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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Through their frequent flyer database, Delta should be able to tell who the softies will be in their auction — those people who would relish the opportunity for a $250 credit towards another flight for a slight inconvenience, based on the passenger’s past behavior. So the younger Mr. Hamermesh may have been flagged as an auction softie by purchasing cheap tickets at the last minute, or by taking a prior offer, and thus the airline knows who to call when it wants to avoid having to pay more at the gate.
yet another reason to fly Southwest…..
I’d be more inclined to take an airline’s bribe if it was paid out in cash. But what they do is give you a credit that’s as good as a bunch of frequent-flier miles. Which means that it comes with the same restrictions as frequent-flier miles — blackout dates, limited number of seats for rewards fliers on most flights, etc etc. If you’ve used miles for travel, you know that it’s a royal pain.
So suffice it to say I am never inclined to take the airlines up on their supposedly generous offers.
Huh. And here I’d have thought that nobody would accept less than a completely free flight to have their plans changed under duress at the last minute.
Andy is simply incorrect. I received a $300 voucher from Delta for a voluntary bump on a 2-hour flight and it has NONE of the restrictions that frequent flyer miles have. There are NO blackout dates NOR are there a limited number of seats allocated to the voucher. The voucher is equivalent to cash and can be applied to ANY Delta ticket purchased within a year of issuance.
Without overbooking, tickets would cost more. I find that hard to call a market failure.
The airline compensation is not a straight 800 dollars. It is 0 dollars if they can get you there with in a hour, 400 if can get you there in 2 hours and 800 if it is longer. International flights and small planes have different rules.
People whine about overbooking all the time. For a college student it was a goldmine. I could make 100/hour (back in the good old days when vouchers were for a free trip) for reading a book in a airport for a couple of hours. That was a heck of a lot more than I made TAing a class.
I’d say that’s exactly what you should expect, isn’t it? Let’s say you know only one person will not be allowed on the plane. Rationally, you’d bid a price equal to your willingness to accept (reservation price) plus an amount equal to your estimated probability that no one else has a lower bid, times the estimated difference to such expected second-lowest bid. Since there is always a chance that you’re the lowest bidder, you never enter your true reservation price.
The airline, knowing that, has an incentive to call people to make them a credible-sounding take it or leave it offer – in this simple model everyone is bidding more than their reservation price after all. True, in the beginning people might believe refusing the offer or trying to bargain gives you a higher pay-out, but if the airline sticks to the plan of never offering more to a person who turns down an offer (which may entail some costs in the beginning), people should start accepting any offer at or above one’s WTA.
Add to that (i) (very) different estimates about the probability of someone else under-bidding [which must be true - how should an average traveller know] and (ii) uncertainty about how many more people show up than places are available, the different estimates of people could create even higher spreads between WTA and the actual bid.
After an initial, potentially costly, period of learning about people’s discount factors, airlines should fare well with a “let them bid and then call them” strategy. Essentially, all they’re doing is saving costs by filtering out the most promising passengers to approach with a low offer..
Seems like an issue with a relatively simple solution. At the gate, the gate agent could tell the customers that they were overbooked by “X” amount of passengers. Then the agent simply starts the auction for the voucher and allows it to run up to the amount established by Delta as the price point where it is more responsible to anger a passenger or two by cutting them than by continuing to run up the voucher price.
Sure, there is always the chance that you anger a passenger with this approach, but the openness of the system should generally create a solution without having to target individual passengers.