JetBlue's "Customer Bill of Rights"
Is this a big deal?

22 Feb 2007 in Regulatory Policy, Legislation

In response to what it it calls its "worst operational week" ever, JetBlue has issued a "customer bill of rights."

• Does it make any sense for a seller in the marketplace to be issuing "bills of rights" to their customers?
• Is this a sufficient market-driven response for JetBlue to repair customer relations?
• Will it deter Congress from passing legislation on the subject?

News reports indicate that JetBlue Airways was the worst hit major airline during and after the ice storm that struck the Eastern Seaboard last week. JetBlue's travails appear to have been largely the result of its own decisions before and during the storm when it decided not to cancel flights, and long before the storm when it chose an operating structure that made it especially difficult to cope with extreme weather events.

Yesterday, JetBlue issued a "customer bill of rights" in an apparent effort to restore consumer confidence. We think it's odd for sellers (or buyers) of travel services to try to establish the "rights" of buyers (or sellers)  Air travel is a contract in which sellers such as JetBlue agree to provide certain specified services to buyers in return for a specified cash payment. Any person not disapproved by the federal government for airline travel may either agree to pay this amount and receive the specified services, or not. So we interpret JetBlue's "customer bill of rights" as a new set of marketing policies that primarily concern how the airline wants to position itself with respect to future buyers in a crowded air travel service marketplace. Possibly JetBlue also intends to use this new policy to prepare for congressional oversight and potential future regulatory action.

What do JetBlue's new marketing policies provide?

First, JetBlue says it "will notify customers" about "delays prior to scheduled departure," "cancellations and their cause," and "diversions and their cause." The airline does not say when it will provide this information.

Second, JetBlue's new policy concerning flight cancellations is missing critical information (in red)making it impossible for potential customers to interpret:

• "All customers whose flight is cancelled by JetBlue will, at the customer’s option, receive a full refund or reaccommodation on a future JetBlue flight at no additional charge or fare."
• "If JetBlue cancels a flight within 12 hours of scheduled departure and the cancellation is due to a Controllable Irregularity, JetBlue will also provide the customer with a Voucher valid for future travel on JetBlue in the amount paid to JetBlue for the customer’s roundtrip.

In the first bullet, it's not clear what, if any, conditions apply to this future reaccommodation. Does the route have to be the same? What if the applicable fare has increased, or was initially higher because of the season or day of week of travel? How far in advance must the customer rebook?

In the second bullet, the critical term Controllable Irregularity is left undefined (a fact that blogger Paul Kedrosky also has noticed) and is not defined in the carrier's contract of carriage. TravelPost.com says the term excludes weather but does not explain the basis for this inference or what kind of adverse weather is sufficient to trigger the definition. Note also that the DOT's definition reproduced below gives airlines the discretion to determine when delays are attributable to weather. The policy also does not specify when (or if) the voucher for future travel expires.

Flight cancellations made by the airline more than 12 hours in advance for any reason incur no financial penalty, nor do cancellations less than 12 hours in advance if they are not due to a Controllable Irregularity such as extreme weather. That's true even if extreme weather had been forecast and the airline simply decided to wait until the last minute to cancel.

Third, JetBlue's new policy concerning departure delays also is missing critical information (in red) making it impossible to interpret in addition to ambiguity about when vouchers expire:

• "Customers whose flight is delayed prior to scheduled departure for 1-2 hours due to a Controllable Irregularity are entitled to a $25 Voucher good for future travel on JetBlue."
• "Customers whose flight is delayed prior to scheduled departure for 2-4 hours due to a Controllable Irregularity are entitled to a $50 Voucher good for future travel on JetBlue."
• "Customers whose flight is delayed prior to scheduled departure for 4-6 hours due to a Controllable Irregularity are entitled to a Voucher good for future travel on JetBlue in the amount paid by the customer for the oneway trip."
• "Customers whose flight is delayed prior to scheduled departure for more than 6 hours due to a Controllable Irregularity are entitled to a Voucher good for future travel on JetBlue in the amount paid by the customer for the roundtrip."

The policy does not indicate how departure delays will be timed. Presumably, the clock starts at the scheduled departure time, but it's not clear whether the clock stops at wheels-up (what passengers care most about), or some earlier time such as cabin door closing or push-back from the gate. One existing federal regulatory definition of "departure" is wheels-up (19 CFR 122.49a(a)), which the Department of Homeland Security's Customs and Border Protection unit seeks to change to "push back," for reasons unrelated to the contract of carriage.

Fourth, JetBlue's new policy on overbooking says "[c]ustomers who are involuntarily denied boarding shall receive $1,000." We have not located any reliable data on overbooking. However, Wikipedia says (though without reference) that JetBlue does not overbook as a matter of policy. If that is true, the stated value of compensation for being bumped is immaterial.

Fifth, JetBlue's new policy includes a new ambiguous term (ground delay) with timing issues similar to those discussed above with respect to departure delays. It also includes schedules for payment of vouchers (expiring when?) that value passengers' time at about twice as high at arrival than at departure:

Arrivals:

1. Customers who experience a Ground Delay on Arrival for 30-60 minutes are entitled to a $25 Voucher good for future travel on JetBlue.
2. Customers who experience a Ground Delay on Arrival for 1-2 hours are entitled to a $100 Voucher good for future travel on JetBlue.
3. Customers who experience a Ground Delay on Arrival for 2-3 hours are entitled to a Voucher good for future travel on JetBlue in the amount paid by the customer for the oneway trip.
4. Customers who experience a Ground Delay on Arrival for more than 3 hours are entitled to a Voucher good for future travel on JetBlue in the amount paid by the customer for the roundtrip.

Departures:

1. Customers who experience a Ground Delay on Departure for 3-4 hours are entitled to a $100 Voucher good for future travel on JetBlue.
2. Customers who experience a Ground Delay on Departure for more than 4 hours are entitled to a Voucher good for future travel on JetBlue in the amount paid by the customer for the roundtrip.

In addition, JetBlue "will take necessary action so that customers may deplane" if they "experience a Ground Delay for more than 5 hours." This appears to mean five hours on an aircraft not in flight. The policy also says "JetBlue will also provide customers experiencing a Ground Delay with food and drink, access to restrooms and, as necessary, medical treatment." In last week's incidents, access to restrooms was not an issue but their serviceability. It's not clear how JetBlue would provide food during a five hour ground delay, as it does not serve food onboard except snacks, and would almost certainly not have an onboard strategic snack reserve.

Incentives affect behavior, but their effect depends on the strength of the incentive. Some of these incentives seem trivial, such as the penalty for apparently nonexistent overbooking. However, the purpose of offering generous overbooking compensation appears more likely to be to raise the costs of its competitors that do overbook. (Had JetBlue set the compensation at $10,000, it might have ended the practice of overbooking by its competitors. That it did not do so suggests that even JetBlue occasionally overbooks, even if it has a policy against it.)

Other incentives on the list appear to be more substantial, such as the provision of vouchers equal to the value of purchased tickets. JetBlue's Airbus A320 is configured with 150 seats, so an event triggering the award of full vouchers could entail a future financial commitment of between $10,000 and $100,000. That said, it's possible that JetBlue is merely memorializing in policy a practical reality -- that market forces compel it to provide full vouchers in certain situations -- and the financial impact of the policy is negligible.

Where the new policy seems likely to hurt JetBlue most is at the low end. Relatively small delays that trigger small vouchers to a lot of people could eliminate the airline's net revenue. Thus, rather than looking at the extreme cases, prospective customers might be well advised to concentrate on the "small stuff."  A $25 voucher for a 30 minute ground delay is a big deal when multiplied by a large number of passengers. But the bite of even these small vouchers is attenuated by the fact that they are not cash payments but discounts on future flights. They are similar to frequent flyer miles in that brand loyalty is required to cash them in. The more $25 vouchers JetBlue issues, the more likely it is that future passengers will choose JetBlue over a competitor.

Presumably, JetBlue has examined its data and knows precisely how the new policies would have affected the airline if they had been in place. Unless JetBlue makes these data public (which seems almost certain not to occur), It is not clear which of its approximately 1,000 flight cancellations would have triggered financial payments if the new policy had been in force last week.

At the bottom of JetBlue's "customer bill of rights" is the following fine print:

This document is representative of what JetBlue intends to incorporate into its Contract of Carriage, the legal binding document between JetBlue and it's customers.

By saying that the language is representative of what the carrier intends to incorporate into its Contract of Carriage, JetBlue is not actually committing to adhere to it. Of course, should JetBlue fail to adhere to what is a legally unenforceable promise, it would lose whatever goodwill the new policies might have created. That's an example where markets are much more efficient at enforcing contracts than any court ever could be.

In any case, it seems highly unlikely that JetBlue's actions will deter Congress from conducting oversight hearings and possibly passing legislation. It's not hard to imagine Congress wanting to shift much more of the costs of adverse events from buyers to sellers, even if that has the practical effect of raising ticket prices more than buyers are willing to pay for the privilege of holding sellers financially liable.

For those interested in that possibility, our analysis of JetBlue's new policy language highlights how hard it could be to craft clear rules that everyone can understand, much less improve upon current market outcomes.

 How is “weather” defined?
There is a fine line between some delays coded as "Weather'' (extreme weather) and others coded as "National Aviation System'' (non-extreme weather). The purpose of the two categories is to identify the party or organization in the best position to take corrective action. Delays or cancellations coded "Weather'' (extreme weather) cannot be reduced by corrective action. Delays or cancellations coded "NAS'' are the type of weather delays that could be reduced with corrective action by the airports or the FAA. Therefore, delays attributed to deicing are coded as "Weather'' delays.

The regulation requiring the reporting of causes of flight delays defines “extreme weather” as delays or cancellations caused by weather conditions (e.g., significant meteorological conditions), actual or forecasted at the point of departure, en route, or point of arrival that, in accordance with regulatory standards and/or in the judgment of the air carrier, prevents operation of that flight and/or prevents operations of subsequent flights due to the intended aircraft being out of position as a result of a prior delay or cancellation attributable to weather."

Source: "Airline On-Time Performance and Causes of Flight Delays," Department of Transportation, Bureau of Transportation Statistics.

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