As I write this post, United Airlines’ stock is down nearly 4% and their market cap has lost $830 million, which is not surprising. Why? They flunked economics.
The airline industry has always loved government control, but the free market? Not so much.
By now, you have seen the very disturbing video of the man being dragged like a rag doll off an airplane and otherwise brutalized Sunday evening at Chicago’s O’Hare Airport. Outrage is pretty much universal, and no one can figure out why in the world any business would treat a paying customer this way.
It’s indisputable that customer service has not been the focus of airlines for many years. The flight crews can barely conceal their contempt for the passengers, who they clearly view as annoying at best, but actually see as a passel of obnoxious, rude, loud, smelly jerks. They see their jobs as keeping the lid on the simmering rage of this rabble and get from Point A to Point B without anyone punching anyone else, while having as little interaction with them as possible. If they could have cattle prods to keep the passengers in line, they would. Without a doubt, they have a tough job, because some of the traveling public are obnoxious, rude, smelly and loud. In this case, their senior management did not make the job any easier.
They needed to get four people off the plane. Three went without incident.
The Department of Transportation regulates the amount an airline has to pay those who involuntarily bumped. The maximum in this situation, where the passenger would get to the destination more than two hours later than previously scheduled, is $1350.00. Here, the airline offered only $800.00. Why? Obviously, however made that decision never took, or perhaps failed, Economics 101. Had I been charge, I would have STARTED the bidding at $1350 after I had no takers for that 4th seat. Does anyone seriously think that if the offer had gotten to $1500, or $2000 that there wouldn’t have been a stampede to get off that aircraft? The biggest problem they would have had was stopping passengers from fighting to exit. They might have had to call the cops to stop the fist fights that were breaking out between people claiming to be the lucky bumpee!
That seems pretty obvious, doesn’t it? To those who appreciate free markets, it’s a no-brainer, but airlines are run by people who LOVE government regulation. In 1978, Jimmuh Carter (yes, that Carter), signed the statute de-regulating them, they were not happy. Of course not. Prior to the Airline Deregulation Act, their profits were virtually guaranteed by federal regulation.
Clearly, the mentality of airline management is “do as your told, sit down, shut up and be happy we let you get to your destination,” and they still don’t understand supply and demand.
Note to United management: wouldn’t have been A LOT less expensive to offer $2500, and if that didn’t work, charter a private jet for your employees?
The fact that this passenger appears to have a lot of personal issues (like trading gay sex for drugs, allegedly) doesn’t change my analysis, which is based strictly on economics.
Why was United management so bone-headed? Is it because they don’t understand supply and demand, or do you have other theory? Please let me know in the comments.