A Stitch in Haste

I thought I’d break these two updates out of the normal Sunday post.

ITEM: The Washington Post ran a feature on how airlines are debasing their frequent flier miles (e.g., by raising the “price” of tickets and upgrades in terms of miles required). One aspect of the revisions caught my eye:

[Mark] D’Arrigo has been an elite-level member of the US Airways frequent flier program since 2003. He’s irritated by the company’s announcement that it will stop giving out the extra miles it had been to its most frequent fliers. … [US Airways] said the “vast majority” of frequent fliers have told the airline that they are most interested in convenience and upgrades, rather than bonus miles.

I recently achieved elite status on Continental (yes, that Continental), and I feel exactly the opposite regarding upgrading. The last thing I want to do is upgrade with miles, for two interrelated reasons:

1. The opportunity cost is too high. You not only cash in miles you already have when you fly or upgrade, but you also forego the elite-status bonus miles you would earn if you pay cash.

2. The marginal benefit is too low. When you fly “coach but elite,” you already get elite check-in, priority baggage handling, an express security lane (at least at my home airport) and priority boarding. The only “extra” when you go from “coach but elite” to “business class” is the seat itself (along with better food and some drinks). Not worth it, at least not for anything but the longest flights.

So I have chosen to hoard the miles until I no longer have elite status or for emergency short-notice travel. Am I being irrational?

—

ITEM: The contraction in the airline industry in the wake of sky-high (sorry) fuel costs has revived an old issue: bumping —

The bad news: the likelihood that travelers will be bumped from an overbooked flight may grow worse this fall when airlines shrink their fleets to cut unprofitable flights and inefficient planes, meaning even fewer empty seats than there are now.

The good news: airlines are required to offer richer rewards — twice the amount of money they used to pay out — for passengers bumped from a flight. The payoff can be even greater for people who know how to bargain.
…
But airlines still overbook, regarding bumping as a necessary part of doing business, especially in the face of record fuel prices. Overbooking, after all, helps ensure flights are as full as possible, a priority for the financially troubled carriers.

I discussed the economics of overbooking and bumping in the Stitch in Haste Podcast #3. Given the well-known and reliably predictable probabilities regarding last-minute cancellations, overbooking is a perfectly reasonable practice. And when the calculations go awry (an exceedingly rare occurrence: 1.16 of every 10,000 passengers), the best way to correct the situation is precisely the way most airlines do in most circumstances: competitive bidding among the passengers. This way no one is bumped involuntarily, the airline spends as little in compensation as possible, and gives it to the passenger who values it the most (as demonstrated by her willingness to accept it). A win-win-win situation. And yet people still seem to loathe it:

“It feels like I’m paying them for goods and services, and what I’m getting back is some useless voucher and a ‘good luck with getting home,’” said Andrew Cox, a manager at a Jimmy John’s sandwich shop in Lansing, Mich.
…
“Of course there are things that can’t be controlled, but a flight has a certain amount of seats. It’s pretty simple. If flights are being overbooked, then what does that say about how the airline runs their business?”

Somehow I’m not surprised that Mr. Cox (who volunteered to be bumped, despite his malcontent attitude) runs a sandwich shop and not an airline.

Filed under: Economics & Finance, Updates