Why consumers like (some) regulations

There’s a lot to learn from the video depicting airport security dragging a passenger from an overbooked United flight earlier this week. The airline had the right to (humanely) remove the passenger, but dragging him from the plane was a horrible decision that only fuels demands for more regulation.

Airlines overbook flights because some passengers won’t show up at the gate. When everyone is present, they offer payoffs to passengers willing to take a later flight instead. It’s usually easy to find passengers willing to take the payoff—in this case, $800—but once in a while everyone shows up and nobody is willing to give up their seat. When this occurs, the airline is permitted to identify passengers for removal, and remove them physically if they do not leave voluntarily. It’s not a common situation, but it happens.

United made obvious mistakes here. The airline could have sweetened the pot to obtain the necessary volunteers. This is a reasonable expectation and would have satisfied everyone. Overbooking is more efficient and reduces costs and fares, so the airline should be able to compensate inconvenienced passengers at a higher level if necessary. Removing the passenger was permissible, but United should not have done so, even if it could have been accomplished without the optics.

There’s a larger concern here. Consumers who don’t understand overbooking or the contract they accept when they purchase a ticket see this incident as a massive abuse of power. They feel helpless, and predictably, many are asking the government to intervene so this doesn’t happen again. If airlines don’t overbook flights, there will be more empty seats on the typical flight, raising costs and fares for all of us. Governor Christie has already suggested that airlines be restricted from overbooking flights until more regulations can be developed. Be careful what you ask for; you might get it.

What’s the solution? Airlines should make higher payoffs when required to deal with overbookings. Every man has his price, and payoffs are a cost of doing business. United was not willing to pay more, and now it’s costing the airline dearly. If politicians get involved to “protect our rights,” it will cost all of us as well. More government intervention is unnecessary. The market is already extracting a heavy price on United, and other airlines are taking notice.

3 thoughts on “Why consumers like (some) regulations

  1. United deserves what it gets. The airlines have been screwing us for a long time. They shouldn’t be allowed to sell more tickets than seats. It doesn’t make sense.

  2. Delta and American would have done the same thing in the same situation. This is why you need to regulate the entire industry. The mergers were a bad idea.

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