In Wake of United Debacle, Give Airlines – and Travelers – More Flexibility

Yes, there is such a thing as bad PR. United Airlines proved it recently by forcibly removing David Dao, a 69-year old physician, from an overbooked flight. Blood was involved, and possibly a concussion. When the story became public, United lost more than $200 million of market capitalization in a day.

Markets at work, and rightfully so. Governments exist to shield bad actors; markets exist to punish bad actors. But there is more to the story. Two solutions to United’s easily-avoidable PR debacle come to mind.

The first is to use the price system. If a flight is overbooked and the airline has no choice but to ask some paying passengers to leave, compensating them for their trouble is a simple and peaceful way to do so. United does have such a policy, but its limited flexibility prevents it from being very effective.

Someone flying for an urgent family matter or an important business meeting will likely want to stay on the plane at almost any cost. But someone else on the same flight for a weekend getaway could easily be talked into vacating his non-urgent seat in exchange for, say, future discounts or a stay at a nearby hotel until the next flight is available. Different people have different preferences.

A flexible negotiating policy could have easily avoided United’s current PR nightmare. It would also make sure that the people with the most urgent needs would get seats. United should change its overbooking policies to better serve its customers.

The second and more fundamental solution is adding competition. As my colleague Marc Scribner puts it, quoted in a Los Angeles Times op-ed:

If American consumers wish to enjoy improved service quality in air travel, they should demand that Congress repeal 90 years of anti-competitive federal law. Less regulation of air travel, not more, is the solution.

One example. A foreign airline such as British Airways or Lufthansa cannot legally run a domestic U.S. flight from, say, San Francisco to Detroit. It may only run flights to or from international destinations, such as London-to-New York or Munich-to-Atlanta. This regulatory restriction gives U.S. airlines an unfair advantage, and they use it. Regulations let U.S. airlines behave as they do without recompense—short of a major PR disaster, which we are seeing now.

Opening the domestic market to international carriers would provide a powerful check on bad behavior, such as Dao experienced. If United treats its customers the way it treated him, travelers should have the option of going not just to Delta or American, but Air France, Air India, or anyone else for their next flight, domestically or internationally.

Incidents like last week’s bloody removal of Dao from his paid-for seat would likely never happen with a more flexible negotiating policy, coupled with a regulatory system that allows competition. The only thing standing in the way is regulation.

While there’s no excuse for how United handled Dr. Dao’s now-infamous “re-accommodation,” we know that the government regulations airlines are subject to often end up creating perverse outcomes for customers. It would be nice to see airline executives explain to the public how most of the time it’s actually government policies, from the TSA’s security theater to outdated government-run air traffic control, that end up ruining a traveler’s day.

Traveling through the air at 30,000 feet above ground at nearly the speed of sound should feel like the miracle it is. Airlines and their customers should stand together against regulators and make it feel that way once again.