The United Debacle, Government Interference, and Contract Ambiguity

united-airlines

A shocking April 9 video shows Chicago Aviation Security Officers violently dragging a screaming and bloodied passenger off of a United Airlines (subcontracted) flight to make room for United crew. United CEO Oscar Munoz said the man, David Dao, was “re-accommodated”—a Newspeak term widely ridiculed and condemned. As of the evening of April 11, Dao remained hospitalized for his injuries. By the end of that day Untied stock had fallen by over a billion dollars.

Why did this happen? The three main problems are overreaction by the parties involved, government interference in the airline industry, and ambiguities in United’s terms of service. Let’s take those issues in turn.

Overreaction

The obvious explanation is that United staff as well as the police officers involved egregiously overreacted. If Dao’s removal was permitted by United terms and procedures, why did United’s staff not bring out the relevant paperwork and carefully explain the situation? Regardless of the legal technicalities, United clearly screwed up by seating passengers prior to working out seat availability. Any resulting lateness, then, was United’s fault.

And why did the police not fall back on negotiation rather than brutality? One officer even laughed over the violence, according to a passenger. Why did police not ask United’s staff to come up with a better solution before getting involved? Use of brute government force should be the last resort in such cases. Notably, the Chicago Department of Aviation “said in an emailed statement that the incident wasn’t in accordance with its standard operating procedure and the officer’s actions ‘are obviously not condoned by the Department.'”

Although most of the blame belongs with United and the police, I think it’s fair to say that Dao also overreacted. Why didn’t he walk off, make arrangements to be late to work—or call Uber, as an anonymous United employee later suggested—and contact United and perhaps his attorneys later? Incidentally, I looked up rates at Uber.com from Chicago to Louisville, Kentucky, the route of the plane, and found rates ranging from $321 and $1,679, depending on details. Presumably Dao, a medical doctor, was not without means.

But overreaction is the obvious story. Other important contributors are less obvious.

Government Interference

If you listen to people including Jesuit priest James Martin and Paste writer Shane Ryan, the Untied debacle is an indictment of capitalism itself. Such writers ignore the ways that people acting in the market have already prompted change at United and the ways that government controls helped create the problem.

Government substantially controls the airline industry in ways that helped set the context for the case under review. Government throttles competition by restricting foreign ownership of airlines as well as service of domestic routes by foreign airlines, as Marc Scribner writes for the Competitive Enterprise Institute. And the inflexible union contracts that dictate how Untied must transport crew are made in a context in which union “negotiations” are backed up by threat of government force. Absent such controls, the airline industry probably would be more competitive and more responsive to customers’ needs.

(Note: Originally in this section I claimed that federal regulations prohibited United from offering greater compensation to get people out of their seats, but my interpretation of those regulations was mistaken. See my follow-up article for more details. The fact that United could have offered greater compensation but did not substantially increases United’s moral culpability, in my view.)

But United’s own terms of service also deserve some blame.

Ambiguities of Contract

Prior to this case, it never occurred to me that an airline might remove a composed ticketed passenger from a plane after the passenger had been seated. Of course airlines will call security or police in the case of an unruly passenger, but, if Dao become “disruptive and belligerent,” as Munoz claimed, it was only after United staff insisted he leave his seat. Normally in cases of overbooking or standby tickets, passengers are notified before they get on the plane, not after.

The question, then, is whether United’s terms of service clearly spelled out that it could remove passengers from planes in cases of overbooking (factoring in crew transports).

Passengers agree to abide by terms offered, and United openly publishes its Contract of Carriage even if few people read it. Attorney Anthony Sabino says of such contracts: “You signed it. You’re stuck with it. If you didn’t read it first, that’s your problem.”

But is the contract Dao signed really clear in this instance? I’m not convinced it is. Rule 25 of the Contract of Carriage says that, in the case of an “oversold” flight, a person “may be denied boarding against his/her will.” But the flight in question was “oversold” only if we count the last-minute additions of United crew. And Dao had already boarded, so the language about passengers being “denied boarding” arguably didn’t apply.

United’s lawyers probably can make a good case that the terms apply in the case at hand, but Dao’s lawyers probably can also make a good case that the terms are ambiguous. I’m not an attorney, but I would be surprised if Dao did not end up with a huge settlement and if United and other airlines did not clarify their terms in light of this case.

Fly the Freely Negotiated Skies

The problem of contract ambiguity in this instance does not undermine the case for freedom of contract under capitalism any more than a shoddy science paper undermines the legitimacy of the scientific method. Airlines should be free to offer and advertise, and people should be free to accept, terms that are mutually agreeable. Neither government nor any other outside party should seek to dictate those terms.

To emphasize the obvious: When you purchase an airline ticket, you do not purchase an absolute right to a particular seat at a particular time. Your use of the seat is conditional on terms of contract. Airlines rebook entire flights all the time for reasons of weather, security, and mechanical troubles. Everyone who flies is familiar with the practice of airlines buying off passengers at the gate in the case of overbooked flights. Most of us also are familiar with special-condition tickets that specify the holder may fly on standby if space is available. Air travel is a tricky business that requires elaborate agreements.

I doubt an airline ever would tell passengers that they may never be rebooked once they board. Consider three scenarios: An airline overbooks a flight due to a computer glitch and discovers the error only after boarding has started, someone with a pressing medical or personal need urgently needs a seat, or an airline urgently needs to transport staff.

In a genuinely free market, airlines would openly compete on terms of service—including terms for overbooking. (They already compete in many ways in our partly-free market.) Some airlines might advertise that they never overbook flights—although, for reasons that Sean Davis and Charles Leocha point out, they’d likely have to raise ticket prices as a result. Other airlines might sell “guaranteed no-bump” tickets for a premium and tell everyone else that they might be rebooked. Still other airlines might decide to always use compensation to convince some passengers to wait.

The point is that airlines should be free to set the policies that they think make the most sense, and travelers should be free to purchase tickets with the airlines that they prefer (or to use alternate means of travel).

Assuming that the contract is clear and advertised in advance, an airline has every right to remove a passenger from a plane, by force if necessary, if the terms allow for it. (The prudence of invoking a particular contractual clause in a given instance is another matter.)

Most of us recognize that, if a person stops paying a mortgage and refuses to leave the property in question, the mortgage company ultimately should and will call in the police. It is government’s proper role to help enforce contracts.

I was surprised, then, to read Brian Doherty’s take in Reason, which ignores the nuances of contract:

While there may be something to be said for the ability for private businesses to summon the help of the police to remove people from their premises if they refuse to leave peacefully and their presence is unwanted, there is no excuse for the police to cooperate when the reason their presence is unwanted is not “causing a disturbance” or being violent or threatening to other customers, or stealing goods or services, or doing anything wrong at all, but rather wanting to peacefully use the service they legitimately paid for.

Whether Dao “legitimately paid for” the right to unconditionally sit in “his” particular seat under the relevant conditions is precisely the question under review, and Doherty is wrong to assume it away. Even if we grant for sake of argument that United clearly was in the wrong under its own contract, liberty-minded people such as Doherty should grant that, when contacts clearly allow for removal of passengers, ultimately police may need to be called in if an individual refuses to abide by the terms of the contract to which he agreed.

[Update: See also Doherty’s follow-up article, in which he argues that United was not contractually authorized to remove Dao once he had boarded. As indicated, this might be the case but I think the matter is ambiguous.]

That the United debacle resulted in such widespread outrage indicates that airlines have not done a good enough job clarifying their terms of service and notifying passengers of those terms. A likely outcome of the shocking events of April 9 is that airlines will do better in this regard and the public will become more aware of the terms to which they agree by purchasing a ticket.

Virtually everyone—including United’s CEO—acknowledges that United personnel as well as the police responded horribly in this situation. But, in addition to blaming the individuals involved, we can see what created the context in which those individuals acted. Clearly, government should stop interfering in airlines, and airlines should clarify and better-publicize their terms of service.

See also the follow-up, “Overbooking and Passenger Compensation after the United Fiasco.”

Image: Redlegsfan21

Comments

Did United Violate Its Own Terms?

As indicated above, I think there’s room to argue that United’s terms of service did not (contractually) permit it to remove David Dao. Jens David Ohlin and Sean Davis are among those who argue that United violated its own terms. —Ari Armstrong

Is Overbooking Flights Fraudulent?

Sean Davis marshals a great deal of math, and even a spreadsheet, to explain why airlines overbook flights.

Unfortunately, his premises are wrong. Eighty percent of seats on aircraft are booked with non-refundable tickets. When an airline sells the seat and no one shows up, it still keeps the money. The seat is not “empty” from a revenue perspective. It’s certainly true that the seat is empty and the airline could sell that seat twice—once to the original no-show and the second time to somebody at the gate—and this would earn them more revenue, but it ignores crucial facts about the situation.

What about refundable tickets? I looked up a United flight from IAD to LAX next month and the round trip cost for a non-refundable ticket was $306, while the round-trip ticket for a refundable ticket was $1,765. Call me crazy, but I think a premium of more than 500 percent is probably sufficient for the airline to reap enough revenue for those few people who have refundable tickets and don’t show up to get their money back.

The issue is not about airline revenue, the issue is about the airlines wanting to sell the same exact product to two people and collect money from both of them, but only deliver the product to one of them. In any other industry, that would be called “fraud” and it is no different if it’s an airline seat or a theater seat.

If you buy tickets to Les Mis and don’t show up, it’s not like the theater “oversells” the show and has a bunch of waitlist people ready to take your seat at 5 minutes before showtime. Why is that when the theater business is much more precarious financially than the airline business? It’s becaue the theaters don’t have the government backing them in enforcing a fraudulent contract, so no theater could get away with doing this without being sued to death. If you buy Seat A101 and A102 for Les Mis, those are your seats whether you come to the performance or not. Airlines are no different.

—Ed Powell
April 14, 2017 (posted)

Ari Armstrong replies: Fraud means someone lies to you about what they’re selling you. So, if an airline sold you a ticket on the promise that it would not overbook your flight, then intentionally overbooked it, that would be fraud. (Of course, a sensible airline would have terms of service to cover accidental overbookings.) But that’s not what airlines do here. They tell you upfront that a) your ticket is nonrefundable, and b) they sometimes overbook flights and rebook some people. If you know the terms in advance and agree to them, there is no fraud. As I’ve mentioned, if someone wants to run an airline with a “no overbooking” policy, they’re welcome to try.

Regarding how theaters work, important differences between flying and watching a play probably explain the differences in policy. With theater, the particular seat matters very much; not so with an air flight. Usually a person can catch another flight within a few hours; not so with a typical theater performance. Usually going to the theater consumes only a few hours of time, whereas travel often involves much longer periods (including transport to and from the airport). And I think theaters often do have “standby” tickets, and someone who can’t get in has spent very little time waiting.

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