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In the US and for US based airlines: How much do airlines pay out every year in retribution for flight delays/cancellations? Of the payout, what % are frequent flyer miles, what % are vouchers for future travel, and what % are cash? What is the average value of compensation given out by airlines to a passenger for a delayed/cancelled flight?
Hello! Thanks for your question, "In the US and for US based airlines: How much do airlines pay out every year in retribution for flight delays/cancellations? Of the payout, what % are frequent flyer miles, what % are vouchers for future travel, and what % are cash? What is the average value of compensation given out by airlines to a passenger for a delayed/cancelled flight?"
The most useful sources I found to answer your question are the U.S. Department of Transportation (DOT) website and the Bureau of Transportation Statistics (BTS) website.
The short version is that with in the U.S. and for U.S. based airlines: airlines pay out every year, a zero amount by cash or check, in retribution for flight delays/cancellations, because airlines are legally obligated to pay cash or check only for oversold flights, and not for delayed or cancelled flights. Since the payout for flight delays/cancellations is zero, a percentage breakdown of the same cannot be arrived at. However, it may be assumed that the maximum percentage would be of frequent flyer miles, followed by credit vouchers, and lastly by cash. The average value of compensation given out by airlines to a passenger for a delayed/cancelled flight represents a variable amount, depending upon the option that the passenger chooses.
Below you will find a deep dive of my findings.
METHODOLOGY
An extensive online search was undertaken to answer the research question. The search yielded government reports/databases, regulatory filings, corporate websites, industry reports, trusted media sites, user forums and review sites. Data was collected from these sites and analyzed. The analysis was thereafter presented in suitable paragraphs for enhanced readability.
HOW MUCH DO AIRLINES PAY OUT EVERY YEAR IN RETRIBUTION FOR FLIGHT DELAYS/CANCELLATIONS?
Airlines pay zero amount by cash or check, in retribution for flight delays/cancellations.
According to the U.S. Department of Transportation (DOT), Bureau of Transportation Statistics (BTS), as on 2016, out of 5,617,658 flight operations, there were 17.16% delayed flights, and 1.17% canceled flights. However, passengers were not compensated in cash or check, for delayed or canceled flights. According to DOT, "Contrary to the belief of some, for domestic itineraries airlines are not required to compensate passengers when flights are delayed or canceled. Compensation is required by law on domestic trips only when you are “bumped” from a flight that is oversold."
Due to the flight being oversold, passengers may be denied boarding (DB) or "bumped" from a flight. Bumping may be voluntary or involuntary. The American Society of Travel Agents defines as follows:
"Voluntary bumping occurs when a passenger with a confirmed seat assignment agrees to give up his seat for negotiated compensation. This compensation is not regulated by the U.S. Department of Transportation (DOT): The airlines give employees guidelines for bargaining with passengers, and they may select those volunteers willing to sell back their reservations for the lowest price."
"Involuntary bumping occurs when an airline prohibits a paid passenger from boarding a flight because it has oversold the flight. The DOT regulates compensation for involuntary bumping."
According to section §250.10 of Code of Federal Regulations (Title 14, Chapter II, Subchapter A, Part 250), airlines have to inform DOT's BTS regarding the statuses of their denied boarding via BTS Form 251 (Formerly CAB and RSPA Form 251), on a quarterly basis. Line 8 of this form explicitly states the compensation (cash or check, but not transportation vouchers) paid to the passengers denied boarding.
In accordance with the Paperwork Reduction Act, the filing of Form 251 is electronic, "as a 'comma separated values' (csv) file, using ASCII text character encoding." This csv file is not available to the public and is for internal usage of the BTS. Based on the oversale data contained in the Form 251 csv file, and other Forms, the BTS along with the Office of Aviation Enforcement and Proceedings (OAEP), prepares monthly reports titled as "Air Travel Consumer Report (ATCR)."
The latest Feb, 2017 ATCR (page 34), states that the total denied boardings (DB's) on 12 U.S. airlines (Hawaiian Airlines, Delta Air Lines, Virgin America, Alaska Airlines, United Airlines, Spirit Airlines, Frontier Airlines, American Airlines, JetBlue Airways, Skywest Airlines, Southwest Airlines, and ExpressJet Airlines), was as follows:
* From January-December 2015
- Enplaned passengers: 601,240,063
- Voluntary DB's: 487,054
- Involuntary DB's: 43,704
* From January-December 2016
- Enplaned passengers: 659,749,297
- Voluntary DB's: 434,425
- Involuntary DB's: 40,629
It can be seen that the DB's have decreased. A Feb 2017 press release by BTS also states that the bumping rates are the lowest in decades. Nevertheless, if a passenger is involuntarily bumped, then "under the new rule, bumped passengers subject to short delays will receive compensation equal to double the price of their tickets up to $650, while those subject to longer delays would receive payments of four times the value of their tickets, up to $1,300. Inflation adjustments will be made to those compensation limits every two years."
JetBlue Airways adjusts inflation to its compensation and states, "Customers who are involuntarily denied boarding shall receive $1,350."
Delta Air Lines provides its customer commitment in handling "bumped" passengers. It also provides a detailed FAQ regarding suspended travel due to oversales. It states, "In the event that a flight is oversold, we ask if there are any customers who are interested in voluntarily giving up their seats in exchange for compensation and a seat on a later flight. Volunteers receive Delta Dollars transportation eCredits that can be used toward the purchase of another Delta airline ticket to the destination of their choice, or for other travel-related services. [...] If there aren't enough volunteers, we have to rebook one or more customers on another flight involuntarily. [...] If you're bumped and decide not to travel, we will refund the full value of your unused flight coupons. You are also entitled to a refund of all ancillary fees for optional services."
Virgin America states, "In the event of an oversold flight, we will first solicit volunteers willing to give up their seat in exchange for Virgin America’s offer of compensation [...] If volunteers cannot be found, we will have to involuntarily deny boarding to the last guest(s) who checked in for the flight." Compensation is in the form of travel credit or cash not exceeding $1,350.
OF THE PAYOUT, WHAT % ARE FREQUENT FLYER MILES, WHAT % ARE VOUCHER FOR FUTURE TRAVEL, AND WHAT % ARE CASH?
Since the payout is zero, breakdown percentages cannot be calculated. Cash/check is paid out only for oversold flights. Credit vouchers are paid out for delayed and cancelled flights. Frequent flyer miles are paid out for retaining customers.
Cash is a mandatory expense, while credit vouchers and flyer miles are treated as investments to retain customers. Therefore, it may be assumed that the maximum percentage would be of frequent flyer miles, followed by credit vouchers, and lastly by cash.
WHAT IS THE AVERAGE VALUE OF COMPENSATION GIVEN OUT BY AIRLINES TO A PASSENGER FOR A DELAYED/CANCELLED FLIGHT?
According to law, airlines are obligated to pay cash or check only for oversold flights, and not for delayed or cancelled flights. Nonetheless, airlines compensate in other ways, like providing credit vouchers or hotel stays or ground transportation. For example, JetBlue Airways offers the customer a "full refund or receive re-accommodation on the next available JetBlue flight at no additional charge or fare." For delays due to a Controllable Irregularity, it offers a credit voucher from $50 to $200, based on the amount of time a flight was delayed.
Virgin America tries to compensate by by trying to "rebook you on the next available Virgin America flight or, at our discretion, on another airline's flight to the same or nearby destination (in which case we will provide you with ground transportation to your originally scheduled airport destination). [...] if we are unable to confirm you on a flight to your final destination on the same day, we will provide hotel accommodations based on availability and meal vouchers. If the hotel does not provide ground transportation, we will provide a voucher for ground transportation to the hotel."
In view of the above, it may be said that the average value of compensation given out by airlines to a passenger for a delayed/cancelled flight represents a variable amount, which varies from a full refund, or re-accommodation on the next available flight, or $50 to $200 credit vouchers, or hotel accommodations with meal vouchers, or ground transportation to the hotel.
CONCLUSION
To wrap it up, this analysis concludes with the following insights:
1. Domestic U.S. airlines pay out every year, a zero amount by cash or check, in retribution for flight delays/cancellations, because airlines are legally obligated to pay cash or check only for oversold flights, and not for delayed or cancelled flights.
2. It may be assumed that of the airline payout, the maximum percentage would be towards frequent flyer miles, followed by credit vouchers for future travel, and lastly by cash.
3. The average value of compensation given out by airlines to a passenger for a delayed/cancelled flight represents a variable amount, which varies in the form of a full refund, or re-accommodation on the next available flight, or $50 to $200 credit vouchers, or hotel accommodations with meal vouchers, or ground transportation to the hotel.
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