Thursday, 13 April 2017

The Friendly Skies?

We May Be Experiencing Some Turbulence

By now, just about everyone with access to the internet - and many others who don't - know of the story of Dr David Dao, the unfortunate, erstwhile passenger on a United Airlines flight from Chicago to Louisville, Kentucky this past Sunday.

Or, to be more accurate, the man who wanted to be a passenger, had been a passenger, but ultimately was not a passenger, as he was, in the words of United CEO Oscar Munoz, "re-accommodated" to another flight. His re-accommodation awaits his release from the hospital, after O'Hare police injured him dragging him from his seat after he refused to give it up to a United crew who were "dead-heading" (travelling from one airport to another to staff a later flight).

The details are, of course, easy to find, and do not need to be repeated here.

Some thoughts.

First, the move was obviously, incredibly stupid for the airline. United lost $800 million in market value immediately when the news broke. Even in this day and age where our government prints money as if it were Parker Brothers looking to fill Monopoly sets in time for the Christmas rush, that's real money.

The airline could have offered incentives for passengers to give up their seats. Indeed, UAL apparently offered $400 in vouchers, then $800, but found no willing takers. At that point, the airline decided that the "fair" thing was to hold a sort of losers' lottery to see which schnook would get the bum's rush.

Why didn't they continue to raise the stakes? At some point, they would have found a willing taker. I've personally been on over-booked flights, and they always find someone if they sweeten the deal.

Here, it appears that the airline decided to save a few hundred dollars, a choice that is going to cost them millions.


The second thought is that this is a situation that cries out for de regulation. Grandstanding politicians are rushing to get in front of cameras in order to bluster about legal "solutions." Others use the incident as a means to attack "runaway capitalism."

In fact, the opposite is the case here. The law, apparently, caps the amount that airlines can offer when bumping passengers - in this case, at about $1350. If it cannot find takers at that level, the airlines, by law, are allowed to involuntarily deprive customers of a product for which they have paid, for no other reason than because the product has been sold to to more than one customer.

This is actually a sort of fraud if you unpack it, and reminds one of the term to sell a "pig in a poke." The term derives from old French, where "poke" is a corruption of "poche," a pocket. Essentially, you are being sold an item whose true nature is not revealed.

What other "product" can be sold to two (or more) people, with capped recompense should both buyers show up?

The solution here is not that airlines should be prohibited from "overbooking," but rather, that in the case that all paying customers actually ask that the airlines make good on their half of the contract, that the airline may not force any of the customers out of his seat. If $400, or $800, or $2000 is not enough, there will surely be some level of damages that will entice people to give up their seats.

The bottom line is this - airlines oversell as a sort of poor man's hedge fund. They know that some people will get sick, or change their plans, or for whatever other reason, will not take the flight. Many of them have refundable tickets (for which they pay a premium). Others will pay a change fee. 

The airlines have, I suspect, complex algorithms that calculate their no-show rates, and over-sell based on the yield. Further, the cost of "compensating' people bumped is factored in to the cost of doing business. The airlines know that they will have a pretty low upper limit (again, in the case of Dr Dao, $1350) at which point they can call in the cops.

In a real capitalist model, once you've bought your seat, it is yours, and you could hold on to it for the value that you put on it, not what the airlines or regulators say that it is. Had Dr Dao (or anyone else on that plane) been able to command his price, no one would have been videotaped being dragged down the aisle of the plane like a piece of mail-order roll aboard luggage.

Third, the airline did not even go to the limit set. They looked to cheap out (here, by about $500). So, for the cost of 4x$500 (two grand), they look like Indiana Jones throwing a guy out of a zeppelin in "The Last Crusade."

Fourth, the fact is, the plane was not even over-sold. The airline requested the four seats because they needed to move a crew (at the last minute, apparently) from Chicago to Louisville to man an onward flight. It is not even clear if the rules about bumping passengers even apply in a situation like this. So, because UAL failed to manage its resources, well, see the image above again.

The CEO of United compounded the problem with an own-goal act of stupidity, issuing an internal memo basically lying about the guy - stating that, despite the numerous cell phone videos readily available, Dr Dao was "belligerent" and "violent." Surely, he must have known that all it would take was one less than thrilled employee, and that memo was going to be all of over the news. Which, of course, it was, faster than you can say "I am serious, and stop calling me Shirley."

I hope that Dr Dao sues UAL, and that the damages (they are going to settle) hurt. A lot. Because businesses make choices like this not based upon emotion, but on mathematics. They estimate mistakes and screw ups as the "cost of doing business." Here, if Dr Dao collects enough in damages, the calculus involved in the 'cost of doing business' is going to change.

Fifth, and on the other hand, it is distressing just how quickly the "racist" card came out here. Dr Dao had apparently volunteered initially to be bumped with the $800, provided that a flight later that same day could be found - when it could not, he declined. Which of course, is his right.

At that point, the airline announced that four people "at random" would be selected. Dr Dao was one, and he immediately complained that he was selected because he was Asian.

There is no evidence - zero - that the algorithm settled on him because he was Asian, and in fact, the other passengers "selected" were not

This has, of course, led to an enormous amount of noise on the net about discrimination against Asian travelers - the hashtag "flying while Asian" is now trending. 

It's insulting and stupid - not to mention, easily falsifiable - to refute the claim of racism here, starting from the fact that the others bumped were not Asian, and in fact, in a story that did not make national news, another man just last week - Geoff Fearns of Irvine, California was ordered off a plane with a first class ticket he had paid at full fare because another latecomer with better status "needed" the seat. Fearns, like Dao, refused, and was threatened with handcuffs and arrest if he did not give up his seat to someone the airline, frankly, described as "more important." 

Dao was plainly roughed up, and should go after United for whatever he can get; but the claim that there is a rash of discriminatory violence against Asian passengers on US aeroplanes is, well, laughable. 

Yet, the topic has apparently been repeated 100 million times on Sina Weibo - a microblogging site in China. Asian-American lawmakers from New York to California have jumped in demanding that there be hearings. 

Now, I am all in favour of punishing United - but I would ask Judy Chu (D-Calif) or Mazie Hirono (D-HI) - if the man in question where black, or Latino, or White, would you be asking for hearings? Dr Dao lives in Kentucky - not Hawaii or California or New York, so he is not a constituent of any of the lawmakers asking for the hearings. 

It's not good for the travelling public that our airlines, granted near monopolistic powers under ostensible "regulation" get to abuse us. None had a word to say about the threats of arrest of Fearn, or are concerned at all what might have happened to him had he, like Dao, refused to comply with the cops.

It's far worse for our country that interest-group driven politicians look for opportunities to engage in identity politics for political gain. I do not think it will be a positive outcome where we are reduced to looking for co-ethnic politicians to advance our in-group agendas. 

Finally, and to me, the most galling is the argument that, because the person in question was a medical doctor, he should not have been subject to bumping. I've asked several people, "if the guy were a plumber or an architect, would that have made the decision more palatable?"

Dr Dao is an internest, 69 years old, who sees patients one day a week according to the current press. He was not expected to be in the operating theatre Monday to perform a heart transplant. I was raised in a medical family, and I have a great deal of respect for doctors, but they are human beings entitled to the same courtesies as the rest of us, and not more. People talk about "privilege" - in this context, about imagined "white male" privilege. But the only privilege I see is a guy with an MD demanding special treatment over everyone else on the plane.

His personal travel is no more important than anyone else, and his MD does not entitle him. Sorry.

I'm flying on Sunday for a vacation - and as chance has it, the carrier will not be United. I am suspecting that the service - which frankly on domestic flights can be fairly described as "horrible" may be a bit better.