The Efficient Skies Are Not So Friendly

The view from an airplane.

There was an outpouring of justifiable outrage at last week’s United Airlines debacle, when private security guards acting on behalf of the airline forcibly dragged an otherwise compliant passenger from his seat on a flight from Chicago to Louisville because of the airline’s self-created, over-booked flight. The event was a veritable YouTube Rorschach Test upon which the viewing public could project its perceptions of social dysfunction. The sordid episode held meaning on any number of fronts­— privatization, corporate privilege, police brutality, and systemic racism among them (the mistreated passenger, Dr. David Dao, is Asian-American). Yet for all the hand-wringing and finger-wagging, the very practice of airline overbooking that caused this mess went unchallenged. A spate of utilitarian articles defended United’s policy, taking issue only with its manner of enforcement. They argued that United failed only by refusing to offer its passengers more money to woo voluntary compliance. But the issue with United’s policy is one of values not mechanics. Airline overbooking replaces respect with the corrupting amorality of efficient breach.

At the outset, let’s acknowledge that United and its competitors do not technically breach their customer contracts when they involuntarily bump a passenger. As is the case with most commercial arrangements between consumers and their corporate overlords, airline tickets come with lengthy terms and conditions known as a “contract of carriage” which are subject only to assent, not negotiation. These “standard form” contracts present unique challenges within contract law, ones that courts have shown decreasing willingness to police. But that is a discussion for another day. Let’s stipulate that although an airline’s involuntary revocation of tickets is usually permitted under express contractual terms, the practice violates at least the spirit of the arrangement. And the justification for this spiritual breach boils down to efficiency.

The concept of “efficient breach” has a long history in American contract law, dating back more than 80 years. Without delving too deeply into the scholarship, the theoretical thrust of the debate is whether the damages for breaching a contract should be designed to push parties to uphold their commercial promises or, as noted “law and economics” scholar Richard Posner wrote in 1972, whether “contract remedies should . . . give the party to a contract an incentive to fulfill his promise unless the result would be an inefficient use of resources.” In other words, should society emphasize keeping one’s word or should it create an incentive for a party to break that promise if it would increase overall cost efficiencies? Proponents of efficient breach would design contract remedies which encourage sellers to take better offers than those in their already agreed-to contracts (even when factoring in the damages owed for that breach). Meanwhile, wronged buyers would be made whole through damages equaling the full value of their expected use of their now denied purchase, though they are powerless to demand the bargained-for performance.

The practice of airline overbooking is a modern version of this concept. Since ticketed passengers sometimes fail to appear for their flights, airlines frequently have empty seats on sold-out flights. To maximize revenue, airlines often sell more tickets than there are seats despite the inevitability that passengers will get bumped (and then paid off) when the no-shows fail to outnumber extra passengers. It’s a profitable practice since the extra sales revenue outstrips payouts to the dispossessed. Overall, the practice benefits passengers, too, by giving a windfall to travelers who take the payouts while keeping prices down. But whatever one thinks of efficient breach, airlines tickets are not widgets. The latter can be appropriately priced by the value their buyer places on them. The former is often a temporal necessity. Unsurprisingly, these distinctions are lost on an airline’s algorithms.

The story of our intrepid United passenger is instructive. Dr. Dao purchased a seat on that flight not because of a passing whim but because he needed to get back to work the next morning to treat his patients. It’s a familiar story for the thousands who have an event to make, a vacation to start, or a fleeting moment to capture, for whatever reason. For those customers, a ticket is a promise: 5:40pm, Chicago to Louisville. Isn’t it reasonable to demand that when airlines break that promise, they do so due to the unforeseen, not the intentional?

Which is the problem with the suggested “fixes” to the overbooking problem. Increasing payouts to the condemned, or charging more for the privilege of a bump-free ticket, may reduce “involuntary” removals under a loose definition of that term. Faced with their personal economic realities, customers will no doubt comply. But the practice heightens the unequal treatment that accompanies income inequality, with barnyard treatment of the economically insecure justified by low prices. Meanwhile, the wealthy pay to opt-out. Instead, we should regulate away practices that sink below minimum societal standards. Let’s let society operate a little less efficiently, and a little more humanely.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s