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Airlines Prompted To Throw Cash At Their Problems By United Blunder

Airlines Prompted To Throw Cash At Their Problems By United Blunder
Plunking down cold, hard cash is doing right this week for U.S. airlines.
The passenger who was dragged off a plane and bloodied has agreed to a settlement with United. And Delta followed the footsteps of United and said that it would pay as much as $10,000 to passengers who agree to give up their spots. It would stop overbooking flights, Southwest said. And to “rebuild trust” with employees, almost $1 billion in costs was added by American.
The wake-up call that airlines got from United’s social-media disaster is underscored by thee moves. Thanks to cost cuts, extra fees and low fuel prices, carriers have posted the biggest profits in their history the last two years. But they have been made as vulnerable as ever to complaints of poor customer service by all that belt-tightening and nickel-and-diming. Now to try to burnish their reputations before things get worse, they’re reaching for their checkbooks.
“Airlines get a hugely disproportionate share of attention in the public eye,” said Samuel Engel, aviation vice president at consultant ICF International. “Everybody travels and everybody has an opinion about it.”
Or as Gary Leff, author of a frequent flier blog, puts it: “Nobody is happy with the airlines.”
An undisclosed legal settlement was the culmination of the famous case of David Dao, 69, who was dragged off a plane April 9 after refusing to give up his seat for a crew member, at United Continental Holdings Inc. As much as seven times what they used to get to change their plans when a flight is oversold has been pledged to be given to the passengers by the carrier.
And a practice that’s been profitable because it ensures planes are traveling at maximum capacity even if some passengers cancel at the last minute - flight overbooking, will also be reduced by the airline.
The estimated revenue impact from the change was not disclosed by United. Itir Karaesmen Aydin, a professor at American University who has studied the practice said that the benefits of overbooking probably run into the hundreds of millions of dollars for major airlines. But the potential hidden costs is highlighted by the Dao case.
“The United airlines story shows that in case of ‘rare events’ the unknown cost of overbooking can be extremely high,” Aydin said.
Based on how they’re treated by employees, who have felt the strain of cost-cutting efforts for years, passengers also form their perceptions of airlines. In a move that Chief Executive Officer Doug Parker had previously rejected, pay in the middle of existing contracts was boosted by American Airlines as it tried to take a step to please its pilots and flight attendants this week.
Through 2019, an additional $930 million would have to be expended by American due to the measure.
“We do not expect the pilots to be happy with their current wages after the increase,” said Helane Becker, a Cowen & Co. analyst. “We expect the labor union to pivot to profit-sharing as their plan is below that of Delta and United.”
There are many pressures facing the industry, including higher wages, fuel costs and fare competition and the need to spend more on image improvement adds to those pressures. why the great profit expansion over the past few years may be coming to a close is helped to be explained by those forces that are already were weighing on the airlines. According to data compiled by Bloomberg, compared with the prior period, U.S. airlines’ earnings per share are expected to drop slightly over the next four quarters.
“It is a bright, shiny object for the media and customers, especially customers armed with smartphones,” said Jay Sorensen, president of consultant IdeaWorks Co. and a former executive at a regional airline. “The airlines are newsworthy because they are endlessly entertaining. They’re the only business that has to move hundreds of thousands of people every day under complete control.”

Christopher J. Mitchell

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