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4-Traders Homepage  >  Equities  >  Nyse  >  United Continental Holdings Inc    UAL

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United Continental : With plans for $9,950 offer to overbooked, Delta aims to avoid United fiasco

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04/15/2017 | 04:57am CET

April 15--Delta is set to take advantage of a competitor's stumble by significantly increasing its cash offers -- to nearly $10,000 -- to passengers who give up a seat on an overbooked flight.

According to an internal memo obtained Friday by the Associated Press, Delta gate agents will be able to offer as much as $2,000, up from $800, while supervisors will be empowered to pay up to $9,950, where they once offered $1,350.

The decision comes as United Airlines is still reeling from public anger over its decision to have a man dragged from one of its overbooked flights when no one was willing to give up a seat.

While it's likely that Delta would rarely have to fork out almost $10,000 to a bumped passenger, the airline's decision to ramp up its rewards is sure to attract travelers' attention and make it more likely that overbooked flights don't become angry scenes.

"At $9,950, you can pretty much guarantee you would have a stampede off the plane," said Robert Mann, an airline consultant and former American Airlines executive.

Mann said if United had offered higher payouts, it could have avoided a PR nightmare. Instead, millions have watched video of a 69-year-old man being dragged off a United Express plane by Chicago aviation security officers.

The company has since said that it would unveil new policies and incentives for passengers by the end of April.

"Clearly this was a tipping point, and what's good is not only are the airlines responding, we are already seeing action within a few days," said Henry Harteveldt, a travel industry analyst in San Francisco.

Mann said that Delta already has the lowest rate of passengers being ordered off planes.

"They are very successful in converting over-sale situations to voluntary-denied boardings," Mann said.

An Associated Press analysis of government data found that in 2015 and 2016, Delta paid an average of $1,118 in compensation for each passenger that it denied a seat; United offered $565.

Airlines typically offer vouchers or cash on overbooked flights, finding the practice less costly than flying planes with empty seats.

If someone is in the top tier of a frequent flier program, Mann said, they can obtain reservations even if a flight is sold out for a high-priced ticket.

Airlines can then find someone with a fairly inexpensive ticket and offer them compensation to keep their best customer on the plane.

Mann said that Delta most likely won't have to resort to its $9,950 payout, since agents would find takers at a lower price.

"It would be unusual [if] they got anywhere close to that," he said.

If Delta paid $9,950 to each person it had ordered off a plane last year, it would cost the company $12 million, the AP reported.

"I think Delta is getting way out front of any push by legislators or regulators to try to interrupt the ratio of overbooking, which is necessary," Mann said.

Pam Barton, a travel agent in Chanhassen who has worked in the industry for more than 20 years, pointed to a simpler solution, though one the airlines aren't likely ready to try.

"The problem is overbooking flights," she said. "If you don't have 200 seats, don't sell 200 seats."

___

(c)2017 the Star Tribune (Minneapolis)

Visit the Star Tribune (Minneapolis) at www.startribune.com

Distributed by Tribune Content Agency, LLC.

© Tribune Content Agency, source Regional News

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Financials ($)
Sales 2017 37 551 M
EBIT 2017 3 488 M
Net income 2017 1 885 M
Debt 2017 10 089 M
Yield 2017 -
P/E ratio 2017 10,17
P/E ratio 2018 9,16
EV / Sales 2017 0,77x
EV / Sales 2018 0,74x
Capitalization 18 889 M
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Average target price 71,6 $
Spread / Average Target 12%
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NameTitle
Oscar Munoz Chief Executive Officer & Director
J. Scott Kirby President
Robert Aaron Milton Non-Executive Chairman
Gregory L. Hart Chief Operating Officer & Executive Vice President
Andrew C. Levy Chief Financial Officer & Executive Vice President
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