Photo: Javier C. Hernandez/The New York Times As did its recent acquisition, Northwest Airlines, Delta is doing on-line auctions of seats that must be vacated if the plane is overbooked. At online check-in, each passenger is asked what price s/he would require to be bumped to a different flight. Yet the results are apparently not acceptable to Delta: After his check in (where he refused to accept bumping), my son was offered $250 via a telephone call six hours before his flight to be bumped to an earlier or later flight. Did Delta not get enough offers online? Were the passengers’ reservation prices too high for Delta’s budget? Or is the airline simply playing games with its passengers, hoping to induce a few of them to accept a lower price? Other explanations? (HT: DJH)
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Delta’s use of technology and pricing strategies to minimize the number of upset customers (who have to be bumped), stressed gate-agents (who don’t like bumping folks) is great for all involved.
Good on them.
After 30 odd years, the airlines are still fine tuning their pricing strategies to fill seats, so the work on emptying might be subject to a few bumps along the way.
$250 is probably a lowball offer after no one signed up to be bumped. They’ll be more generous at the gate as flight time approaches. I got $400 during the holiday weather chaos.
I’ll guess… not enough activity within reasonable price ranges for Delta on the auction site. Suppose they have 5 seats they need to vacate, and of the 100 that put prices down for what they’d accept for a bump, only 3 were under Delta’s hidden limit of (let’s say) $300. So they accept the 3, but still need to vacate 2 more, so they call around offering $250 (or maybe 250 was their limit).
Just because someone says they’d accept a bump for $500 doesn’t mean Delta still thinks it’s a good deal for them.
Probably they would have offered $250 to the 3 that accepted their deal, but they might have gotten away with only having to give out $200 or something. That then reduces the pressure on vacating the remaining seats (since there are fewer of them) and there’s no additional cost in the remaining offers (business as usual). Their only obstacle is that they can’t make public offers much higher than the “buyouts” of the people that put down their own limit… if you find out Delta’s offering $250 per vacated seat and you accepted $200, you’re probably not gonna be too inclined to put a limit in the future.
This would seem to be a no-brainer; if everyone says “$5 grand” then there’s no way they can pay that price to anyone… and there’s no incentive (unless you really don’t need to be somewhere, and who’s going to go through airport security unless they REALLY need to be somewhere?) to do anything but set an artificially high price.
The real market failure is that which allows the airlines to overbook in the first place.
Isn’t there a federally set amount they must pay you (maybe $250?) if they bump you? Presumably they figure some people will be so flexible as to happily take $150, say, as they just don’t care which flight they take. Therefore you have an opportunity to reach pareto efficiency, and if an inadequate amount of people are willing, give it a second shot on the phone (but with the full amount, getting people who might have been unwilling for less than full price but don’t care so much that they forgo $250).
It’s not really a hidden limit – if you put $800 and the cap is $250 then they will reject your bid and you can either put in $250 or choose not to accept.
Kind of annoying if you ask me
Information asymmentry at work.
US airlines must pay $800 to passengers involuntarily bumped; the airline knows this, many passengers don’t.
The airline knows how much your son paid for his ticket, and knows how much more either 1) his replacement paid in cash or 2) his replacement is valued under the frequent flier program. Your son knows what he paid and the value of the incentive.
The max incentive offered to your son should be the lower of $800 or 1+2 (from above), with the offer for this seat much lower. The auction process gives the airline the tools to sell more seats since they will have all the necessary information to maximize profits. They know the value of buying out each seat, and they control the price offered to replacement fliers.
As for the phone call, perhaps the airline knows your son’s demographic, perhaps knows he’s a discount fare flier, and assumes he is more likely to take the $250. Maybe his fare was the lowest on the flight, therefore making replacing him more profitable. Either way, the airline assumed your son was the low hanging fruit for a lowball offer at less than 1/3 of what statute says should be paid.