Right after I publish I post about Delta Air Lines SkyMiles for Canadians, this comes up. How crazy is a $9,950 compensation package? CBC published an article reporting that Delta Air Lines is going to offer up to $9,950 to passengers on overbooked flights. Note that the offer is actually broken down as follows:
- Gate agents can offer up to $2,000 (up from previous $800)
- Supervisors can offer up to $9,950 (up from previous $1,350)
What happens if there is no supervisor on site? Think supervisors are going to go into hiding? Anyway, joking aside, the United Airlines incident has really spooked the airline industry. For United Airlines, the simple solution would have been to take a first come first serve approach. If a passenger is already on the plane, leave them alone and stop boarding new passengers. How crazy does it sound that they would disembark a passenger, only to re-embark a new one to sit in that same seat. Doesn’t that seem a little inefficient and almost guarantee to delay the flight?
I am sure that there was more to the story and maybe there are many other factors to consider? For now, let’s discuss overbooking in general. If you want to continue the United Airlines discussion, feel free to share in the comment section below!
So why do airlines overbook? The short answer is to “maximize profits”. But let’s break it down further than that. What does maximizing profits really mean? Below are some of the factors to consider.
Doesn’t $9,950 feel overboard? You would think that it would just make more sense to stop selling tickets after they reach capacity, instead of offering so a significant compensation. The CBC article does explain that even if Delta paid $9,950 to every person it bumped involuntarily last year (2016), that would total $12 million compared to the $4.4 billion earned. I guess this proves that it is worth it.
That Many Last Minute Cancellations?
I guess this also confirm that there are enough last minute cancellations to justify overbooking to optimize profits. I am very curious to know what the actual statistics are on no shows for flights compared to the number of people being bumped off a flight.
There does not seem to be much published data on this. But if you find something, feel share in the comment section below!
Lack of Volunteers Drives up the Offer
A regular $800 gift voucher is fairly significant to me. If you were delayed for 8 hours, that is like making $100 per hour. If you need to stay over night, you get a free hotel stay and supposedly food makes it worthwhile to me. So I am surprised sometimes why not more people are taking advantage of these gift vouchers. For sure everyone has their own personal reasons, but it does help drive up the value of the voucher as the time gets closer to liftoff, so the one who does take advantage gets even more benefits.
Just keep in mind that if everyone does jump on these offers, they will end up driving down the compensation, which for sure may not be worth it.
People not using the gift vouchers?
Most often, volunteers willing to give up their seats expect that they will be able to use the compensation voucher at a later date. Keeping in mind that there is usually is a deadline to use the gift voucher, I am sure that many people do let their vouchers expire, whereby the airlines comes out ahead. Just like the days when gift cards had expiry dates and company made millions off expired gift cards. However, I doubt that airlines will reach the point where they do not have an expiry date on the compensation package.
Voice your Concerns
Keep in mind that demand and supply will drive everything. It will drive the overbooking, as well as the compensation package for being bumped off a flight. Airlines are just optimize their profits based on demand and supply whether we like it or not.
If we are unhappy with an airline, voice your concerns or better yet, give your business to someone else and let them know it through social media. Social media seems to be an effective tool, especially Twitter, where you can voice concerns directly towards their officials channels. The more complaints stacked against them, the more pressure they will feel to make a change. Like what happened here, Delta did an preemptive move to increase their compensation package to avoid potential future backlash that United Airlines faced.
Numbers Don’t Lie
However, at the end of the day, the bottom line matters the most to airlines. If they are making profits, they will not care as much about their customers. If their financials take a hit, they will need to make adjustments to win customers back. So if you are unhappy with a company, be ready to give your business to someone else who deserves it!