Delta Air Lines, Inc. (DAL), Southwest Airlines Co. (LUV): Airline Overbooking Is Flying High

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It’s probably one of the least likeable things about airlines. The idea of overbooking allows airlines to sell more seats than there are on the plane in the hope that not everyone shows up and the airline can make money on the tickets for which passengers never showed. But it doesn’t always work out so great for passengers, especially those who are bumped. While only a fraction of a percent of passengers are actually bumped from their flight, the practice of airline overbooking and the subsequent passenger bumping it can lead to has ruffled feathers among consumer advocates and regulators alike.

Delta Air Lines, Inc. (NYSE:DAL)Not much compensation

A long standing policy used by Air Canada was to give bumped passengers a choice of either $100 cash or a $200 travel voucher. For most passengers, this is little compensation for what often amounts to a major inconvenience in their travel plans. Fortunately for bumped passengers, consumer advocates convinced the Canadian Transportation Agency to force Air Canada to revise its bumping policy. The Ottawa Citizen now reports that the new policy calls for passengers to receive between $100 and $800 cash, depending on the length of their delay. The policy also allows for higher compensation amounts given in travel vouchers.

Despite a dislike of Air Canada by many passengers, a characteristic of many airlines and the industry in general, Air Canada did succeed in being crowned the Best International North American Airline by Skytrax for the fourth year in a row. Even with the occasional bumped passengers or flyers who had their luggage lost, Air Canada appears to be doing a satisfactory job in customer service as a whole. This should be beneficial to Air Canada as it tries to maintain its market share in competition with an expanding WestJet and add capacity to its international network.

Buy some tablets

Businessweek reported a rather interesting sort of airline fine a couple weeks ago. After violating passenger bumping rules, Delta Air Lines, Inc. (NYSE:DAL) was assessed with a fine of $750,000, but there’s a catch to the terms of the fine: Delta Air Lines, Inc. (NYSE:DAL) can use $425,000 of the fine to purchase tablet computers to find volunteers to be bumped when an overbooking occurs. Exactly what difference nearly half a million dollars of tablets will make depends on how Delta Air Lines, Inc. (NYSE:DAL) implements the proposed program. As a Delta Air Lines, Inc. (NYSE:DAL) shareholder myself, I congratulate the airline’s negotiators on keeping more than half the fine to reinvest in its own business, however the incident does raise questions as to how future passengers’ rights violations will be handled by federal regulators.

Other airlines too

Airline overbooking, and subsequent bumping of passengers, is a common industry practice regulatory agencies have come to accept. Even the airline that tries to build itself on a customer service image, Southwest Airlines Co. (NYSE:LUV), has been guilty of passenger bumping and was fined $200,000 for bumping violations in 2010 according to CBS News. While it has avoided most baggage fees in an effort to appear more consumer-friendly, even Southwest Airlines Co. (NYSE:LUV) sees the benefits from overbooking aircraft and the additional revenue obtained from selling more seats than it flies. Southwest Airlines Co. (NYSE:LUV) has made some sacrifices in ancillary revenues on the baggage side but it refuses to give up all aspects of the airline industry. Despite this continued overbooking, Southwest Airlines Co. (NYSE:LUV) could maintain its consumer-friendly image simply by not implementing baggage fees which attract ire from a large base of passengers.

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