Revised Bumping Compensation Shortchanges Passengers

by Dr. Todd Curtis

As of May 19, 2008, passengers will get additional protection from the Department of Transportation in the form of an increase in the maximum allowable compensation for passengers who are delayed due to being bumped, or involuntarily removed from a flight due to overbooking. This is the first increase in the maximum compensation in 30 years. Unfortunately for passengers, this increase in benefits does not keep up with inflation. What may upset passengers even more is that the DOT was well aware of what it would have taken to keep up with inflation, but chose not to do so.

Currently in the U.S., most passengers who are involuntarily bumped are eligible for denied boarding compensation. If the airline can arrange alternate transportation that is scheduled to arrive at the passenger’s destination within one hour of the original planned arrival time of the overbooked flight, no compensation is required. If the airline can’t do that, there are specific kinds of compensation that airlines are required to provide to passengers, including cash compensation.

If the alternate transportation is scheduled to arrive between one and two hours after the original planned arrival (between one and four hours on international flights), the compensation equals 100% of the passenger’s one way fare to his or her next stopover or final destination, with a $200 maximum additional cash compensation . If the airline cannot get a passenger to the destination airport within two hours (four hours on international flights), the compensation rate doubles to 200% of the passenger’s one-way fare, with a $400 maximum additional cash benefit. This compensation is in addition to the value of the passenger’s ticket, which he or she can use for alternate transportation or have refunded if not used.

The last time the rule was substantially changed was in 1982, and the last time the maximum additional cash benefit was raised was in 1978. For 2008, the DOT made several changes, the most important was a doubling of the maximum cash compensation to $400 for domestic flights and $800 for international flights. While at first this appears to be a win for consumers, in economic terms it is in fact a step backwards from when the compensation was last changed in 1978. In addition, the policymakers who approved the change were well aware that a doubling of the compensation would not have kept up with inflation.

When the DOT proposed these rule changes in 2007, it applied the government’s consumer price index (CPI) data to the 1978 compensation and concluded that to keep up with inflation, the dollar amount would have to go from $400 to $1,248 for the maximum benefit. That value has increased since 2007. According to the Department of Labor online inflation calculator, on May 12, 2008 it showed that $200 in 1978 had the same buying power as $654.99 in 2008, and $400 had $1,309.99 of buying power. The bottom line is that when the new compensation limits take effect, they would have to be about 60% higher to have actually kept up with inflation.

Air travelers, especially those who may get bumped in the near future, should keep in mind that the airlines did not directly decide on the new maximum compensation limits (though the Air Transport Association, an association of the larger U.S. airlines, did not object to the larger compensation limits). The DOT issued this rule change to double the compensation, even after reviewing options that included one that would have allowed the compensation to keep pace with inflation, and another option that would have done away with a maximum limit altogether.

In the end, the DOT approved a change in maximum compensation for bumped passengers that increases passenger compensation but does not keep up with inflation. In comments posted by the DOT on April 16, 2008, DOT Secretary Mary Peters stated that the rule will ensure flyers are more fairly reimbursed for their inconvenience. The airline industry apparently found this result to be fair as well, even though the rule change leaves a bumped airline passenger holding the (somewhat smaller) bag.

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Resources

Rights of Passengers on Overbooked Flights
http://www.airsafe.com/complain/bumping.htm

April 16, 2008 DOT Announcement of New Bumping Rule
http://www.dot.gov/affairs/dot5308.htm

July 9, 2007 DOT Proposal for Compensation
http://www.dot.gov/affairs/dot6707.htm

Historical Consumer Price Index Values
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

Department of Labor Online Inflation Calculator
http://data.bls.gov/cgi-bin/cpicalc.pl

DOT Regulation 14 CFR 250 on Oversales (Bumping)
http://airconsumer.ost.dot.gov/rules/part%20250.pdf

Federal Register from April 18, 2008 Announcing Rule Changes
http://edocket.access.gpo.gov/2008/pdf/08-1145.pdf

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