Plane Conversations

Back in January, we talked about some of the reasons that airlines oversell flights.  The biggest one is no-show factor - the number of ticketed passengers who neither cancel their reservations nor appear for their flights.  No-show factors exist in all markets and are quite high in some; so, airlines oversell flights in an effort to reduce lost revenue.

By definition, when airlines oversell flights they sell the same seat twice.  Clearly, promising the same discrete product to two different purchasers could be seen as unethical and, in some instances, fraudulent.  If I sell one piece of land to two different parties, I’ve defrauded one of them; however, airline seats are less like real estate and more like dental appointments.  Let’s say your dentist has enough time to see 16 patients in a day.  If Patient #3 doesn’t show up for his appointment and no other patients are available to fill the slot, then that appointment time goes empty.  The dentist cannot insert today’s wasted 30 minutes into tomorrow.  Since Patient#3 neither cancelled nor appeared, he will be charged a no-show fee.  This compensates the doctor for her time, rather than allowing the productivity and revenue to be lost.

Likewise, if 120 passengers buy tickets for today’s 12:30 departure on flight BR549, and if 30 of those passengers fail to show up, the airline cannot take those 30 seats and use them on another flight.  If they go out empty, the airline loses that revenue.  Passengers may pay a fee and use their tickets on other flights, regardless of their no-show status.  In effect, the passenger has paid for a single seat on a single flight and has used a single seat on two flights.  Unlike the dentist, the airline does not charge the no-show passenger for their unused seat, although several years ago, there were a few airlines that had a Use-It-Or-Lose-It policy.  The policy went over badly with consumers and was abandoned.

Currently, airlines solicit passengers for volunteers to give up their seats.  If there are no volunteers, someone will be denied boarding involuntarily.  If several conditions are met, those passengers are eligible for compensation between $400 and $800.  Passenger-rights groups have pushed the Transportation Department to raise that compensation range to between $800 and $1,200, payable by cash or check – no travel vouchers, please.  So, now.  Riddle me this.  If I don’t have a seat assignment (leaving me more likely to be bumped) and the gate agent asks me to give up my seat for a $500 travel voucher, how likely am I to volunteer if I can hold out and get up to $1,200 in cash?  I’m going to have to go with “Not very.”  Gate agents are going to love this.

In general, I believe that our current air mass-transit system is ridiculously broken and in need of an enormous overhaul that only economic Darwinism can accomplish; however, in this case, the carriers are in a Catch-22 – they lose money if the seats go empty and they lose it if they take involuntary oversales.  How can they hope to break even in that circumstance?  They could levy much larger ticket change fees or they could determine annual losses in whichever category they decide to follow and amortize those losses over annual ticket sales.  The second solution sounds like one that would appeal more to carriers since they would stand to collect on every single ticket sold rather than just on those changed.  If they chose this solution, passenger-rights groups will have succeeded in making every single traveler pay for empty seats of no-shows.

Regardless of the solution, this is not a safety related issue.  Why is the government, with its nearly $1.2 trillion deficit, presuming to govern the business practices of publicly held airlines?  Doesn’t this constant meddling just prolong the lives of terminally ill business practices and the companies who refuse to change them?  Doesn’t preserving the status quo in such a way actually stifle growth and innovation?

Allowing huge airlines to fold under the weight of their own poor decisions would have enormous economic repercussions, we all know that.  However, without pruning the dead vines, how do we expect the industry to truly grow?

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