14.4.17

THE POLITICAL ECONOMY OF DENIED BOARDING.

United Airlines's willingness to inconvenience passengers because a crew dispatcher was overwhelmed or careless is costing the company, and much of the corporate sector, much more than the $25K or whatever it didn't have to spend because gate agents didn't have the authority to sweeten the bribes to stay another day in Chicago (or, because this was a 3 pm flight, catch Amtrak to Indianapolis and a bus to Louisville) in order to put the relief crew on that plane.

National Review's Kevin Williamson gets to the heart of the matter.  "The typical airline employee treats the typical traveler as though he simply is in the way."  But that's not some imperative of market competition, he continues.  Rather, it's what happens when people enjoy some exemption from market competition.
And that points to one of the biggest reasons people hate banks, cable companies, health-insurance companies, and airlines: There is an in-your-face asymmetry of power. If the airline says your flight is going to be delayed by two hours — not because of a hurricane or unforeseeable events but because of straightforward managerial incompetence — then you basically have to live with it. You don’t get to say: “Okay, but I’m taking $50 off the airfare.” Your bank expects you to accept screw-ups on its part that might cost you hundreds or thousands of dollars if the mistake was yours. (My bank just spent 46 cents to send me a check for . . . 47 cents . . . because apparently I bank with people who cannot quite manage to calculate interest correctly.) Your cable service may go out for hours at a time, but if you’re one minute late with your payment, expect penalties.

That is one major problem with heavily regulated industries in which there is insufficient competition: The managers act as though the business were organized for their benefit rather than for the customers, and that attitude seeps down to front-line workers. The typical airline employee treats the typical traveler as though he simply is in the way. I once was introduced to an executive who informed me that he was in charge of “strategic planning” for a large municipal utility company. I asked him whether his strategic plan was to keep being a monopoly. “I’d really be exploring that angle, strategic-planning-wise,” I advised. He did not seem to appreciate my counsel.

If I were a better sort of person, I’d have a little sympathy for the senior executives at United, who must be having a hell of a week. I am not a better sort of person, and I’d be content to see them flogged in the streets. But that’s no way to make policy.
So far, I'm not sure whether it's better that Our President, who has a past record of firing people, has not weighed in on social media on this United screwup, or whether it's a chance for him to establish some populist street cred.

The troubles might have been coming for a long time.  United recently merged with Continental (yet another case of two weak companies pooling resources with the hopes of creating a stronger company: instead, you get a larger weak company.  I'm no longer teaching antitrust, but my successors still don't lack for work.  As Wired's Tim Wu puts it, a flying hellscape.
Combined with Continental, United became the world’s largest airline—and vastly more profitable. But it led, in the short term, to a giant mess, forcing the carrier to adopt ever more extreme policies, transforming it into industry leader in the abandonment of basic decency.

Among the unstated goals of the merger was the systematic reduction of capacity, to ensure the major airlines’ flights would always be full, or, better yet, overfilled. (Delta and American executed their own mergers with similar goals.) United and Continental had been competitors along many routes, especially out of New York. The merger let them decrease supply so that there would be fewer seats to sell, making possible higher prices and fewer money-losing empty spaces. In retrospect, the Justice Department’s rapid approval of this and other airline mergers, without more safeguards or consumer protections, was a serious error.
It was also a foreseeable error. As early as 1978, then deregulation-minded Civil Aeronautics Board head (and Cornell industrial economist) Alfred Kahn was lamenting that the air carriers were not disposed to fight hard for market share with each other.  (But reintroducing rate regulation, as some observers are currently suggesting, simply reintroduces the cartel.  I'd rather have Delta pledging that "If we're not ready when you are, we'll pay the compensation you request" when my alternative is a codification that denied boarding compensation cannot exceed $1000 per incident and the hotel voucher has to be for the equivalent of a Baymont Inn.)

Current observers, including Mr Wu, have also noted the way that bumping seems to be for the little people.
United’s revenue projections make clear that the “basic” fares will be sold at the same prices economy used to be. The profit comes from not from offering something new, but the premise that people will pay extra to avoid the poor treatment. It is a textbook example of “calculated misery” — profiting from people’s fear of suffering.

The overcrowding, poor treatment, and invidious discrimination are a combustible combination. While this week’s fiasco was an extreme example, incidents of “air rage” have become a regular part of flying. In a 2016 study, researchers Katherine DeCelles and Michael Norton demonstrated that just knowing someone is getting special treatment can cause problems. “Physical inequality on airplanes—that is, the presence of a first class cabin—is associated with more frequent air rage incidents in economy class,” they wrote. It is a testament to the public’s manners and self-control that incidents do not happen more often.
Perhaps, although if Third Class is almost as good as First Class, why would anybody ever pay the extra fare for First?  That's a challenge as old as enclosed railway carriages.  But back in the day, the coach passengers passed outside the sleepers or parlor cars, rather than having to pass through them to get to their places of confinement.  And the airline trick of selling upgrades (yes, kiddies, they also overbook the nice seats, and in selling a slightly larger seat to a coach passenger they avoid having to compensate another coach passenger who will otherwise be bumped) is as nothing compared with what any Pullman conductor of the World War II era could do to accommodate 45 passengers in a 32 seat parlor car.

But that market segmentation is hitting a nerve with travel writers.  Here's a Christian Science Monitor take.
When it comes to airlines, the dissatisfaction may also stem in part from travel becoming cheaper and more accessible than ever before, giving more people a chance to experience it but also come face to face with those receiving better, more expensive treatment.
Now, if they could load the coach passengers through some doors, and the sleeping car passengers through other doors ...

In other ways, though, the travel business is rediscovering Late Victorian practices.
At the same time as most air passengers are facing more fees for luggage, seat assignments, and even bathroom use, amenities for business class travelers, from flat beds to private bathrooms, are getting more luxurious.

That aggressive sorting of travelers according to what they are willing to pay is a relatively recent phenomenon, says Herman “Dutch” Leonard, a professor of business administration at Harvard Business School. “There is much more work on price discrimination, trying to figure out who would be willing to pay a little bit more and how can we get them to pay a little bit more,” he says. People have come to resent all the extra airline charges – bags, carry-on, there’s this sense of, 'if we can take more money from you we will.' ”

“The entire travel industry is going in this direction,” agrees [travel agent Jeff] Wagg of Absolutely Cruises! “Hotels overbook all the time, too [to avoid the sunk cost of empty rooms when people don’t show], and you are more likely to get bumped based on how much you paid.”

On cruise ships, he says, first- and second-class passenger tiering is now common, with exclusive areas blocked off for VIP customers. “We weren’t seeing that in the '80s and '90s.”
No, but study your history. There are several versions of the old camp song, Titanic (you may know it as "It Was Sad When The Great Ship Went Down") but in most versions there's
"And the rich refused to / Associate with the poor.
So they put them down below / Where they’d be the first to go,
It was sad when the great ship went down."
It's possible that steerage class passengers on Titanic had been conditioned in a life of hardship that the lifeboats were for First Class. Perhaps we have to rewrite the song.
Oh the moral of this story, is right before your eye!
Have your Sky Club mileage current, before you go to fly.
So if the plane is oversold, you will never be tossed,
Oh it was sad when reaccommodation went down.

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