DOT Doubles Compensation for Bumping, Some People Won’t be Happy

I know this happened last week, but I haven’t had the chance to write about it until now. The DOT announced that it was going to increase the compensation for passengers who are involuntarily denied boarding. Is this a big deal? Well it could be. It certainly won’t make Robert Stack and the other volunteer bumpees happy, because they’ll probably have fewer chances.

First of all, let me explain exactly what’s happening here. In the fourth quarter of last year, out of 138 million passengers, there were about 125,000 that were denied boarding (pdf – page 33). Of those, nearly 114,000 were voluntarily denied boarding. In other words, the flight was oversold, the airline offered compensation in exchange for someone taking a later flight, and it was a done deal. People who take advantage of that won’t see more money in their pocket.

It’s the slightly more than 11,000 people who were involuntarily denied boarding who will get more. Those people wanted to be on that flight, but the airline couldn’t get enough volunteers. So, they had to deny boarding to someone who wanted to be on that flight. In the past, these people received the remaining value of their ticket to their next stopover with a cap of $200 if they arrived at their destination within 2 hours (4 hours internationally) of their original arrival time. If it’s later than that, passengers were entitled to double the value of what remains on their ticket to the next stopover with a cap of $400. Those caps will now become $400 and $800. Also, the number of seats on planes covered by this rule was reduced from 60 to 30. I had no idea it was 60 before. I’ve seen plenty of 50-seaters go out while still paying the usual compensation, so I’m not sure if this will make much of a difference practically.

So will this matter? If you love volunteering, it probably will reduce your chances. Airlines consider the expected cost of a denied boarding in their overbooking decisions. Now that the cost has gone up, the willingness to overbook will go down. So, those who love getting bumped won’t be happy. On the other hand, the .008% of people who have had the terrible frustration of being bumped involuntarily will be happy-ish to receive more money. I say happy-ish because they won’t actually get to their destination any faster.

Ultimately, this is just a way to discourage the airlines from overbooking. It may work, but it will end up reducing revenues for the airlines. You can expect to see more fare increases to help cover the costs.

Edited @ 1149a on Apr 23: Changed compensation to note that the dollar amounts are caps, but the compensation is based on the value of the ticket.


8 Responses to DOT Doubles Compensation for Bumping, Some People Won’t be Happy

  1. Nick says:

    While I generally agree, there’s an admittedly small chance volunteers will see an increase in compensation. Since the cost of IDBing has gone up, the airlines have a greater incentive to (a) reduce overbookings or (b) get more volunteers when they do overbook. They’ll likely do some of both, whatever combination reduces costs most effectively. Where in the past an airline might max out VDB compensation at, for example, $400 in travel credits, they may now be willing to offer $600 (to avoid the $800 IDB cost).

    All of that said, I think ‘happy-ish’ for those involuntarily bumped is about right, if only because many IDBs never see the cash. There are numerous accounts on FlyerTalk of passengers who were IDB’d–but didn’t know the rules–and got stuck with VDB compensation. Technically a no-no, but it does seem to happen.

    Whether this makes everyone better or worse off requires a rather gnarly set of calculations, balancing a (probably minor) increase in ticket costs to everyone against the (unknown) value of fewer overbookings and IDBs. I certainly wouldn’t want to attempt to crunch those numbers.

  2. OAG says:

    Hey CF,

    I miss those days of filling out the double digit denied boarding report at HP. It was really fun to get out to PHX to see the LAS flights in person with oversales of 30 or more. I’m getting all choked up just thinking about it.

  3. CF says:

    Cracking me up, OAG. I used to love dragging you guys out to the airport to see the oversales you created. Those were the good old days.

  4. Jean says:

    My understanding of the new rule is that the new compensation for passengers who are involuntarily denied boarding is EQUAL TO THEIR ONE-WAY FARE UP TO $400 if arrival is within 2 hours of the original scheduled arrival, and EQUAL TO THEIR ONE-WAY FARE UP TO $800 for later arrival. My concern is that many, if not most, fares for flights within this country would be less than the maximum compensation, particularly if the airline can’t get the bumped passenger to his/her destination within two hours, so wouldn’t that give the airlines an incentive to bump the passengers with the cheapest tickets? I don’t see anything in the rules guiding airlines on how to choose who they bump, so if they have complete freedom to decide, I would expect them to choose whomever will cost them less.

  5. CF says:

    You’re right, Jean. I apologize for messing that up, and I’ve now fixed it in the post. Thanks for noticing.

    The airlines have that same incentive with the current structure, but it’s now more likely that fewer people will reach the capped limit. I don’t know if this is regulated, but some airlines make it clear how they do this. US Airways, for example, says:

    Boarding Priorities:
    If a flight is oversold and there are not enough volunteers, US Airways may be required to deny boarding involuntarily, in accordance with the following:
    ?
    *The last customer(s) to present him/herself (themselves) at the boarding gate may be denied
    boarding in the event of an overbooked flight.
    ?
    *Boarding preference will be given to Dividend Miles members based on their status in the program
    and time of check-in.
    ?
    *Special efforts will be made to never involuntarily deny boarding to customers requiring special
    assistance or unaccompanied minors.

  6. Anon Coward says:

    Overbooking will be reduced, IDB compensation will increase, and ticket prices will increase. This is a good thing: the system becomes more reliable for passengers — who by and large do not feel like playing a bit part in some revenue management accountant’s game of roulette!

  7. Denied Dave says:

    Does anyone know if there are regulations covering voluntary denied boarding compensation or is it ad hoc by carrier? I know with United and Delta, if the cost of a future flight is less than the value of the voucher the residual value can be used towards yet another flight. I just got off the phone with Frontier and they are holding firm that any residual value is dead. They are also claiming the voucher can’t cover 2 passengers on the same route/itinerary. Thanks!

  8. CF says:

    Denied Dave – There are no rules governing voluntary denied boarding. It’s an agreement entered into between the airline and the passenger, so they can make the rules and you can decide whether to accept or not. Sorry.

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