FlyersRights is encouraged by the much-needed attention that the Department of Transportation (DOT) gives to passenger harm caused by airline unreliability.
While competition is lacking when a passenger purchases an airline ticket, it is even more lacking when they are stranded or delayed by their airline.
Airline service quality and on-time performance have decreased dramatically. Sufficient incentives to improve service and performance do not exist. Airlines have found, unfortunately, that it pays to have bad service.
Studies demonstrate that EU delay compensation rules decreased delays and increased on-time performance. These rules had a stronger effect in markets with less competition. The U.S. airline market lacks competition, so a system similar to EU delay compensation is needed. If airlines resolve not to compete with each other, they should have to compete with the clock.
Passengers currently absorb nearly all of the harm from airline mistakes, whether that be scheduling errors, mechanical errors, technology and computer errors, financial decisions to cancel flights, decisions not to rebook passengers on the next available flight, or decisions not to provide assistance to stranded passengers.
In addition to the demonstrable need for flight delay compensation, the DOT has sufficient legal authority to promulgate regulations regarding it.
FlyersRights believes now is the time to put passengers and competition first.
As the DOT gathers information in anticipation of proposed rulemaking, it should know that it has multiple options for delay compensation and rebooking. Any solution must be adequately crafted to:
- 1) incentivize the airlines toward good performance
- 2) incentivize airlines towards good behavior by not seeking out and exploiting
- not to rebook passengers on the next available flight, or decisions not loopholes
- 3) maximize the percentage of eligible passengers who receive the required
- compensation
- 4) minimize extensive airline red tape and time delay in receiving compensation and
- 5) improve air travel efficiency and reliability to benefit the U.S. economy.
With these goals in mind, FlyersRights proposes a flight delay compensation system for controllable delays that (1) increases the demand for air travel to the benefit of airlines, (2) incentivizes on-time performance, re-booking, and truth in scheduling, (3) rewards airlines with better reliability and customer service, and (4) provide the airlines with multiple opportunities to minimize passenger harm.
Precedent
The United States is the outlier in not yet having a flight delay compensation or duty of care rule. Delay compensation is the standard in the aviation industry. Travelers to and from the European Union, Canada, and throughout international travel (including flights involving the United States) are already entitled to flight delay compensation or damages from delay.
As a result, U.S. airlines are well-versed in providing compensation and care to
passengers. However, these passengers tend not to be American. U.S. airlines are also well-versed in the consequences of delay compensation: better on-time performance.
The United States does not have flight delay compensation due to hesitance and constraints on Congress and federal regulators to make U.S. air travel as great as or greater than in other countries. We find this to be a consequence of the extensive and expensive lobbying efforts by airline executives who put profits and stock buybacks over passengers, performance, and principle.
In recent years, some U.S. airlines have voluntarily introduced forms of delay compensation. Southwest Airlines, in the aftermath of its 2022 Christmas meltdown, agreed to provide vouchers of at least $75 for certain controllable delays and cancellations.
Alaska Airlines, Hawaiian Airlines, and JetBlue Airways also provide flight credit vouchers for controllable delays and cancellations. These airlines have recognized the need to provide some form of compensation to their stranded passengers while simultaneously keeping these passengers locked into their airlines for future travel.
Incentives do not exist to enable other airlines to compete for that stranded passenger. In instances of controllable delays or cancellations, all 10 major U.S. airlines are contractually obligated to book a passenger on their next available flight.
However, as planes are now filled to near capacity, this can mean hours or days. Four airlines do not even make any guarantees of re-booking a passenger on a separate airline, and one airline does not provide basic levels of care such as hotel or ground transportation vouchers or reimbursements.
Independent studies have found that EU flight delay compensation rules have decreased arrival and departure delays and have injected competition on performance into non-competitive markets. The slow but steady increasing awareness of the rule among passengers has seen an increase in claim rates, and increased willingness and ability of airlines to comply has seen an increase in the number of eligible passengers receiving the appropriate compensation.3 More
time, awareness, and compliance should continue to magnify these performance gains.
Meanwhile, many airlines concede that the rules did not increase fares. Others argued that this rule forced them to no longer price based on supply and demand (as one expects in a competitive market), but instead on cost.
The EC Steer report finds that these latter airlines may sometimes be telling the truth. Passing on costs of regulation appears not to be a matter oF whether they will or won’t they; instead, it is a matter of whether they can or can’t. The EC Steer report found that airlines are more likely to pass on the costs (in part or in full) in non-competitive markets and are more likely to internalize the costs in competitive markets.
The EC Steer report estimates that the cost of Regulation 261 was between $2.50 and $5.45 per passenger.7 Ineligible claims, or claims where a passenger’s erroneous reading of Regulation 261 motivates them to submit a claim, “may generate a processing and administrative burden. However, they do not drive airline costs to provide compensation.
One of the benefits of Regulation 261 is that flight delays decrease by 4 to 5 minutes and on-time performance increases by 5%.9 The benefits are even more pronounced in markets with less competition.
Extensive airline red tape has created an industry of third-party claim specialists who work on contingent fees of up to 44% of delay compensation amounts.
While payment to passengers or third parties performs the task of incentivizing market competition, a rule must be crafted to maximize the amount of delay compensation going directly to passengers. This is achieved by making the rule as simple as possible and preventing the airlines from imposing costly red tape or adding cost, complexity, and uncertainty through delay and deny tactics. For EU 261 compensation, the airlines make passengers step over dozens of hurdles and wait long periods of time, often without acknowledgment.
Many EU Difficulties Would Not Apply to the United States
The strongest criticisms of EU 261 are difficulties that would not exist in the United States. Critics of EU 261 argue it suffers from “[u]neven levels of effective enforcement across Member States.”13 A U.S. regulation would not present a similar problem. The DOT would be the sole authority overseeing airline compliance with delay compensation regulations.
In the EU, passengers can turn to private enforcement mechanisms or other public consumer protection mechanisms. In U.S. air travel, those simply do not exist. Airlines have also noted the challenges of facing court appeals in multiple member states and in multiple languages. This cost would also not exist in the United States.
ICAO Core Principles on Consumer Protection
The International Civil Aviation Organization (ICAO), an agency of the United Nations, publishes “ICAO Core Principles on Consumer Protection. These are intended as guidance to countries.
The principles recognize that “the protection and improvement of airline passenger rights has gained greater importance” after the liberalization of markets.
