United Airlines Was Right, and Its Numerous Critics Wrong

That the forceful ejection of a United Airlines passenger the Sunday before last proved so newsworthy indicated something that’s largely been ignored by the airline’s myriad critics and “advisers.” What happened was news precisely because it’s so rare.

But for a commentariat prone to turning anecdote into statistic, United’s resort to force when it came to properly removing David Dao (more on this in a bit) from one of its airplanes was naturally (to the chattering class, at least) a sign of a tone-deaf airline; one clueless about customer service thanks to a culture within the airline that doesn’t prioritize it. United’s actions were apparently also a sign that its executives don’t understand the auction process that economists – who’ve almost to a man and woman never run a business – can apparently design in their sleep. Oh please.

Back to reality, we all know why airlines frequently sell more seats than are physically available. They do so because they have a good sense based on years of statistical analysis of roughly how many no-shows there will be for each flight. The major airlines are plainly good at divining the no-show count as evidenced by travel journalist Gary Leff’s stats in USA Today revealing that, “Out of over 600 million passengers boarding major U.S. airlines in 2015, half a million didn’t have seats. Most of those voluntarily gave up their seats.” Leff adds that the latter explains why a mere 46,000 passengers were actually involuntarily denied boarding in 2015, a rate of 0.09%, according to Leff’s calculations. Again, Dao’s ejection was news precisely because what happened almost never does.

Despite this, economists have as mentioned used United’s alleged error to showcase their presumed worth. You see, economists claim to solve problems. Crunching numbers in their cubicles free of the pressures that concern those who actually run businesses, they come up with “solutions” for those businesses.

Case in point is Robert Samuelson, resident economist at the Washington Post. Though he acknowledges that there are lots of public policy problems that “cannot be easily solved,” he contends that “Fixing airline overbooking is not one of them.” Samuelson’s solution is for airlines to consult another economist who has largely spent his adult years contemplating the many great problems businesses face from Harvard’s leafy campus. According to Samuelson, Greg Mankiw has a plan for the airlines. Here it is:

“Make the airlines pay when they overbook. When they do, ‘they should fully bear the consequences. They should be required (by government regulation) to keep raising the offered compensation until they get volunteers to give up their seats," writes Mankiw. "If $800 does not work, then try $1,600 or $8,000.’"

Samuelson adds that the professor in Mankiw is "sure volunteers will appear as the price rises." Samuelson agrees with the professor, but would “tweak” his proposed imposition of force on businesses “by requiring that all the bumped passengers receive the highest payment.”

Of course the problem for Samuelson and Mankiw, along with countless other economists awoken by United’s alleged error, is that airlines have long been doing what they propose. We know this because airlines regularly oversell flights, only for them to offer rising rates of compensation to reserved passengers assuming they don’t have enough seats. Sorry economists, airlines have long employed the auction process that has oddly given your profession its day in the sun.

As for the proposed regulations offered up by economists mostly untouched by the real world, they’re passing strange simply because economists generally pay lip service to the truism that there’s no such thing as a “free good.” But in demanding federal compensation rules as Samuelson, Mankiw et al are, they act as though the compensation will be paid by 'someone else.' Back to reality, assuming the federal imposition of highly generous compensation for bumped passengers, this will reveal itself either through reduced seat availability for consumers, much higher prices for the consumers in search of low-priced fares, or both. Well-heeled economists presumably don’t consider this truth simply because their air travel is likely not of the supersaver variety.

Regarding Dao, it’s well known at this point that the flight he’d booked a ticket for wasn’t oversold as much as United wanted to transport four crew members to Kentucky in order to staff a flight the next day. So that the airline could serve many more passengers, it bumped Dao, along with three other willing customers. And while PR mavens can fight among themselves about the brand implications of United’s actions vis-à-vis Dao, it’s worth pointing out that the airline did the right thing in removing the obnoxious passenger from the plane.

Lest we forget, a purchase of an airline ticket, particularly a supersaver ticket, is not a guaranteed reservation in the traditional, contract sense. A supersaver ticket is low-priced precisely because such a fare might be bumped – albeit rarely – based on a lack of seats. In Dao’s case he didn’t have a reservation as much as he’d booked the strong possibility of flying when he wanted to. United was correct in removing him much as any business would be correct in removing from its premises any individual engaged in the act of taking. The seat was United’s to allocate, not something owned by Dao.

About this, readers can rest assured that United’s most frequent passengers, as in the ones that generate the most revenue for the airline, are the least likely to be bumped. For members of the commentariat to defend Dao’s right to a seat is for those same members to reject the property rights of businesses. Federal regulations imposed on businesses regularly ignore property rights, and because they do costs for their customers rise to reflect government disdain for property.

The economist in Samuelson concludes that “Making airlines pay more for overbooking would, almost certainly, make them more careful in their scheduling, while also more adequately compensating inconvenienced passengers.” It’s a nice thought from the offices of the Washington Post, but if it’s so simple as Samuelson suggests, why the need for governmental force? Samuelson never considered the latter, and realistically didn’t consider business and economic realities much at all in penning his piece in which he explained to the airlines how they should operate, sans irony.

But for-profit businesses don’t need the help of economists largely unfamiliar with business or profits. As evidenced by how airlines regularly and seamlessly handle the good, pro-consumer strategy of overbooking, they’re already well aware of how to handle passenger overflow. The problem isn’t the airlines, but an economics commentariat ever eager to turn what’s singular into a statistic.

-- John Tamny is editor of RealClearMarkets, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading

This takes the cake for the most flawed analysis proposed thus far. Simply based on economics, takes no account for the actual contract in place, nor for the history that is behind the various clauses in that contract regarding denial of boarding and the limit on required compensation (to protect the airlines) created in the aftermath of a Nader lawsuit decades ago.

No, the supersaver ticket did not have a different contract of carriage, it was just bought at a different time when the free market price allowed the passenger to save money. Likely limitations on cancelling the ticket or changing the reservation, but “reservation for space” was not disadvantaged, and once he was boarded United could only remove him for violations of its Rule 21, not even argued by United.

If United wanted to come up with a contract that clearly stated up front all the economic justifications this author suggests - it could do so. Likely would see a loss of ticket sales.

I still don’t understand though why United doesn’t give its local managers a bit more flexibility to offer higher rewards, to entice that last passenger to get off the plane....

Soon, some of them would be throwing their friends and relatives off the plane for profit.

Sometimes your choices are stupid and right, or smart and wrong.

I have a friend who years ago was riding a bicycle and was hit by a dump truck.

He said he had the right of way, so he just went ahead even though he saw the dump truck start to move.

I asked him later why he didn’t just let the dump truck go. He told me you have to enforce your rights. You just can’t let them walk all over you.

He told me this while he was wearing a cast, holding a cane.

It doesn’t matter if United does this 1 time or 100 Million times.. this was absolutely wrong and United is paying and will pay a very very high price for it....

Not only that, but the idiot CEO’s initial response that he was “sorry” that some passengers had to be “re-accommodated”... just tells you all you need to know about that airline and its passenger.... Apparently to the CEO of this company bashing some guys head off an arm rest then dragging him off a plane is just a “re-accommodation”... Not only that but for days they continued to do things that had nothing to do with the incident... Oh, we’ll no longer overbook... well this wasn’t an open booking problem... Oh we’ll reimburse everyone on the flight their ticket price (as long as they agree not to sue us).... etc etc etc.. only last FRIDAY did they finally say we will stop bumping seated passengers for crew members.... which is what this was all about in the first place...

This wasn’t a one time incident, may have been an extreme incident but its clear from the attitude of the CEO on down that the paying customer is an afterthought to United. Fortunately, they are likely to have far fewer of them tow worry about for quite a while.... MORONS

The problem is that you had already bought that seat, so the property was thus “yours” for the duration of the flight. Reneging on the contract between the buyer and the seller, which is essentially what United did, undermines all of mercantile law.

It would suck, but you’ve got to pick your battles in life. The fact of the matter is airlines have a nearly absolute right to kick people off their planes, this was a battle he could not win. Best to leave the plane quietly and use his anger to get fat cash from United. Did he really think “if I throw a loud enough temper tantrum they’ll let me stay”? Haven’t we all learned better by the time we get to puberty? Once you start throwing a tantrum the airline kind of HAS to pull you off the plane, otherwise everybody learns the way to avoid getting bumped is being childish.

Agreed.

I also find the rarity of such an incident to be very much in Dao’s favor. Look at it this way —

If this actually happened all the time, and someone suddenly complained, their neighbors and co-workers would say, “Why make a big deal out of it? So they knocked you unconscious, dragged you off the plane, and gave away the seat you paid for. Man, that’s happened to me dozens of times! It’s what they do! Don’t go whining about it!”

But no.

It’s not common. Because it’s not right.

So now when people hear about this, they gasp and they instantly say “That’s not right! I’ve never heard of such a thing!” Because it’s obvious that no sensible company would try to act like this policy made sense.

Most people would not need to be “dragged off of a plane.”
They would see it as unfair to them but would act with more decorum than this individual.
He acted as this was some sort of demonstration in the ‘60s for civil rights.
Give me a break...laying down in the aisle?
Clearly the guy was planning a lawsuit from the beginning.
More profitable than what he previously did with narcotics.

0.09% of passengers are bumped is not the true fact of this story. Most who have to give up their seat don't have to after buckled into a seat , luggage in the overhead and checked in the cargo hold. Seat assignments are most always settled before boarding, allowing bumped passengers more time to regroup plans.

The case of being ejected from a seat is so extremely rare there is no good reason to not auction off seats to the lowest bidder with no cap on the funds the airline can pay out.. once people are buckled into their seats the odds of this happening is way less than 0.09%, so that even a 100k$ payout would not hurt the airlines, and only be fair,

I was removed from my seat after buckling in out of a flight of Dallas a few years ago. A two hour flight turned into a 12 hour delay arriving at my destination after midnight separated from my luggage... not fun, even with the free ticket voucher i was given , I would not have gave up my seat other wise but for fear of arrest.

The author is wrong, suggesting, in error, there was no legal question about United’s action, while in fact there is, plenty.

All other matters he discusses are side issues and don’t change the legal ramifications.

In other words, he offers another diversion from the essentials of the case.

“the airlines have been limited as to how much they can offer. 400% of your one-way fare, $1350 maximum”

Clarification - the airlines can take advantage of the limit they have to pay a person denied boarding.

They are free to go over the limit for denied boarding.

However, they were in a situation beyond the denied boarding - the passenger was on the plane and any question of his confirmed, reserved space was over.

The contract of carriage (COC) is very detailed, considering all kinds of scenarios to protect the airline in particular (how many times do you think someone’s antler carried in baggage comes up - but it’s in every COC). Either they can deny boarding and compensate in compliance with Rule 25, or they can remove a passenger from the airplane for a violation of Rule 21. They didn’t cover the situation where they needed the seats for someone more important in their view, for whatever reason. Thus it simply becomes a free market - and they needed to up the offer until someone took it.

This is a stupid article because it is mostly about overbooking when we know that the flight was not overbooked.

Also, the discussions of compensation and “bumping” are generally making no distinction between bumping a passenger at the gate and removing from their assigned seat and booting them off the aircraft. By virtue of the airline’s contract with the passenger, this is legally something very different.

The story is resonating not so much because the passenger in question is such a compelling figure or behaved particularly well, but because of public unhappiness with the Stalinist police state mentality of airline customer service especially in coach class. So many flight attendants appear to be either grumpy older women or very prickly gay men that the customer experience has gone down the tubes. The first way to fix the airlines is to hire different gate agents and different flight attendants. Employees who cannot muster a smile and be nice to customers should not be allowed to continue on the job. The airlines could easily fix this by sending undercover evaluators on their flights, but then they don’t really want to know, do they?

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