Overbooked Airline Flights – Fraud or Legitimate Business Practice?

Unless you’ve been hiding in a cave the past day or so, you’ve probably heard the story of United Airlines flight 3411.  But I suppose I should quickly recap.

Flight 3411 was fully booked, and all passengers had been boarded and seated, when a managing attendant made an announcement that four United crew needed to get to Louisville for a flight assignment the next day.  United made a series of offers, up to 800 dollars in travel vouchers, for people to volunteer to deplane.  When no one took them up on their travel vouchers, United randomly selected people to get kicked off so they could seat their deadhead flight crew.

One of the passengers that was randomly selected was, according to passengers, a 69 year old doctor who said he had patients to see the next day (which is immaterial as far as I’m concerned). The doctor refused to give up his seat, so United attendants called in the transportation police, who violently threw the doctor into an armrest, knocking him unconscious, and then proceeded to drag his bloody limp body off the plane – all to make room for United’s deadhead flight crew.

So on to my arguments.

While it’s true that the fine print of airline ticking discloses that people may be removed from flights at the airlines discretion, I can’t think of another industry where a company is allowed to sell something they don’t even have (*besides banking).

If we disregard the present regulations, and we disregard the fine print, it’s clear that, under common law, such a business practice as overbooking would be considered a form of fraud.  When an airline overbooks, it knows it is making promises it can’t keep, and it’s monetarily benefiting from these promises.

While normally I’m not a big proponent of anti-fraud laws, such as those used to prosecute Bernie Madoff, in the case of United, I have to make an exception.  Normally, in a legitimate market, United Airlines would be out of business the next day for this kind of behavior, but the airline industry isn’t a normal market.

Airlines can get away with absolutely shocking customer treatment because they don’t operate in an unregulated free market.  Imagine if any foreign carrier could come in and setup domestic routes.  Imagine if zoning regulations didn’t apply to airports, so any private land could be used to build one.  Imagine if airports themselves weren’t regulated by municipalities, with competitive bidding for gate slots. I mean the myriad of ways the market is regulated in favor of existing major domestic carriers are so numerous that it’s hard to wrap your head around. FAA regulations are massive, and they are just one small aspect of the regulatory forces involved here.

If we are going to have this kind of regulated fiasco called an airline industry, then they shouldn’t be allowed to engage in fraud, on top of being in a protected market position.  Even if they disclose this possibility at the time of sale, that still doesn’t excuse the fraud.  Fractional reserve banks are pretty up front about the fact that your money isn’t backed by anything tangible, but that doesn’t excuse their behavior.

The airlines are also protected by FAA regulations that stipulate any customer who is unwillingly bumped from a flight, and delayed more than 2 hours domestically, is entitled to 4 times the one way fare in a cash compensation, up to a limit of $1,350. Obviously this artificial limit could be well below the fair market price of what it would take for people to willingly give up their seats voluntarily.

The public is outraged at the treatment of the doctor at the hands of United and the Chicago PD, and rightfully so.  In a sane universe, United would pay for that outrage with a loss of customers.  But given the choices people have when it comes to air carriers and routes, it’s unlikely United will feel much of a pinch from this, yet one can certainly hope.