Air rage

Why dragging a paying customer out of his seat won’t hurt United’s bottom line

United Airlines braced for a second day of social media outrage Tuesday, after viral videos showed a man being wrestled out of his seat and dragged from the plane as a result of an overbooked flight out of Chicago.

The shares of United’s parent, United Continental Holdings, fell sharply, by as much as 4 percent Tuesday, erasing roughly $900 million from its market value in intraday trading.

But the decline was something of a delayed reaction. When the images emerged on Monday, anyone watching the stock market would have seen little turbulence. Shares of the U.S. carrier finished up nearly 1 percent, much better than the market as a whole, which was flat.

It seems that on Monday the markets concluded that, Twitter-squawking aside, an ugly incident doesn’t matter to the company’s bottom line. And if history is any guide, Tuesday’s dip will also be a temporary phenomena.

That’s because in the rich history of egregious and well-publicized potential affronts to customer service, few seem to have any lasting effect on profits.

Remember the outrage when airlines began charge bag fees back in 2008? It worked. Airline profits have hit record profits in recent years.  

A JetBlue flight’s seven-hour tarmac delay in Hartford, Connecticut, back in October 2011 garnered a lot of attention. But it came as the company’s fourth-quarter earnings tripled and later soared in the first quarter of 2012.

Delta had two awful computer glitches recently, one near the peak of the travel season in August 2016, stranding thousands of travelers, and another in January.  The August glitch cost the company about $100 million in revenue. But the company’s profit, of more than $1 billion for that quarter, slipped only slightly.

People can say whatever they want on Twitter. But when push comes to clicking to buy a ticket, consumers will almost always select the cheaper fare. Entire airlines — such as Spirit and RyanAir — are built on this well-researched consumer psychology, in which rock-bottom base fares are supplemented with a range of irritating surcharges on seating, baggage, food, and other services once included in the price of a ticket.

In other words, if you’re expecting a strike by customers to change the behavior of airlines, you’ll be waiting a long time.

So why did the stock fall Tuesday? Well, an interesting wrinkle in the passenger-dragging scandal is that it seems to have captured attention in China, as well as the U.S. While the man who was dragged from the flight was has not been identified, he appeared to be Asian, and overnight, the incident has kindled anger in China, a crucial growing market for United.

State-run media in China appeared to stoke the outcry, calling the man who was dragged from the flight an “Asian passenger,” according to the Associated Press. And the idea that the Chinese government — whose approval is crucial to doing business in the People’s Republic — is upset by the incident seems to have finally gotten the attention of investors, given how United Continental has been expanding aggressively in the country.

 

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