12 ms·

Airlines using reverse auctions to determine true seat pricing

100 points by e1ven 16y ago

MichaelApproved 16y ago
I wonder if this could be used as a part time business. You could buy several tickets on days when flights are usually overbooked months ahead of time. Good time to do this would be Thanksgiving, Christmas, Memorial Day, etc. Then show up at the airport that day and sell each ticket for a premium above what you paid for.
- Natsu 16y ago
  Doubtful: someone else would likely underbid you, so long as the worth of it to them is lower. Frankly, the more tricks like this they pull, the less I want to fly. At this point, I'm not willing to fly any more than is strictly necessary.
  - eru 16y ago
    Shouldn't those tricks actually make you want to fly more often? If the pricing gets more effective, that can only be good for the customer.
    - Natsu 16y ago
      Wait... what? They're making it so that overbooking will happen more often and so that people will get less compensation for being bumped from their flights. I'm curious as to why you think that's good for me, the consumer? More "effective" pricing means that the price I pay will get closer to the maximum price I'm willing to pay. In short, it means that I'll pay more. The article discusses this, with the airlines taking away as much of the "consumer surplus" as possible--i.e. getting people to pay them more money. I'm really, really confused right now as to why you think that having to pay more would make me want to fly more? Surely I would want to do things where the benefit to me is higher than the price, not where the benefit and price are as nearly equal as possible. After all, I can do only so many things, so the opportunity cost of doing that instead of something with more benefit (e.g. taking a road trip instead of flying, or taking a cruise at sea) makes flying a losing proposition all around.
      - eru 16y ago
        The trick will only have the effect described in the article if the airline is a monopoly. With competition they won't be able to extract all the gains. So you will have to pay less, eventually, and profit from other people's willingness to get off an overbooked flight. Remember: Overbooking is usually not a problem, since a few people don't turn up anyway. Compare an English auction to a straight sell: In the latter, the supplier just guesses a price, and you can accept it or not, and unless they guess right, there will be surplus left. In an auction with multiple bidders who value the item in question at similar levels, the supplier doesn't have to guess. The bidders will make sure that almost all surplus goes to the supplier; essentially the winner will pay slightly more than the second highest bidder was willing to pay. Still, auctions are good for buyers, if there's competition between suppliers.
        Natsu 16y ago
        If they actually lower their prices, yes, that would make me slightly more willing to fly. Though, actually, I'd prefer that they lower their absurd fees (and that all the places to compare flights would give us a way to add up all the fees up front in order to expose such shenanigans). I don't really expect them to do that, though, even with this sort of setup. There would be little reason to get rid of a customer surplus if they planned to give it back to us.
  - MichaelApproved 16y ago
    If you're selling your ticket then it's not likely you'll be undercut since others actually want to fly. But if you're selling a willingness to be bumped to a later flight, I can see this scheme failing for sure.
- msluyter 16y ago
  I think I read that the bid was capped at 400$, so it's doubtful you could make much money this way...
- BrandonSmith 16y ago
  Growing up, a large number of people travel from my home town twice a year (religious conference). One year I planned to make the pilgrimage, as well, and booked a flight with a friend. Sitting in our seats after boarding, over the intercom, passengers were invited to give up their seats. Such is customary, complete with compensation. After several attempts by the airline, the cash got high enough that my companion and I practically stood up at the same time. Each six months for several years we booked, boarded, and got cash. The worst being that we'd make the flight and take the trip we'd intended. We never made it.
- euroclydon 16y ago
  Tickets are transferable? That's news to me.
  - MichaelApproved 16y ago
    The whole idea of the article is that you're selling it back to the airline. There's no transferring involved.
- pangram 16y ago
  Oh, clever idea, but probably wouldn't work. First off, it's labor intensive (you have to go to the airport and check in, it's not like you can speculatively buy 500 tickets), and the amount you could potentially make is bound not only by the ticket price but by the fact that you can probably only reliably make a profit during rush times (i.e., Thanksgiving, December). Also, if you guess wrong and a popular flight did not fill up -- you have to take the flights!
  - rflrob 16y ago
    >you can probably only reliably make a profit during rush times (i.e., Thanksgiving, December) Still, it'd be a nice way to get a bolus of cash for buying, say, December holiday presents. >Also, if you guess wrong and a popular flight did not fill up -- you have to take the flights! You don't have to take the flights... Last I flew, there wasn't anybody forcing people to get on the plane. As long as you're willing to eat the loss (which you have to be in a speculative endeavor), you can skip boarding the first available flight and still try to win auctions on the rest of them. I suspect the real problem with doing this is the relatively large up-front capital investment: depending on the flights, you're looking at the 100-500 dollar range per-ticket which they hold for at least a month.
swolchok 16y ago
I'd argue that this system is less efficient when considering the significant costs of getting to the airport in the first place.
- jrockway 16y ago
  For me, it's $2.25 and 45 minutes. I would imagine that most people who live in major cities are similarly lucky. (OK, not Tokyo. There it's at least 1200 yen to get from Tokyo to Middle Of Nowhere International Airport. But I digress.)
  - nkurz 16y ago
    At least in the US, I don't think that's true other than for New York, Boston, and Chicago. Are there other cities that have good cheap public transportation to the airports? For a long time, it was basically impossible to have a direct connection due to federal regulations. Not that it's always extremely expensive, but here in the Bay Area where we have better than usual public transport by US standards, it's $8.40 from downtown Oakland to SFO on BART, or $4.75 (with a nontrivial bus transfer) to OAK. From SFO, it's also about $8 to SFO, $7 to OAK (same transfer).
    - madcaptenor 16y ago
      Philadelphia is comparable to the Bay Area: via commuter rail that runs every half hour, $7-ish and 20 minutes from downtown. As with BART, Philadelphia commuter rail charges much more for the airport than for other locations at a similar distance from downtown, which might be $4 or so.
    - blasdel 16y ago
      What federal regulations are you talking about? Most cities seem to at least have normal buses to their airports — all those service employees have to get to work somehow! Seattle now has light rail directly to the airport, and Portland has for a while. In the DC area there's National just across the river with a normal subway stop and normal public buses to BWI and Dulles in the suburbs (that stop at subway stations).
WildUtah 16y ago
The reasoning here applies only to monopoly pricing, but airline transportation is sometimes a competitive situation. In that case, the reverse auction can impose some price discrimination but cannot erode the total consumer surplus. Of course, I am a Delta hub prisoner so my flights are in fact priced as monopoly rents. What I wouldn't give for some competition.
- jemfinch 16y ago
  CVG?
  - WildUtah 16y ago
    SLC, but good guess. I suppose ATL is often considered the worst.
    - obiefernandez 16y ago
      Airtran provides a measure of competition in the Atlanta market, but I find that their fares are often near identical to Delta economy fares.
    - jemfinch 16y ago
      > SLC, but good guess. Given your username (which I just noticed) it was a downright horrible guess :)
deleted 16y ago
[deleted]
Splines 16y ago
Well, I know for certain I am not an economist. I'm curious - is Delta's decision to start such a program premeditated in a similar way? Personally, were I to run a business, I'd be very ill-equipped to handle anything approaching such a level of economic theory.
- WildUtah 16y ago
  Legacy airlines have revenue management departments that use sophisticated mathematical models to price discriminate between passengers to obtain the maximum yield from each day's operations. Airlines without such advanced techniques to rip off less price sensitive customers have a hard time competing. F9 and WN* and the like have much less complicated models and more predictable pricing. To compete, they have to go after loyal bargain hunters like vacationers and small business commuters. They have no effective scheme to squeeze big businessmen with expense accounts. By building a reputation for transparency, they can charge stable prices and make money. It takes time and commitment, though. DL, on the other hand, makes money by offering to bump regular coach passengers even off very oversold flights in favor of expense-account men on full-fare coach tickets. DL no longer advertises the guaranteed seat benefit for very profitable Platinum Medallion customers on the Delta web site, but you can call the medallion line and get a ticket on any Delta flight any time. It will cost you, but you will get it. Delta will just have to pay to bump someone else at the gate. Two revenue models. Both survive in the market. Neither happens by accident. *(Frontier and Southwest)
jrockway 16y ago
The author seems to be upset by this, but why? If you don't want to sell your seat back to the airline, don't. Personally, I can't get upset with a situation where I have 100% control. Amazon's pricing experiments are similar; if I don't like Amazon's price + value add, I can just buy from one of their many competitors. So no need to get mad at them for changing their prices randomly. Similarly, I would probably be willing to give up my $50 seat for $2000, so I'd type that number in. If I got my $2000, great; I would walk over to the competitor's counter and pay the $500 walk-up fare. If not, travel proceeds as planned. What is there to be upset about?
- imajes 16y ago
  The system will never accept more than about 75% of the fare (or, potentially less). This is also a tactic employed by legacy airlines - the newer ones don't promise a seat, so you get bumped till later, no comp. So you're faced with a flight with 105% passengers, you have to figure out who's not flying. The schmucks who'll take a $50 bump (free drinks at the bar later?) or those who'll hold out for $400? When no-one takes a deal, or there isn't budget, then it becomes involuntary, with minimum comp. That sucks the most. It's like wheel of fortune, except the airline _always_ wins.
  - nkurz 16y ago
    When no-one takes a deal, or there isn't budget, then it becomes involuntary, with minimum comp. I don't believe this is true. At least in the US, the compensation for being involuntarily bumped is usually much better than the voluntary, and as a result it is almost in the airlines' interest to find a volunteer. Also, the involuntary compensation involves cash, whereas the voluntary (on the US airlines I'm familiar with) is a voucher for future travel. I believe these are the current rules: "If the alternate transportation is scheduled to arrive between one and two hours after the original planned arrival (between one and four hours on international flights), the compensation equals 100% of the passenger’s one way fare to his or her next stopover or final destination, with a $200 maximum additional cash compensation . If the airline cannot get a passenger to the destination airport within two hours (four hours on international flights), the compensation rate doubles to 200% of the passenger’s one-way fare, with a $400 maximum additional cash benefit. This compensation is in addition to the value of the passenger’s ticket, which he or she can use for alternate transportation or have refunded if not used. The last time the rule was substantially changed was in 1982, and the last time the maximum additional cash benefit was raised was in 1978. For 2008, the DOT made several changes, the most important was a doubling of the maximum cash compensation to $400 for domestic flights and $800 for international flights." http://www.airsafenews.com/2008/05/revised-bumping-compensation.html http://www.airsafenews.com/2008/05/revised-bumping-compensat... [edited to add the second paragraph, which mentions the 2008 changes, which I somehow failed to get in the first time]
kellysutton 16y ago
What if you stood up a sign outside the ticketing area that just read: "Delta 1500 LAX->SFO, please enter $5000 as your bid price." You have an opportunity yourself there (assuming everyone plays along) to earn $4,999 if you are naughty. In such a situation, would an airline actually pay out?
- feral 16y ago
  Game theory analysis of situations like this usually concludes that you won't get $4999. Because another passenger will undercut you at $4998, and take the profit ($4998 - utility of flying) instead. But, of course, you'll anticipate that, and so undercut them for $4997. And so on, until the price converges to near what its worth to you in the first place. That's what makes it an auction. Its harder to exploit than it first seems. (Of course, such analysis doesn't always hold true in the real world - but I wouldn't expect to make 5k with that sign!)
  - borism 16y ago
    You're assuming that someone standing with a sign and someone hurrying to get on a plane are equally interested in playing the game. Then again, OP assumes that there are no ceilings to payout, which I'm almost certain isn't true. And then again, as mentioned several times here, it's not like you get the real money - it's vouchers.
analyst74 16y ago
Forgive my ignorance, how does the sell back auction benefits the airline in an over-booking situation? Let's say person A and B both bought a ticket for $100, and on departure day, A offers to sell the ticket back for $150 and B offers to sell the ticket for $120. B sells his ticket and made $20 profit, A takes the plane. The airline made a total of 100-20 = 80 dollar for the seat, although it would have made 100 without the auction. Am I getting it wrong?
- inklesspen 16y ago
  There is a large chance B offers to sell the ticket for less than $100 -- that is, he decides not to fly, and either forfeits his ticket or accepts a voucher for less than what he paid. That's the whole reason they overbook in the first place.
- 2arrs2ells 16y ago
  The price people pay for seats when the plane is full is usually extraordinary - 3-10x a "normal fare". Thinking on the margin, the airline would get - say $700 - for the "overbooked" ticket in your example, and profit as long as someone will volunteer to be "bumped" for <$700* * Actually, the airline would probably profit even if they had to pay $700 to compensate the bumped person - since they're only giving out travel vouchers. Additionally, they can involuntarily deny boarding to someone for a cost lower than $700 (at least in most situations).
- yrral 16y ago
  Airlines usually offer 200-300 dollars for someone to take a different flight. In this case, instead of losing 200-300 dollars because of the overbook, they lose only 120 (since that is the minimum someone has bid for the seat)
johngalt 16y ago
Seems like a great idea to me. Creating a market where one doesn't currently exist. As a weekly passenger, I've always wondered why the airline can bribe someone to take the next flight, but I can't. If I want to get on a full flight and another traveler is willing to sell his seat for [Cost] + $50 and I'm willing to buy it for [Cost] + $75 everybody wins. The traveler gets $50, the airline $25, and I get home a little sooner for a price I'm willing to pay. I don't know why people are casting this as "airline greed".
- jerf 16y ago
  John Galt, I should hardly have to explain to you that some small number of people simply hate free markets, and a much larger number have no idea how they actually work.
  - johngalt 16y ago
    I'd say it's more an attitude of entitlement. "The airline used to give you $200 to rebook, now they give you less!" As if the airline owed them the opportunity to take the next flight. If anything this will allow the airline to overbook much more aggressively. Giving people the opportunity to take that money more often, and if anything make more than the old method overall. Of course when that happens the story will change to "The rich get to travel whenever they want and the poor are stuck waiting!" Or "Ticket speculators are increasing ticket prices so the poor can't travel!"
    - eru 16y ago
      In reality, like in many markets, speculators will probably lose money more often than they'll make it.
  - rprasad 16y ago
    There once was an airline which operated under those principles. PeopleExpress, Bus of the American Skies, used to line people up and simply ship them off on the next available flight. People could (and would) jump ahead in the line by paying someone ahead of them to switch places. You had to pay additional fees for everything except your seat. Like all a rabid experiments in brutal capitalism, PeopleExpress went bankrupt.
CaptainZapp 16y ago
Reckless overbooking can get mightily expensive for an airline in Europe (or, to the best of my knowledge, non-European operators flying into, or out of an European airport): http://www.airpassengerrights.eu/ http://www.airpassengerrights.eu/ Technical reasons is, according to a court ruling, not a reason to deny compensation. The court ruled that airlines are responsible for maintenance and the technical fitness of their equipment to fly. The only way of weaseling out is an event, which is really beyond control of the airline. And even then they need to care for their passengers. Overbooking can also be an expensive venture, since they must reroute you on demand with another airline on their expense.
- eru 16y ago
  So it seems like this could be even more useful in Europe, where getting volunteers to get off the plane has a higher opportunity benefit compared to involuntary bumping than in the US. (I don't know if opportunity benefit is actually accepted terminology. I just use it for negative opportunity costs.)

100 points by e1ven 16y ago

I wonder if this could be used as a part time business. You could buy several tickets on days when flights are usually overbooked months ahead of time. Good time to do this would be Thanksgiving, Christmas, Memorial Day, etc. Then show up at the airport that day and sell each ticket for a premium above what you paid for.

Natsu 16y ago
Doubtful: someone else would likely underbid you, so long as the worth of it to them is lower. Frankly, the more tricks like this they pull, the less I want to fly. At this point, I'm not willing to fly any more than is strictly necessary.
- eru 16y ago
  Shouldn't those tricks actually make you want to fly more often? If the pricing gets more effective, that can only be good for the customer.
  - Natsu 16y ago
    Wait... what? They're making it so that overbooking will happen more often and so that people will get less compensation for being bumped from their flights. I'm curious as to why you think that's good for me, the consumer? More "effective" pricing means that the price I pay will get closer to the maximum price I'm willing to pay. In short, it means that I'll pay more. The article discusses this, with the airlines taking away as much of the "consumer surplus" as possible--i.e. getting people to pay them more money. I'm really, really confused right now as to why you think that having to pay more would make me want to fly more? Surely I would want to do things where the benefit to me is higher than the price, not where the benefit and price are as nearly equal as possible. After all, I can do only so many things, so the opportunity cost of doing that instead of something with more benefit (e.g. taking a road trip instead of flying, or taking a cruise at sea) makes flying a losing proposition all around.
    - eru 16y ago
      The trick will only have the effect described in the article if the airline is a monopoly. With competition they won't be able to extract all the gains. So you will have to pay less, eventually, and profit from other people's willingness to get off an overbooked flight. Remember: Overbooking is usually not a problem, since a few people don't turn up anyway. Compare an English auction to a straight sell: In the latter, the supplier just guesses a price, and you can accept it or not, and unless they guess right, there will be surplus left. In an auction with multiple bidders who value the item in question at similar levels, the supplier doesn't have to guess. The bidders will make sure that almost all surplus goes to the supplier; essentially the winner will pay slightly more than the second highest bidder was willing to pay. Still, auctions are good for buyers, if there's competition between suppliers.
      - Natsu 16y ago
        If they actually lower their prices, yes, that would make me slightly more willing to fly. Though, actually, I'd prefer that they lower their absurd fees (and that all the places to compare flights would give us a way to add up all the fees up front in order to expose such shenanigans). I don't really expect them to do that, though, even with this sort of setup. There would be little reason to get rid of a customer surplus if they planned to give it back to us.
- MichaelApproved 16y ago
  If you're selling your ticket then it's not likely you'll be undercut since others actually want to fly. But if you're selling a willingness to be bumped to a later flight, I can see this scheme failing for sure.
msluyter 16y ago
I think I read that the bid was capped at 400$, so it's doubtful you could make much money this way...
BrandonSmith 16y ago
Growing up, a large number of people travel from my home town twice a year (religious conference). One year I planned to make the pilgrimage, as well, and booked a flight with a friend. Sitting in our seats after boarding, over the intercom, passengers were invited to give up their seats. Such is customary, complete with compensation. After several attempts by the airline, the cash got high enough that my companion and I practically stood up at the same time. Each six months for several years we booked, boarded, and got cash. The worst being that we'd make the flight and take the trip we'd intended. We never made it.
euroclydon 16y ago
Tickets are transferable? That's news to me.
- MichaelApproved 16y ago
  The whole idea of the article is that you're selling it back to the airline. There's no transferring involved.
pangram 16y ago
Oh, clever idea, but probably wouldn't work. First off, it's labor intensive (you have to go to the airport and check in, it's not like you can speculatively buy 500 tickets), and the amount you could potentially make is bound not only by the ticket price but by the fact that you can probably only reliably make a profit during rush times (i.e., Thanksgiving, December). Also, if you guess wrong and a popular flight did not fill up -- you have to take the flights!
- rflrob 16y ago
  >you can probably only reliably make a profit during rush times (i.e., Thanksgiving, December) Still, it'd be a nice way to get a bolus of cash for buying, say, December holiday presents. >Also, if you guess wrong and a popular flight did not fill up -- you have to take the flights! You don't have to take the flights... Last I flew, there wasn't anybody forcing people to get on the plane. As long as you're willing to eat the loss (which you have to be in a speculative endeavor), you can skip boarding the first available flight and still try to win auctions on the rest of them. I suspect the real problem with doing this is the relatively large up-front capital investment: depending on the flights, you're looking at the 100-500 dollar range per-ticket which they hold for at least a month.

swolchok 16y ago

I'd argue that this system is less efficient when considering the significant costs of getting to the airport in the first place.

jrockway 16y ago
For me, it's $2.25 and 45 minutes. I would imagine that most people who live in major cities are similarly lucky. (OK, not Tokyo. There it's at least 1200 yen to get from Tokyo to Middle Of Nowhere International Airport. But I digress.)
- nkurz 16y ago
  At least in the US, I don't think that's true other than for New York, Boston, and Chicago. Are there other cities that have good cheap public transportation to the airports? For a long time, it was basically impossible to have a direct connection due to federal regulations. Not that it's always extremely expensive, but here in the Bay Area where we have better than usual public transport by US standards, it's $8.40 from downtown Oakland to SFO on BART, or $4.75 (with a nontrivial bus transfer) to OAK. From SFO, it's also about $8 to SFO, $7 to OAK (same transfer).
  - madcaptenor 16y ago
    Philadelphia is comparable to the Bay Area: via commuter rail that runs every half hour, $7-ish and 20 minutes from downtown. As with BART, Philadelphia commuter rail charges much more for the airport than for other locations at a similar distance from downtown, which might be $4 or so.
  - blasdel 16y ago
    What federal regulations are you talking about? Most cities seem to at least have normal buses to their airports — all those service employees have to get to work somehow! Seattle now has light rail directly to the airport, and Portland has for a while. In the DC area there's National just across the river with a normal subway stop and normal public buses to BWI and Dulles in the suburbs (that stop at subway stations).

WildUtah 16y ago

The reasoning here applies only to monopoly pricing, but airline transportation is sometimes a competitive situation. In that case, the reverse auction can impose some price discrimination but cannot erode the total consumer surplus. Of course, I am a Delta hub prisoner so my flights are in fact priced as monopoly rents. What I wouldn't give for some competition.

jemfinch 16y ago
CVG?
- WildUtah 16y ago
  SLC, but good guess. I suppose ATL is often considered the worst.
  - obiefernandez 16y ago
    Airtran provides a measure of competition in the Atlanta market, but I find that their fares are often near identical to Delta economy fares.
  - jemfinch 16y ago
    > SLC, but good guess. Given your username (which I just noticed) it was a downright horrible guess :)

deleted 16y ago

[deleted]

Splines 16y ago

Well, I know for certain I am not an economist. I'm curious - is Delta's decision to start such a program premeditated in a similar way? Personally, were I to run a business, I'd be very ill-equipped to handle anything approaching such a level of economic theory.

WildUtah 16y ago
Legacy airlines have revenue management departments that use sophisticated mathematical models to price discriminate between passengers to obtain the maximum yield from each day's operations. Airlines without such advanced techniques to rip off less price sensitive customers have a hard time competing. F9 and WN* and the like have much less complicated models and more predictable pricing. To compete, they have to go after loyal bargain hunters like vacationers and small business commuters. They have no effective scheme to squeeze big businessmen with expense accounts. By building a reputation for transparency, they can charge stable prices and make money. It takes time and commitment, though. DL, on the other hand, makes money by offering to bump regular coach passengers even off very oversold flights in favor of expense-account men on full-fare coach tickets. DL no longer advertises the guaranteed seat benefit for very profitable Platinum Medallion customers on the Delta web site, but you can call the medallion line and get a ticket on any Delta flight any time. It will cost you, but you will get it. Delta will just have to pay to bump someone else at the gate. Two revenue models. Both survive in the market. Neither happens by accident. *(Frontier and Southwest)

jrockway 16y ago

The author seems to be upset by this, but why? If you don't want to sell your seat back to the airline, don't. Personally, I can't get upset with a situation where I have 100% control. Amazon's pricing experiments are similar; if I don't like Amazon's price + value add, I can just buy from one of their many competitors. So no need to get mad at them for changing their prices randomly. Similarly, I would probably be willing to give up my $50 seat for $2000, so I'd type that number in. If I got my $2000, great; I would walk over to the competitor's counter and pay the $500 walk-up fare. If not, travel proceeds as planned. What is there to be upset about?

imajes 16y ago
The system will never accept more than about 75% of the fare (or, potentially less). This is also a tactic employed by legacy airlines - the newer ones don't promise a seat, so you get bumped till later, no comp. So you're faced with a flight with 105% passengers, you have to figure out who's not flying. The schmucks who'll take a $50 bump (free drinks at the bar later?) or those who'll hold out for $400? When no-one takes a deal, or there isn't budget, then it becomes involuntary, with minimum comp. That sucks the most. It's like wheel of fortune, except the airline _always_ wins.
- nkurz 16y ago
  When no-one takes a deal, or there isn't budget, then it becomes involuntary, with minimum comp. I don't believe this is true. At least in the US, the compensation for being involuntarily bumped is usually much better than the voluntary, and as a result it is almost in the airlines' interest to find a volunteer. Also, the involuntary compensation involves cash, whereas the voluntary (on the US airlines I'm familiar with) is a voucher for future travel. I believe these are the current rules: "If the alternate transportation is scheduled to arrive between one and two hours after the original planned arrival (between one and four hours on international flights), the compensation equals 100% of the passenger’s one way fare to his or her next stopover or final destination, with a $200 maximum additional cash compensation . If the airline cannot get a passenger to the destination airport within two hours (four hours on international flights), the compensation rate doubles to 200% of the passenger’s one-way fare, with a $400 maximum additional cash benefit. This compensation is in addition to the value of the passenger’s ticket, which he or she can use for alternate transportation or have refunded if not used. The last time the rule was substantially changed was in 1982, and the last time the maximum additional cash benefit was raised was in 1978. For 2008, the DOT made several changes, the most important was a doubling of the maximum cash compensation to $400 for domestic flights and $800 for international flights." http://www.airsafenews.com/2008/05/revised-bumping-compensation.html http://www.airsafenews.com/2008/05/revised-bumping-compensat... [edited to add the second paragraph, which mentions the 2008 changes, which I somehow failed to get in the first time]

kellysutton 16y ago

What if you stood up a sign outside the ticketing area that just read: "Delta 1500 LAX->SFO, please enter $5000 as your bid price." You have an opportunity yourself there (assuming everyone plays along) to earn $4,999 if you are naughty. In such a situation, would an airline actually pay out?

feral 16y ago
Game theory analysis of situations like this usually concludes that you won't get $4999. Because another passenger will undercut you at $4998, and take the profit ($4998 - utility of flying) instead. But, of course, you'll anticipate that, and so undercut them for $4997. And so on, until the price converges to near what its worth to you in the first place. That's what makes it an auction. Its harder to exploit than it first seems. (Of course, such analysis doesn't always hold true in the real world - but I wouldn't expect to make 5k with that sign!)
- borism 16y ago
  You're assuming that someone standing with a sign and someone hurrying to get on a plane are equally interested in playing the game. Then again, OP assumes that there are no ceilings to payout, which I'm almost certain isn't true. And then again, as mentioned several times here, it's not like you get the real money - it's vouchers.

analyst74 16y ago

Forgive my ignorance, how does the sell back auction benefits the airline in an over-booking situation? Let's say person A and B both bought a ticket for $100, and on departure day, A offers to sell the ticket back for $150 and B offers to sell the ticket for $120. B sells his ticket and made $20 profit, A takes the plane. The airline made a total of 100-20 = 80 dollar for the seat, although it would have made 100 without the auction. Am I getting it wrong?

inklesspen 16y ago
There is a large chance B offers to sell the ticket for less than $100 -- that is, he decides not to fly, and either forfeits his ticket or accepts a voucher for less than what he paid. That's the whole reason they overbook in the first place.
2arrs2ells 16y ago
The price people pay for seats when the plane is full is usually extraordinary - 3-10x a "normal fare". Thinking on the margin, the airline would get - say $700 - for the "overbooked" ticket in your example, and profit as long as someone will volunteer to be "bumped" for <$700* * Actually, the airline would probably profit even if they had to pay $700 to compensate the bumped person - since they're only giving out travel vouchers. Additionally, they can involuntarily deny boarding to someone for a cost lower than $700 (at least in most situations).
yrral 16y ago
Airlines usually offer 200-300 dollars for someone to take a different flight. In this case, instead of losing 200-300 dollars because of the overbook, they lose only 120 (since that is the minimum someone has bid for the seat)

johngalt 16y ago

Seems like a great idea to me. Creating a market where one doesn't currently exist. As a weekly passenger, I've always wondered why the airline can bribe someone to take the next flight, but I can't. If I want to get on a full flight and another traveler is willing to sell his seat for [Cost] + $50 and I'm willing to buy it for [Cost] + $75 everybody wins. The traveler gets $50, the airline $25, and I get home a little sooner for a price I'm willing to pay. I don't know why people are casting this as "airline greed".

jerf 16y ago
John Galt, I should hardly have to explain to you that some small number of people simply hate free markets, and a much larger number have no idea how they actually work.
- johngalt 16y ago
  I'd say it's more an attitude of entitlement. "The airline used to give you $200 to rebook, now they give you less!" As if the airline owed them the opportunity to take the next flight. If anything this will allow the airline to overbook much more aggressively. Giving people the opportunity to take that money more often, and if anything make more than the old method overall. Of course when that happens the story will change to "The rich get to travel whenever they want and the poor are stuck waiting!" Or "Ticket speculators are increasing ticket prices so the poor can't travel!"
  - eru 16y ago
    In reality, like in many markets, speculators will probably lose money more often than they'll make it.
- rprasad 16y ago
  There once was an airline which operated under those principles. PeopleExpress, Bus of the American Skies, used to line people up and simply ship them off on the next available flight. People could (and would) jump ahead in the line by paying someone ahead of them to switch places. You had to pay additional fees for everything except your seat. Like all a rabid experiments in brutal capitalism, PeopleExpress went bankrupt.

CaptainZapp 16y ago

Reckless overbooking can get mightily expensive for an airline in Europe (or, to the best of my knowledge, non-European operators flying into, or out of an European airport): http://www.airpassengerrights.eu/ http://www.airpassengerrights.eu/ Technical reasons is, according to a court ruling, not a reason to deny compensation. The court ruled that airlines are responsible for maintenance and the technical fitness of their equipment to fly. The only way of weaseling out is an event, which is really beyond control of the airline. And even then they need to care for their passengers. Overbooking can also be an expensive venture, since they must reroute you on demand with another airline on their expense.

eru 16y ago
So it seems like this could be even more useful in Europe, where getting volunteers to get off the plane has a higher opportunity benefit compared to involuntary bumping than in the US. (I don't know if opportunity benefit is actually accepted terminology. I just use it for negative opportunity costs.)