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Overbooking of Airline Reservations in View of Nader V

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Overbooking of Airline Reservations in View of Nader V Journal of Air Law and Commerce Volume 43 | Issue 1 Article 2 1977 Overbooking of Airline Reservations in View of Nader v. Allegheny Airlines, Inc.: The Opening of Pandora's Box Stanley Lee Tice Follow this and additional works at: https://scholar.smu.edu/jalc Recommended Citation Stanley Lee Tice, Overbooking of Airline Reservations in View of Nader v. Allegheny Airlines, Inc.: The Opening of Pandora's Box, 43 J. Air L. & Com. 1 (1977) https://scholar.smu.edu/jalc/vol43/iss1/2 This Article is brought to you for free and open access by the Law Journals at SMU Scholar. It has been accepted for inclusion in Journal of Air Law and Commerce by an authorized administrator of SMU Scholar. For more information, please visit http://digitalrepository.smu.edu. OVERBOOKING OF AIRLINE RESERVATIONS IN VIEW OF "NADER v. ALLEGHENY AIRLINES, INC.": THE OPENING OF PANDORA'S BOX STANLEY LEE TICE* I. INTRODUCTION Air travelers are becoming increasingly aware of airline over- booking of reservations.1 This comment examines the carrier's prac- tice of overbooking and its attendant problems. The current reser- vations system gives consumers maximum flexibility in the making, changing, and honoring of airline reservations.! This freedom has created the problem of no-shows, reservation holders who fail either to honor or cancel their reservations. Overbooking attempts to neutralize the no-shows by accepting a surplus of reservations * B.A., University of Texas; J.D. to be awarded by the University of Houston Law School in Aug., 1977. Mr. Tice is presently employed as a legal assistant with Texas International Airlines (TI). The author wishes to thank Sam Coats, Esq., General Counsel for TI, and John Williams, Associate General Counsel for TI, for both technical and practical insight. 'The Civil Aeronautics Board defines overbooking as follows: "'Deliberate overbooking' means the practice of knowingly confirming reserved space for a greater number of passengers that can be carried in the specific class of service on the flight and date for which confirmation is given." 14 C.F.R. § 221.4 (1977), 41 Fed. Reg. 40,500. The Civil Aeronautics Board has noted an increase in complaints during 1975 relating to oversales, which constituted 6.7% of the 11,916 complaints received by the Board's complaints division. The comparable percentages for overbooking complaints for previous years are as follows: 7.5% in 1974; 6.6% in 1973; 9.2% in 1972. The Board stated that "consumer dis- satisfaction with the existing overbooking practices and regulation thereof is further evidenced by several lawsuits which have recently been instituted against carriers by oversold passengers." Civil Aeronautics Board Reexamination of the Board's Policies Concerning Deliberate Overbooking and Oversales, EDR-296 in 41 Fed. Reg. 16,478-79 (1976) [hereinafter referred to as CAB EDR-296]. 2 See Civil Aeronautics Board Notice of Proposed Rulemaking, CAB Docket No. 16563, EDR-109 in 32 Fed. Reg. 459 (1967); Civil Aeronautics Board Emergency Reservations Practices Investigation, CAB Docket No. 26253 in 39 Fed. Reg. 823 (1974) [hereinafter referred to as CAB ERPI]; Brief for the Air Transport Association of America as Amicus Curiae, Nader v. Allegheny Air- lines, Inc., 426 U.S. 290 (1976) [hereinafter referred to as Brief for the ATA]. JOURNAL OF AIR LAW AND COMMERCE [43:1 to replace the vacancies created by the flexible reservation system." If more reservation holders show up for their desired flight than are anticipated, the carrier must deny boarding to some of the ticket holders despite their reservations. This is referred to as bumping, and bumping obviously irritates and inconveniences the generally unsuspecting reservation holder." The consumer's desire to retain a flexible reservation system conflicts directly with the carrier's need to assure sufficient pas- sengers to fill the airplane's seating capacity. The airlines cannot maintain a fluid system without imposing penalties, forfeitures, or subsidies so that the carriers may operate profitably. Carriers have been able to overbook reservations without fear of retaliation from bumped passengers unless the carrier discriminated against that passenger.' The United States Supreme Court's holding in Nader v. Allegheny Airlines, Inc. has jeopardized the practice of over- booking because the carriers are not immunized from common- law claims arising from overbooking practices.' The Nader case has created difficulties due to the coexistence of the Civil Aero- nautics Board (CAB) and judicial remedies available to the bumped reservation holders. Little authority currently exists for this developing area of law due to the inadequate regulation by the CAB and to public un- familiarity with the remedies available to the bumped passenger. Section II of this comment describes the concept of overbooking, the methods used to determine the optimum number of reserva- tions to accept, and the need to retain overbooking. Section III reviews the function of the CAB and current CAB regulations applicable to overbooking. Section IV reviews the Nader ruling and the problems created by the issues whose disposition was 'Brief for the ATA, supra note 2. For a complete study on the no-show problem and consequential bumping due to overbooking, see CAB ERPI, supra note 2; see generally 96 Av. WEEK & SPACE TECH. 30 (Feb. 14, 1972); 77 Av. WEEK & SPACE TECH. 30 (Oct. 1, 1962); 76 Av. WEEK & SPACE TECH. 45 (Jan. 15, 1962); 65 Av. WEEK & SPACE TECH. 38 (July 9, 1956). " Comment, Federal Preemption of State Law: The Example of Overbooking in the Airline Industry, 74 MICH. L. REV. 1200, 1202, 1205 (1976). However, "the reservations system is not one where the airlines indiscriminately sell more seats than are available on all flights and then hope for the best." Brief for the ATA, supra note 2, at 10. ' See Fitzgerald v. Pan Am. World Airways, 229 F.2d 499 (2d Cir. 1956). "Nader v. Allegheny Airlines, Inc., 426 U.S. 290 (1976). 19771 OVERBOOKING omitted in the Supreme Court's decision. Section V analyzes the problems created by Nader in light of the scant precedent pertain- ing to overbooking. Section VI examines the soundness of the CAB's response to the problems caused by the Nader case. Finally, Section VII compares previous solutions to the problem with a proposed solution that could circumvent the overbooking dilemma and eliminate these problems. II. OVERBOOKING PRACTICES: THE NATURE OF THE DILEMMA A. Concept Of Overbooking Overbooking dates back to the 1940's when airlines encountered the inevitable occurrence of no-shows, cancelled and changed reservations." Overbooking was originated to allow the carrier to retain the flexible reservations system by re-selling vacated seats, seats that would have remained vacant unless the carrier accepted an overload of reservations.8 Since that time, the number of accept- ed reservations has been determined by the booking curve. The booking curve is a statistical correlation between the his- torical number of reservations and the number of holders who actually show up for a flight.9 The booking curve is determined for each flight and yields relatively fixed and accurate predictions for the reservation turnover." If the booking curve indicates that twenty out of one hundred reservations will be changed, cancelled ' Brief for the ATA, supra note 2, at 13. The association says most carriers engage in overbooking to combat a chronic industry-wide problem of no-shows. Overbooking is an attempt to increase the passenger load factor, otherwise the air carriers would absorb enormous financial losses due to the empty seats caused by no-shows and cancelled reservations. See Priority Rules, Denied Boarding Compensation Tarifis and Reports of Unaccommodated Passengers: Notice of Proposed Rule Making, CAB Docket No. 16563, 32 Fed. Reg. 459, 460 (CAB Order EDR-109 (1967)). 8 "Overbooking may be defined as a controlled pre-departure activity that takes place when a carrier intentionally books confirmed reservations in excess of flight capacity." Comments of Delta Air Lines, Inc. on CAB EDR-296 [supra note 1], at 2 [hereinafter referred to as Delta's Comments]. The comments are on file with the CAB. " CAB ERPI, supra note 2, at 823-26. In December, 1972, the industry statis- tics showed the total number of no-shows per flight was 21.2%. In December, 1973, the figure reached 24.7%. Comment, Federal Preemption of State Law: The Example of Overbooking in the Airline Industry, 74 MIcH. L. REV. 1200, 1201 (1976). 10CAB ERPI, supra note 2; Brief for the ATA, supra note 2; Delta's Com- ments, supra note 8. JOURNAL OF AIR LAW AND COMMERCE [43:1 or not honored, the carrier will accept one hundred twenty reserva- tions for a plane that holds one hundred passengers. The problem associated with overbooking arises when the prediction is inac- curate. If only eighteen reservations change, then one hundred two passengers will desire boarding; therefore, two reservation holders must be bumped since the capacity of the plane is only one hundred passengers. CAB investigations have found the carrier's reserva- tions systems to be 99.94% accurate.'" The most recent statistics indicate: Approximately 6,000 passengers were bumped from domestic flights of certificated carriers in selected months in 1974 and 1975, according to CAB. During September and December 1974, and March and June 1975, 5,941 passengers were denied board- ing out of 19.9 million enplanements or 3.0 per 10,000 enplane- ments. Braniff and Allegheny had the lowest rates for trunk and local service carriers with .7 and .3. A review of the previous years' statistics and industry analysis in- dicates the following: PASSENGERS DENIED CONFIRMED SPACE PER 10,000 ENPLANEMENTS 8 Fiscal year 1975 1974 1973 1972 1971 1970 1969 1968 6.0 5.8 4.6 5.4 5.3 5.7 9.5 10.0 PASSENGERS DENIED CONFIRMED SPACE PER 10,000 ENPLANEMENTS PercentDeviation Year Number From Mean Calendar Year 1968 10.0 + 53.8% Calendar Year 1969 9.5 + 46.2 Calendar Year 1970 5.7 - 12.3 Calendar Year 1971 5.3 - 18.5 Calendar Year 1972 5.4 - 16.9 Calendar Year 1973 4.6 - 29.2 Calendar Year 1974 5.8 - 10.8 Fiscal Year 1975 2/ 6.0 - 7.7 Mean 6.5 Overbooking has evolved from the early practice of guessing the 11CAB ERPI, supra note 2, at 829.
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