or out of an European airport):
Technical reasons is, according to a court ruling, not a reason to deny compensation. The court ruled that airlines are responsible for maintenance and the technical fitness of their equipment to fly.
The only way of weaseling out is an event, which is really beyond control of the airline. And even then they need to care for their passengers.
Overbooking can also be an expensive venture, since they must reroute you on demand with another airline on their expense.
So it seems like this could be even more useful in Europe, where getting volunteers to get off the plane has a higher opportunity benefit compared to involuntary bumping than in the US.
(I don't know if opportunity benefit is actually accepted terminology. I just use it for negative opportunity costs.)
Forgive my ignorance, how does the sell back auction benefits the airline in an over-booking situation?
Let's say person A and B both bought a ticket for $100, and on departure day, A offers to sell the ticket back for $150 and B offers to sell the ticket for $120.
B sells his ticket and made $20 profit, A takes the plane. The airline made a total of 100-20 = 80 dollar for the seat, although it would have made 100 without the auction.
The price people pay for seats when the plane is full is usually extraordinary - 3-10x a "normal fare". Thinking on the margin, the airline would get - say $700 - for the "overbooked" ticket in your example, and profit as long as someone will volunteer to be "bumped" for <$700*
* Actually, the airline would probably profit even if they had to pay $700 to compensate the bumped person - since they're only giving out travel vouchers. Additionally, they can involuntarily deny boarding to someone for a cost lower than $700 (at least in most situations).
There is a large chance B offers to sell the ticket for less than $100 -- that is, he decides not to fly, and either forfeits his ticket or accepts a voucher for less than what he paid. That's the whole reason they overbook in the first place.
Airlines usually offer 200-300 dollars for someone to take a different flight. In this case, instead of losing 200-300 dollars because of the overbook, they lose only 120 (since that is the minimum someone has bid for the seat)
Game theory analysis of situations like this usually concludes that you won't get $4999.
Because another passenger will undercut you at $4998, and take the profit ($4998 - utility of flying) instead.
But, of course, you'll anticipate that, and so undercut them for $4997.
And so on, until the price converges to near what its worth to you in the first place. That's what makes it an auction. Its harder to exploit than it first seems.
(Of course, such analysis doesn't always hold true in the real world - but I wouldn't expect to make 5k with that sign!)
I'm curious - is Delta's decision to start such a program premeditated in a similar way? Personally, were I to run a business, I'd be very ill-equipped to handle anything approaching such a level of economic theory.
Legacy airlines have revenue management departments that use sophisticated mathematical models to price discriminate between passengers to obtain the maximum yield from each day's operations.
Airlines without such advanced techniques to rip off less price sensitive customers have a hard time competing. F9 and WN* and the like have much less complicated models and more predictable pricing. To compete, they have to go after loyal bargain hunters like vacationers and small business commuters. They have no effective scheme to squeeze big businessmen with expense accounts. By building a reputation for transparency, they can charge stable prices and make money. It takes time and commitment, though.
DL, on the other hand, makes money by offering to bump regular coach passengers even off very oversold flights in favor of expense-account men on full-fare coach tickets. DL no longer advertises the guaranteed seat benefit for very profitable Platinum Medallion customers on the Delta web site, but you can call the medallion line and get a ticket on any Delta flight any time. It will cost you, but you will get it. Delta will just have to pay to bump someone else at the gate.
Two revenue models. Both survive in the market. Neither happens by accident.
For me, it's $2.25 and 45 minutes. I would imagine that most people who live in major cities are similarly lucky. (OK, not Tokyo. There it's at least 1200 yen to get from Tokyo to Middle Of Nowhere International Airport. But I digress.)
I imagine 45 minutes of your time is worth at least 10% of the cost of a typical airplane ticket, and if you don't get the ticket and want to fly eventually, you have to make at least one additional round trip, so it's an hour and a half of your time.
I'm in Ann Arbor, where the only efficient way to get to DTW is by car, which means bribing a friend (still not free in terms of friend's time), taxi ($50), traditional airport shuttle (~$30-$40), or shorter taxi plus regularly-scheduled airport bus (~$25). All cited costs are one-way, and a one-way trip is at least half an hour.
At least in the US, I don't think that's true other than for New York, Boston, and Chicago. Are there other cities that have good cheap public transportation to the airports? For a long time, it was basically impossible to have a direct connection due to federal regulations.
Not that it's always extremely expensive, but here in the Bay Area where we have better than usual public transport by US standards, it's $8.40 from downtown Oakland to SFO on BART, or $4.75 (with a nontrivial bus transfer) to OAK. From SFO, it's also about $8 to SFO, $7 to OAK (same transfer).
What federal regulations are you talking about? Most cities seem to at least have normal buses to their airports — all those service employees have to get to work somehow!
Seattle now has light rail directly to the airport, and Portland has for a while. In the DC area there's National just across the river with a normal subway stop and normal public buses to BWI and Dulles in the suburbs (that stop at subway stations).
I was referring to direct subway interconnects to airports being very difficult to fund, but now I'm uncertain. I was always told growing up (80's - 90's) that the reason that reason for the ridiculous off-site airport terminals for subway systems was because of federal regulation prohibited the use of certain funds for air travel. I was always amazed to see how smoothly transport to airports worked internationally, and depressed by the difficulty in the US: Boston, New York, SF.
Since then, all of the cities have changed, and now have better direct connections from their subway systems. I presumed this was a legal change, but now I'm unsure. I can't find anything directly confirming this. Here's one of the closest I can find: http://sf.streetsblog.org/2010/06/22/bart-moves-ahead-with-o...
In this case, it was determined that BART did not comply with the Civil Rights Title VI regulations regarding equity of spending for public funds, and thus was denied the use of federal funding for an Oakland subway extension. I believe this was the basis for the earlier prohibitions, based on the (reasonable?) presumption that the poor do not benefit proportionally from having easy airport access and the rich don't need the subsidy.
There's a lot of big cities that have horrible mass transit period let alone airport service. How about all of Florida, for one. TPA is my home airport and it's a beautiful airport but there's no significant mass transit service. Likewise for Orlando and Miami.
Philadelphia is comparable to the Bay Area: via commuter rail that runs every half hour, $7-ish and 20 minutes from downtown. As with BART, Philadelphia commuter rail charges much more for the airport than for other locations at a similar distance from downtown, which might be $4 or so.
The reasoning here applies only to monopoly pricing, but airline transportation is sometimes a competitive situation. In that case, the reverse auction can impose some price discrimination but cannot erode the total consumer surplus.
Of course, I am a Delta hub prisoner so my flights are in fact priced as monopoly rents. What I wouldn't give for some competition.
Personally, I can't get upset with a situation where I have 100% control. Amazon's pricing experiments are similar; if I don't like Amazon's price + value add, I can just buy from one of their many competitors. So no need to get mad at them for changing their prices randomly. Similarly, I would probably be willing to give up my $50 seat for $2000, so I'd type that number in. If I got my $2000, great; I would walk over to the competitor's counter and pay the $500 walk-up fare. If not, travel proceeds as planned.
What is there to be upset about?