Be careful what you bid: American will now pay volunteers different amounts on oversold flights

American Airlines implemented changes to its oversold flight compensation policy this week in an effort to reduce the total amount it pays to rebook passengers on oversold flights. Rather than providing the same amount of bump compensation to all volunteers, AA will now "pay what you bid."

For example, say four passengers volunteer to be bumped -- volunteering at $150, $200, $250 and $300 respectively -- and the flight ends up being oversold by three passengers. Under the prior policy, the passengers who volunteered at $150-$250 would all have the option to be bumped at $250. If one of those passengers declines, the offer would increase to $300 each for the remaining three passengers.

This policy was designed so that gate agents weren't put in the awkward position of having to pay different amounts to different travelers. When the primary way AA gate agents recruited volunteers was announcing verbal offers at the gate, it was easy for passengers to know how much other passengers were getting.

But starting in May of 2019, AA introduced the ability for passengers to volunteer to be bumped in the American Airlines app. Now that American Airlines has a silent way to solicit bids, it's using this to its advantage to reduce the cost of bumping passengers.

I got the chance to see how this process worked for myself in June when a flight I was taking from Los Angeles to Sydney was oversold. I was given the choice of four different volunteer amounts and chose to volunteer at $500.

In my situation, the gate agent ended up being so desperate for volunteers that she raised the offer price over $1,000. Under the policy in place at the time, all volunteers would be paid that highest-offer amount, so I was excited each time I heard the offer raised. Unfortunately, my hopes of scoring a huge voucher were dashed when a group of connecting travelers ended up misconnecting.

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According to a memo to American Airlines employees obtained by TPG, gate agents are now advised to "have individual conversations with customers to discuss the arranged protect and voucher amounts."

If the gate agent doesn't have enough volunteers in the app, the agent is instructed to "make a verbal announcement without stating the voucher amount," and start by offering new volunteers the highest current bid on the volunteer list.

But even this is a stopgap measure. American Airlines is working toward avoiding gate-bump situations entirely by offering confirmable offers right in the app. For example, a passenger on a connecting itinerary through Dallas/Fort Worth might be offered an opportunity to rebook on an itinerary connecting in Chicago instead -- with a bit of compensation for the change.

Adding this type of individualized solution would save gate agents the time it would take to rebook passengers on new flights, and passengers would know exactly what they're volunteering to take.

In addition, AA is working to eliminate paper vouchers -- which can be very frustrating to use. American Airlines recently conducted a pilot at one of its hubs to offer electronic vouchers instead of paper vouchers. An airline spokesperson says the airline hopes to have electronic vouchers replace paper vouchers in 2020. The airline is also exploring offering passengers AAdvantage miles or gift cards instead of, or in addition to travel vouchers.