United Airlines shares tumble, outrage in China over ‘racial discrimination’ of Chinese American

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United Continental Holdings Inc. tumbled early Tuesday as outrage on social media over the removal of a passenger from a flight spread across the globe.

The stock dropped as much as 6.3 percent before paring the loss and trading 2.7 percent lower at 7:27 a.m. in New York.

Officers pulled a passenger from a flight to Louisville, Kentucky, on Sunday evening after he refused to give up his seat and dragged him down the aisle as travelers yelled at them to stop. A recording of the incident posted on social media sent people into a rage over the carrier’s heavy-handed response.

By Tuesday in China, the incident became a talking point in publications and social media. The hashtag #UnitedForcesPassengerOffPlane was the top trending item on Sina Weibo, the equivalent of Twitter, with more than 100 million views. The man who was removed appeared to be of Asian descent.

The incident demonstrates how airline bumping can veer into confrontation. Carriers around the world routinely oversell their flights because it’s a rational response to a mundane situation that occurs daily: People don’t always appear for a flight they’ve purchased. Overselling is a way to cover that situation while maximizing the airline’s revenue.

The swift social-media condemnation, which extended to Washington, was sparked because the man wasn’t being ejected for misbehavior or a security threat. United said initially that the flight was overbooked, its staff chose him, and he didn’t want to get bumped. The airline later said it needed room for its own employees.

Video posted to Facebook and Twitter showed the man being dragged out of his seat and down the aisle of Flight 3411. He was reportedly a doctor who said he had to be in Louisville on Monday for work and would not relinquish his seat, according to a Twitter account by a passenger who said he was on the flight. The flight from Chicago O’Hare International Airport arrived at 10:01 p.m., almost two hours late “due to operational difficulties,” according to United’s website.

On Monday, United Chief Executive Officer Oscar Munoz apologized for “having to re-accommodate these customers.” In an emailed statement, he said the airline is conducting a review and seeks to resolve the matter with the man who was dragged off the airplane.

Munoz’s response, however, didn’t satisfy Sen. Robert Menendez, a New Jersey Democrat, who called the incident “disturbing” and Munoz’s statement an “empty apology.” Eleanor Holmes Norton of the District of Columbia, a non-voting House Democrat, called for congressional hearings.

In a subsequent internal message sent to United employees Monday evening, a copy of which the airline provided Bloomberg News, Munoz was less contrite. He alleged that the passenger became “disruptive” and “belligerent” after being repeatedly asked to leave the plane, and that the man later attempted to run back on to the aircraft after being forcibly removed.

Munoz said that “the facts and circumstances are still evolving, especially with respect to why this customer defied Chicago Aviation Security Officers the way he did.”

The Chicago Department of Aviation suspended one of the officers involved.

The incident “was not in accordance with our standard operating procedure and the actions of the aviation security officer are obviously not condoned by the department,” the agency said in a statement.

United should have increased the compensation offered to passengers to entice volunteers, CFRA Research analyst Jim Corridore wrote in a client note Monday. “We think this situation was handled in a deplorable fashion, but note that United has the right to refuse boarding to any passenger for any reason,” he said, adding that “demand for UAL flights are unlikely to be affected by this poor customer service incident.”

The incident comes two weeks after United drew social media scorn for enforcing its dress code for those who fly as non-revenue passengers. A girl flying from Denver was told to change her leggings before boarding. In response, the airline then took efforts to tell “our regular customers” that “leggings are welcome.”

In its contract of carriage, United Continental Holdings says it chooses those to be bumped based on a fare class, an itinerary, status in its frequent flyer program, “and the time in which the passenger presents him/herself for check-in without advanced seat assignment.” That means those who paid more for a ticket and those who fly the airline frequently are less likely to be selected for an involuntary bump, criteria that are not unique to the Chicago-based carrier.

Volunteers are paid for their seat and booked on another flight. But if there aren’t enough volunteers, an airline resorts to the involuntary method. And when it goes wrong, it can get very ugly. That’s one reason at least two U.S. airlines-JetBlue Airways Corp. and Virgin America-don’t do it.

United required the seats on the Chicago plane to accommodate several crew members who needed to get to Louisville, to avoid canceling other flights, spokesman Charles Hobart said Monday. The flight wasn’t, in fact, oversold. “It’s not something we want to do but occasionally it’s something we have to do,” Hobart said. “This was an instance where, unfortunately, we had to request the assistance of law enforcement because we had to get that aircraft off the ground.”

The U.S. Department of Transportation released a statement late Monday saying it’s reviewing the removal of the passenger “to determine whether the airline complied with the oversales rule.” The agency added that “it is legal for airlines to involuntary bump passengers from an oversold flight when there are not enough volunteers” and that “it is the airline’s responsibility to determine its own fair boarding priorities.”

Last year, the 12 largest U.S. airlines bumped slightly more than 40,600 of 659.7 million passengers, for a rate of 0.62 per 10,000 passengers, down from 0.73 per 10,000 in 2015, according to the Bureau of Transportation Statistics.

In 99 percent of cases, the benefits vastly outweigh the risks to the airline. The ultimate goal is to fill every seat on every flight, preferably in the order of who paid the most. Travelers flying on the lowest fares are those who also tend to volunteer their seats for compensation, while customers who pay the most-usually business travelers-can’t be tempted out of their seats.

Overbooking pays off, too: Airlines almost always make more from the extra fares than they give back to volunteers in future-travel vouchers. When an airline can’t find enough volunteers –“involuntary denied boarding,” as regulators call it — the cost can run as high as $1,300 cash per passenger under revised rules adopted in 2011.

Yet because airlines have amassed years of detailed data on passenger no-shows-down to days, times, seasons, and specific routes-they only rarely need to write customers fat checks. The data also help them know how to tweak their oversales for each flight, part of the complex algorithms that power revenue-management systems, the backbone of fare pricing. As a result, bumping has decreased over the past decade and is likely to dip further over time.

Another factor weighs on the involuntary bumping issue: seat supply. Airlines that have rapidly dumped 50-seat jets in recent years aren’t adopting large mainline jets in response but turning to regional jets with 70-100 seats. The Embraer SA regional jet used on the April 9 flight to Louisville has 70 seats and is flown by Republic Airways Holdings Inc.

The supply constraints have been great for boosting ticket yields but can prove detrimental when it comes to oversales. That’s one of the lessons United may be seeing in the aftermath of the dragged-passenger episode.

But as for the man United removed, he probably has little legal recourse. This is because of the “broad discretion” airlines have under their carriage contracts, said Dan Lear, an attorney in Seattle. The carrier also could argue that a passenger who refuses instructions to exit has become belligerent and thus “a security risk” for the crew, he said.

(Bloomberg)