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00:10 - Source: CNN

Editor’s Note: Stephen Moore is a CNN senior economics analyst and distinguished visiting fellow at the Project for Economic Growth of the Heritage Foundation. The opinions expressed in this commentary are his own.

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Stephen Moore says an economist decades ago came up with a simple solution to avoiding the kind of spectacle we saw on an overbooked United Airlines plane

Auction would have done the trick, Moore says

CNN  — 

Can the airlines really be this stupid?

By now, nearly everyone has seen the video of a passenger being dragged off a United Airlines flight. Most Americans – especially frequent flyers – are horrified. Airlines are notorious for lousy customer service, but this latest fiasco sets a new low. So much for the “friendly skies.”

What happened this past weekend should never, ever happen again. It should have never happened at all.

Stephen Moore

The injustice of this ‎incident is that the gentleman pulled from the flight was forced to bear the cost of United’s error in selecting passengers to give up their seats. He is a doctor who said he had appointments with patients to keep. United’s actions in removing him were arbitrary and capricious.

What is‎ most infuriating is that there is no reason for anyone to be involuntarily bumped from an airline flight – ever. A simple economic solution exists – developed long ago by the late economist Julian Simon of the University of Maryland: holding an auction among the passengers to bid to give up their seats in exchange for monetary compensation.

It’s a very simple process. The gate agent, flight attendant, or even the pilot announce the need to get a few people off this plane. They ask, who will take a later flight for $250? How about $500? A free, round-trip ticket anywhere in the United States? The bids keep going up until the number of passengers who have to give up their seats is reached. The price could go up to $1,000 or more, but at some point on a flight with say 100 or more passengers, people will take the deal. Everyone goes away happy.

The problem on the United flight was that the airline only offered up to $800. But no one took the deal. Instead of forcing passengers off the plane, all United had to do was go higher with its bid. Everyone has a price. At some point, if the offer is attractive enough customers will fight to get to the front of the plane or the ticket counter to get the deal.

What happened on United was terrible for the passenger bumped and for United’s image. Its stock tumbled and the company lost millions of dollars of market value. It would have been so much cheaper for United to offer a passenger $1,000 to get off the plane.

This process used to happen all the time. But then airlines got cheap and stopped the bidding process at a low level. The FAA issued ridiculous and arbitrary rules that allow airlines to cap how much they offer volunteers. This leads to involuntary bumping of paying customers. It happens to more than 40,000 fliers every year.

But the passenger who gets randomly bumped may have a much greater necessity to be on that flight than another seatmate. Missing a flight can mean losing your job or missing a funeral or missing out on a major business contract. ‎

The equity of the auction solution is that the passengers who need the money the most, or the ones who have the least time-sensitivity of travel, will be the ones to rush to get off the plane. No one is negatively affected, because the passengers willingly took the deal.

An airline auction is also a much better solution than outlawing overbooking outright. Airlines use computer models to estimate how many passengers will not show up for a flight. For a flight with 150 seats it might book 155 people and 10 or so will likely miss or cancel the flight reservation. Overbooking saves airlines money and forbidding this practice would very likely make everyone’s ticket prices rise.

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    Instead, starting now, every major airline should announce to its customers that it will never bump a customer from a flight without their full approval. It would be great PR for the airlines. It doesn’t require any government regulation. Just ask yourself: how much would you pay to give up your seat?

    Julian Simon had the right idea 30 years. Time to bring it back.