Market Lessons for United Airlines

As widely covered by the media, United Airlines finds itself in a bit of a public relations pickle. Last Sunday, after having overbooked a flight from Chicago to Louisville, Kentucky, and being contractually obligated to transport members of another crew to man a flight out of Louisville, the crew first asked for volunteers to fly out the next day from the already boarded passengers. When no one volunteered, the crew first offered hotel and monetary accommodations in the amount of $400. When the passengers till refused, the crew offered $800, only to finally announce that a computer would randomly select four passengers to be selected to disembark. After having been selected by the computer, and refusing to give up his seat, Dr. David Dao was forcibly removed from the plane by members of the Chicago police. Though contractually empowered to ask a passenger to leave a flight in just such a situation, given the details surrounding the incident, including Dao’s resulting injuries and its being widely shared on social media, the story has sparked national and international outrage. Only two days later at the time of this writing, United Airlines has lost some 1.4 billion in stock value, the media is ablaze with the story, and consumers are in an uproar.

Behold the power of the market. Not only is the market a more effective means of communicating information and incentives to both consumers and firms than any statute or lawsuit ever could be, it also serves up just the kind of social justice those means seek, but more often than not fail to provide.

Let’s first consider whether the passage of a congressional statute would have been a more effective means of redress than the punishment United is currently suffering at the invisible hand of the market. Members of Congress, many of whom are beholden to the very industry they seek to further regulate, crafted a bill in committee directed at preventing this type of incident from happening again. But because of political pressures and the compromise necessary to get a bill through a deadlocked Congress, not to mention signed by a Republican president, they are forced to use language so ambiguous and open-ended as to prevent any real meaningful enforcement. In steps the FAA, a regulatory body full of former airline industry executives, who later uses the ambiguity of the statute to further water it down through its “interpretation” power under the Chevron doctrine, until it is effectively nothing more than congressional and regulatory lip-service. Even a fine imposed for future incidents actually capable of meeting the likely watered down standard would reach nowhere near United’s current loses

Then there is the possibility of a lawsuit. No doubt Dr. Dao is considering that very possibility as we speak, but what about a potential lawsuits ability to serve as an effective means of punishing United or as a catalyst for preventing thus type of incident from happening again? United would bring their entire legion of lawyers to bear on Dr. Dao, who, if he refused to accept the settlement offer that is likely already being prepared in the darkest dungeon of United’s corporate headquarters, would likely face litigation that would stretch out for years. And even if Dr. Dao ultimately won his suit, neither the media coverage nor damages awarded would come anywhere near what United is currently suffering.

As noted by economists through the modern age, prominent among them the eminent economist and political philosopher F.A. Hayek, the market economy operates to efficiently communicate information and provide incentives to consumers and firms beyond anything capable of social engineering or imposed through government force. The incident involving Dr. Dao has communicated to consumers and owners of United stock how the company regards its customers, and the resulting plunge in value and business will hopefully incentivize the company to reform its overbooking and guest relations policies regarding this type of situation. The market can be a tough teacher when it comes to providing corrective lessons.

But it is a lesson United would not have learned through any other means.

Timothy Snowball is a third year Juris Doctor candidate at The George Washington University Law School who is interested in constitutional law, history, and government. Tim holds degrees in political science from the University of California Berkeley and Grossmont College in San Diego.


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