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The US airline industry and the prisoner’s dilemma

The US airline industry is a national embarrassment. I’m writing from Tampa, Florida where I just spent the night because of a flight delay which caused me to miss the last connecting flight of the day. I’ve flown about a dozen times in the last two years, and I can’t remember a single domestic flight that got me to my destination on time. The delays are always due to “weather” which means the airline has no obligation to compensate the passengers. How’s this for an idea? Any time a passenger is delayed more than four hours arriving at their ultimate destination when the entire trip is booked through a single airline, the passenger is entitled to a refund of 40% of the price of the flight, with an additional 10% penalty for every hour beyond that. If the flight is more than 10 hours late, the flight is free.

This law would be imposed on all US airlines uniformly, so there is no prisoner’s dilemma (i.e. you don’t have the potential problem of having only one airline implement the rule and losing competitive advantage against the other airlines). I think this would create the right incentive system for the airlines to fix their problems.

My solution was inspired by an article I read in the New Yorker recently pointing out that the current problems with the airline industry are unfixable, because it’s a cut-throat, thin-margin business in which large airlines need to pack passengers like cattle and over-book and over-schedule their airplanes or they will lose out to low-fare carriers. Just as a uniform minimum wage law solves the prisoner’s dilemma for having companies offer decent salaries, my proposed solution (which I humbly suggest might be called “Morrison’s Law”) solves the problem for airlines.

I don’t buy the argument that weather problems are unpredictable and unavoidable. If motivated, airlines can easily solve the problem by allowing more margin between flights, or alternatively, going with minimal margins but factoring potential weather problems into ticket prices. Insurance companies make those sorts of calculations all the time.

{ 2 } Comments

  1. Kalani | January 2, 2008 at 4:58 pm | Permalink

    Interesting idea … maybe you should write a letter to your senator?

    Taking inter-island flights in Hawaii or between San Francisco and Grand Junction, CO on “low-fare” airlines have made me appreciate just how much they can cut and still (barely) keep the plane in the air.

  2. Joe | January 11, 2008 at 12:40 am | Permalink

    I sent a letter via Hillary Clinton’s web site. Curious to see if there will be a response. In the meantime, here’s a pragmatic approach from the Chinese government:

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