Proactive overbooking management to ensure the sky is friendly to fly
by: Christopher S. Tang
Consumers around the world were disturbed by the video that showed a passenger was dragged off United’s flight 3411 by at least 3 security guards on April 10, 2017. Influenced by Confucius’ teachings on respect for elders, Asians were particularly upset because this passenger was a 69 year old Asian man. Due to an on-going lawsuit, I shall not comment on the incident that happened. Instead, I would like to propose a plan that can help United to develop a cost effective and yet customer friendly mechanism to manage overbooking.
On April 27, 2017, United printed a full page announcement with a title “Actions Speak Louder Than Words” in all major newspapers and sent email to all United Mileage Plus members. United claimed that it will identify volunteers to give up their seats earlier in case of overbooking, and will increase incentives for voluntary rebooking up to $10,000. However, these pledges are still “words”: the airline did not explain the action regarding ways to implement these changes. How can United identify volunteers earlier? How should United compensate volunteers in a fair and cost effective manner?
As an Operations Management Professor, I fully agree that overbooking is necessary in order for airlines to manage their seat capacity because of “no shows”. However, when more passengers show up for a particular flight, airlines need to develop a proactive mechanism to treat customers fairly without breaking the bank. Here is how airlines can utilize Information Technology and Business Analytics to ensure the sky is friendly to fly:
1. Collect check-in information early. Encourage more customers to check in early over the internet or mobile phones.
2. Identify potential volunteers early using a sealed bid process. During online check-in, United can gently ask the passenger if he/she is willing to be added to the volunteer list. At the same time, United can ask this passenger to state the dollar value (up to $10,000) that he/she will accept as compensation for volunteering his/her seat (i.e., ask the passenger to submit a “sealed bid”). Tell the passenger that the lowest bid will be selected to give up his/her seat when needed, and the airline will make alternative travel arrangement accordingly. This way, United can identify potential volunteers and their requested compensations in advance.
- In the auction literature, it is well known that this process will entice passengers to reveal the “true value” of their seats. Clearly, some passengers will refuse to be added to the volunteer list, but some are willing to volunteer if the airline will compensate him/her according to his/her bid. This process is consistent with volunteerism. By doing so, it is unlikely for the airline to overpay the volunteers. [Delta airlines set the dollar amounts for volunteers. By doing so, it can attract too few (too many) volunteers if the suggested dollar amount is too low (high).
3. Inform volunteers early via internet / mobile phone and at the gate early. Using the early check in records along with millions (if not billions) of past flight records, United can conduct “predictive analysis” to estimate the number of volunteers that is needed for a particular flight. As time progresses, United can compensate those pre-registered volunteers and make alternative travel arrangements way before boarding time. This way, volunteers feel respected.
By leveraging Information Technology and Business Analytics and by developing a proactive process, United can fly the friendly sky again!
Link to material: http://blogs.anderson.ucla.edu/global-supply-chain/