United Airline’s ‘Re-Accommodation’: Will Poor Supply Chain Practices Result in a Hit to the Bottom Line?

Almost one month ago, a passenger on a United Flight was ‘re-accommodated’ due to the airline overbooking seats; by ‘re-accommodate’, I mean dragged from his seat to be given to someone else. Let’s explore the first question: Why does an airline overbook seats on their flights? Specified by the Washington Post, according to guidelines set by the U.S. Department of Transportation (DOT) it is not illegal to overbook flights; most airlines, DOT notes, overbook scheduled flights to compensate for “no-shows.” In such a situation, DOT requires the airline to ask for volunteers. And those who do volunteer  — with a few exceptions — are entitled to compensation. According to DOT, it’s left to the airlines to determine the form or amount of compensation. Therefore, passengers are the airline’s inventory and they maintain a safety stock of people for said “no-shows”, in supply chain terminology. As it is no secret, this is strictly to obtain profits and make the most money per flight, as well all know if you’re a no-show to a flight, a re-booking fee is slapped on the desk.

To continue on the path of Supply Chain analogies, is maintaining safety stock by overbooking “inventory” on flights worth the risk of hurting the brand, particularly in a service specific industry? Can United recover, especially in such a competitive market space as the airline industry? Service disappointments happen, it’s the nature of the business, but what’s important is how a service failure is handled; how the mishap is handled can make all the difference between maintaining customers and causing them to run for the hills, never to look back. Chief Executive Oscar Munoz delivered a rather unfavorable public statement full of non-apologies, “stating that they reserve the right to refuse travel to any passenger, United’s stock price dropped by half a billion dollars (although it did “recover” somewhat to a loss of roughly $250 million). The incident and its aftermath have been hailed by many in the communications industry as one of the biggest PR blunders in history.” published by thehill.com. Copious amounts of public backlash followed the cold response by the CEO to the point where not only did United Airline pilots not operating the plane released public statements, but CEO Munoz released two apologies; too little too late was the response by the public.

It’s hard to concretely say whether United will recover fully after the drop in stock price. With that being said, playing devil’s advocate, once the black cloud blows over the runway, will consumers of plane tickets still look for the best price regardless of airline name? In my opinion, yes, I believe so. Let’s compare the United Airline incident to the 2012 Chick-fil-A same-sex marriage controversy. As a refresher, back in 2012, Chick-fil-A’s history of anti-LGBT activism became national news amid comments from company president Dan Cathy that the company was “guilty as charged” of opposing same-sex marriage (thinkprogress.org). According to Eater.com, a national chicken chain that's closed on Sundays somehow manages to do better than a number of other fast food restaurants that operate seven days a week. Chick-fil-A is dominating the national sales charts, according to Business Insider, and its customer service is largely to thank.

Not only does United, like Chick-fil-A, reside in a competitive market space, but we also live in a price-conscious society. Just like celebrity gossip diffuses when a new ‘disaster’ occurs and time passes, unfortunately, the same will come of the United Airlines incident. At the end of the day, I’m simply not convinced that budget-conscious consumers will bypass a price-competitive ticket.