United Airlines’ four miscalculations — and the $200 million impact.

Just how many mistakes did United Airlines make in “re-accommodating” four of its booked passengers recently? Oh, let us count the ways …

Miscalculation #1

Despite some reports to the contrary, technically United Airlines wasn’t in an overbooking or oversold situation. The flight boarded full; then some crew assigned to a future flight from the destination city turned up suddenly.

The airline’s first mistake was failure by its managers or staff to correctly anticipate the crew that needed to travel on this flight.

 Miscalculation #2

Their second mistake was to implement an operating procedure which gives crew higher priority than paying customers.

Because all customers had already taken their seats on the airplane, and no more seats were available, this meant that the airline’s staff had to ask — or coerce — some seated customers to leave.

Miscalculation #3

United’s third mistake was management’s failure to empower the airline’s gate agents to offer higher compensation in order to entice customers to leave voluntarily.

This miscalculation guaranteed that the victims would be “paying customers” who had done nothing wrong, rather than the airline’s managers and staff who had made all the mistakes.

Miscalculation #4

When choosing its victims, everything else being equal apparently, United Airlines and its regional partners like United Express go after the lowest-paying customers first. That too is a miscalculation.

Let’s explore this a bit further. According to the latest published data I could find, on average around 40% of passengers on the typical flight are traveling using heavily-discounted tickets.  Most of those tickets are non-refundable, and prepaid.  They can be changed ahead of time, but only if the customer pays change fees which can be very costly.

This means:

  • If the passenger doesn’t change his or her booking early enough, and doesn’t show up for the flight, the airline keeps all the revenue – and has the possibility of re-selling the seat to a different passenger.
  • Otherwise, the airline keeps the original revenue, plus the change fee. For United, this amounted to $800 million of additional revenue in the year 2015 alone.

Phony Risk?

Airlines justify their overbooking and overselling tactics as a way of reducing the risk of revenue lost from no-shows. Published data indicates that approximately 15% of confirmed reservations are no-shows. Assuming that the airline bears the full risk of revenue lost from no-shows, overbooking mitigates that risk by allowing other passengers to claim and pay for seats that would otherwise fly empty.

Airlines typically overbook about 12% of their seats, counting on no-shows to match load-to-seats, or later cancellations to reduce bookings. (Failure to correctly anticipate the number of no-shows would also qualify as a mistake by the airline’s management or staff.)

All that being said, however, in most discounting situations there is no “risk” to reduce, because most customers who buy discounted tickets already bear all the financial risks from a failure to show up for flights. If passengers are unable to fly when originally planned, they must either pay steep change fees … or they forfeit the entire fare paid.

The Real Risk

In fact, the airlines’ biggest risk of revenue loss from no-shows arises from passengers paying first class, business class or full-fare economy.

These types of tickets account for approximately 25% of passengers and 50% of ticket revenues.  Yet those passengers typically incur few if any cancellation fees or penalties if or when they don’t show up.

When enterprises like United try to have it both ways – by putting themselves ahead of their customers and gaming the system to maximize revenues without incurring any apparent financial risks – is it any wonder the end result is ghastly spectacles like passengers being forcibly dragged off airplanes?

Scenes like that are the predictable consequences of greed overtaking sound business management and ethics. You don’t have to think too hard to come up with other examples of precisely the same thing — Wells Fargo’s “faux” bank account setups being another recent corporate black-eye.

I’m sure if United Airlines had it to do all over again, it would have cheerfully offered up to $10,000 per ticketed passenger to get its four flight crew members off to Louisville, rather than suffer more than a $200 million net loss in share value of its company stock over the past week.

But instead, United Airlines decided on a pennywise/pound-foolish approach.

How wonderful that turned out to be for everyone.

Frequent flyer programs: No longer going the distance.

What took so long?

frequent flyer programsDelta and United Airlines have announced what they hope will be an industry-pacesetting change in the way frequent flyer programs are administered by the world’s biggest airlines.

The two air passenger carriers are shifting away from awarding points based on flight distance, and instead will award points based on the actual airfare paid by the traveler.

The change in procedures will become effective in 2015 (in January for Delta and in March for United).

In retrospect, one wonders why it took so long for the big airlines to make this move.

After all, the very nature of loyalty programs is to reward a company’s best and most profitable customers.

Business travelers who book a flight a few days ahead – not to mention people who prefer to travel first class – are far more valuable to an airline than someone who books the “Cheapy Charlie” web-only fare months in advance.

Besides, prominent low-cost air carriers like JetBlue, Southwest and Virgin have been using revenue-based methods of calculating their frequent-flier points for a good while now.

As for which types of travelers will come out winners vs. losers in the frequent flyer program changes, it’s exactly who you’d expect:

  • Big Winners:  Business passengers traveling internationally and on refundable-fare domestic flights + first-class passengers.
  • Big Losers:  Leisure fliers in coach class + business flyers who travel on cheap fares.
  • In-Betweeners:  Business passengers who travel using a mix of business and economy fares.

The recent announcements by Delta and United leave only American Airlines as the last big U.S.-based global carrier that still maintains the traditional distance-based calculation for earning miles.

I wonder how much longer they’ll hold out?

Only a matter of months, I’m guessing.

What are your opinions about the changing policies?  Are there particular frequent flyer programs you love?  … Or love to hate?  Feel free to share your thoughts with other readers.

Frequent Fliers’ Lament: U.S. Airlines are Second String

It isn’t just with automobiles that the U.S. public sees American companies as worse than their overseas counterparts. Our airline industry also comes in for its share of lumps.

Anyone who has ever heard horrific air travel stories from colleagues, friends or relatives – and that’s most of us – wouldn’t be surprised if consumer ratings of U.S. airlines pale in comparison to others. And now we have the record to prove it. SeatGuru, TripAdvisor’s online site that bills itself as “the ultimate source for airplane seating, in-flight amenities and airline information,” has just released the results from its most recent annual survey of frequent fliers (defined as people who have flown at least eight times in the past year).

And what does this year’s survey tell us? For starters, U.S. air carriers have the least comfortable seats of all airlines.

Also, they serve the worst food – if they serve it at all.

Rude flight attendants? Bottoms again.

Who ranks best? If you’re looking for good food, the survey respondents tell us we can’t go wrong with Singapore Airlines, British Airways or Air France. Perhaps surprisingly, Continental Airlines also ranked well. But avoid American, United and U.S. Airways – rated the worst of the bunch.

These same three U.S. carriers also scored at the bottom of the heap for the comfort of their economy-class seating. JetBlue does score well in this category; too bad most of us never get the chance to fly this airline because they serve precious few cities. (For the best business class seating, respondents gave highest marks to British Airways.)

And guess what? The very same three carriers – American, United and U.S. Airways – topped the list for having the nastiest flight attendants. If polite, friendly service is your thing, you’re far more likely to find that over at Singapore Airlines or Southwest.

What about the all-important performance metric of on-time flight arrivals? For that, we can look to actual data compiled by the U.S. Department of Transportation’s Bureau of Transportation Statistics rather than rely on survey findings. What we see is that for the first three months of 2009, Hawaiian Airlines had the best on-time performance of any U.S. airline company, with more than 90% of its flights arriving within 15 minutes of schedule.

But they’re a small airline company. What about the biggest carriers? Southwest has performed the best, while Continental is at the opposite end of the scale.

And what flight to take if you want the dubious distinction of traveling the worst airline route of all? That would be Northwest Airlines Flight #5803 from Atlanta to Honolulu. It was late a mere 96% of the time. Well, there’s consistency for you at least!

As for getting yourself to your destination in one piece … may your pilot be Chesley B. ‘Sully’ Sullenberger.

Happy Travels!