The U.S. Commercial Aviation Industry and United Airlines

By now nearly everyone has seen the viral video of Dr. David Dao being physically dragged off an overbooked United Airlines flight.  The videos that have surfaced the past few days are certainly shocking, make most viewers uncomfortable, and have caused what feels like a national outrage against United.  Yet, despite millions of “key-board warriors” rallying together against United, I cannot help but think that no meaningful change will come to fruition.

Airline companies (and not just U.S.-based ones, like United) overbook flights as a way to generate more revenue, since customers miss their flights or choose not to go all the time; so, United’s business practice of overselling their planes is by no means unique.  Despite all the outraged responses by potential future United customers over a somewhat morally-questionable business practice, the oligopoly that is the U.S. airline industry will continue to flourish, and United Airlines will get through this public relations nightmare.  At least that is what history tells us should happen.

Following years of M&A activity in the space, the airline industry in the United States is controlled by the “Big Four”—American Airlines, Delta, Southwest, and United Airlines.  Not only do these firms each individually have over four times the fleet of their closest competitor, Air Canada, they offer more flights to more “desirable” cities than their competition.  Moreover, the airline industry as a whole does not, and should not, feel any pressure from the bad publicity that is consuming the current news cycle.  Consumers will always want to travel to new, exciting places or destinations they’ve traveled to countless times.  Ultimately, consumer preferences will not change; airlines offer consumers the most efficient, cost-effective, and time-effective method of transportation.  That will not change anytime soon.  While oligopoly-driven markets are not always efficient, the commercial airline industry’s contribution to GDP in the U.S. is estimated to be just under $1.5 trillion, and roughly $3 trillion worldwide.  In the U.S., the industry provides jobs to over 10 million Americans.  The economic functions that the commercial airline industry provides to the U.S. economy are important and quite noticeable.

United is not the first major firm to make mistakes and feel the outrage of their consumers.  Think of the relatively recent Volkswagen controversy.  The company wrongly installed software that would read out the diesel-pollution numbers that consumers and rating agencies wanted to see.  When this became public knowledge, lots of people urged a boycott of the car manufacturer.  Yet, now, no one speaks about it anymore.  It’s news cycle has run its course, and it is only a matter of time until United gets to the same point.

At the end of the day, the incident involving Dr. David Dao will not be the end of United Airlines.  United has a strong footing in the commercial airline industry to begin with, and the emotions that people feel when they see those viral videos are momentary and forgotten by the time the next news cycle rolls around.

https://www.washingtonpost.com/business/economy/crisis-experts-to-united-this-too-shall-pass/2017/04/11/3550be86-1ec9-11e7-a0a7-8b2a45e3dc84_story.html?utm_term=.bdc2bd020243

http://airlines.org/industry/#economic

http://aviationbenefits.org/economic-growth/value-to-the-economy/

https://seekingalpha.com/article/4056732-ultra-low-cost-carriers-overview-airline-industry-disruptors

http://fusion.net/airlines-can-treat-you-like-garbage-because-they-are-an-1794192270

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5 thoughts on “The U.S. Commercial Aviation Industry and United Airlines

  1. nbharp18

    Nick, I agree with your points here, the news about United will definitely not hurt their bottom line much, if at all. The Volkswagen comparison is very apt, in the long run, this will all blow over and United will still be a huge airline with millions of passengers every year. Economically, Untied and airlines like it that overbook flights are necessary, and are going nowhere due to the massive size they have attained and essential function they serve.

    Reply
  2. coreymanley25

    I completely agree, this is just temporary unfortunate news. Very much admired the GDP impact numbers and very thorough explanation of the economic impact of airlines and why they’re here to stay. A look into the companies financial data proves its stronger than ever and will show no signs of slowing down anytime soon.

    Reply
  3. seancobb29

    Completely agree with this post. It is the unfortunate truth that industry giants across pretty much all industries will participate in some morally questionable practices, get attacked by the media, and seemingly come out unscathed. United reimbursed all of the customers on flight 3411, but a few tens of thousands of dollars out of there pocket and some and press isn’t realistically having any long term effects on the company.

    Reply
  4. lukereynolds33

    Nick, I like your points and I agree that United won’t lose much. I am sure Mr. Dao will sue and receive ample compensation, as he should. But, in light of this I am sure the other airlines actually will take this example and improve their systems for overbooked flights so that they are not subject to a PR nightmare as well. I think the stance that Mr. Dao made was important to all consumers that have felt oppressed by this giant industry.

    Reply
  5. Victor Matheson

    As an economist, I can tell you for sure there is some price at which you can get volunteers without sending in the goon squad. That price was just above what UA was willing to pay prior to this incident.

    Reply

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