April 14, 2017

CASS SUNSTEIN: A Simple Way to Ease the Pain of Airline Overbooking.

In 1968, economist Julian Simon offered an ingenious solution. Whenever planes are overbooked, airlines should run an auction, in which passengers specify the lowest amount they would accept to be bumped, and airlines take the lowest bidders.

Simon’s approach would have the advantage of ensuring that passengers would not be bumped unless the compensation was adequate by their own lights. And indeed the current system of voluntary bumping (which starts with low offers, which increase if no one accepts them) draws on his proposal. But a full-scale auction would be difficult to administer, not to mention confusing and stressful for people who are just trying to get from one place to another.

Here are two simpler proposals.

First, the Department of Transportation should make it clear that the figures in the 2011 regulations are just the minimum, and that airlines are free to give higher amounts to involuntarily bumped passengers. That approach would have the advantage of allowing a kind of market competition.

Second, the department should initiate a new rule-making process, asking for public comments on a different approach. The simplest option would be to eliminate the $650 and $1,300 maximums, so that involuntarily bumped passengers get double the cost of their ticket for short delays, and quadruple the amount for longer delays. Another possibility would be to include legal floors, so that passengers would get (say) at least $600 for short delays, and at least $1,200 for longer ones.

How about ban involuntary bumps entirely, and make the airlines bargain with passengers if they want them to surrender the seats they bought?

But also bear in mind that the United flight wasn’t overbooked. They just kicked the guy out of his seat because they wanted it for someone else.