Middleman watch: AirHelp (series, #4)
4th installment in my deep dive into a middleman between passengers and airlines
Photo by Jan Vašek on Pixabay
In an earlier article in this series, I explained how customers can file EC 261 claims with airlines directly, without using a claims company like AirHelp. So, given that AirHelp charges a non-trivial fee for its service, should you cut out the middleman and go direct?
This article is my answer to that question. After analyzing AirHelp’s statements about what you get in exchange for the fee you pay, I explain my general conclusion, ending with a couple of conditions under which it might (with caveats) make sense for some small set of people to use AirHelp or a similar claims agency. Later, in the final article in this series, I will finish Henning von Vogelsang’s flight-compensation story, discussing the alternative he found to using a claims agency.
Middlemen can be valuable
Let’s establish one thing first: going direct is not always best, and I am the last person to say that if you can do something yourself you necessarily should. You often shouldn’t because middlemen can be a big help. That is the central premise of the Power of Three and of my book. It is also why I like to say that middlemen aren’t bad—bad middlemen are bad. In short, I understand that middlemen can lower your transaction costs, since they are often able to do things for you better or faster or cheaper than you can yourself. The question for me, then, is whether a particular middleman is likely to be helpful to you and worth doing business with.
What does AirHelp do, exactly?
And that’s what I wondered about AirHelp when I began this series. If you are a knowledgeable passenger who is not daunted by the prospect of going straight to an airline’s Web site or the EU’s Web site and filling out a claim form there, what do you gain from using AirHelp instead?
Why pay a commission of 25 percent or more if yours turns out to be one of the many claims airlines do accept?
Not finding clear answers on AirHelp’s Web site, I posed these questions to AirHelp’s spokesperson: How does working with AirHelp differ from filing claims with airlines directly? What does AirHelp do, exactly, to earn its 25% fee?
The response I got, saying that “our team of agents takes care of the entire process on your behalf,” that this “takes the stress out of making a claim and saves you from having to go back and forth with airlines and filling out paperwork,” and that “for our hard work, we do take out a 25% fee—but only if we win,” didn’t really answer my questions. It merely raised new ones: What does this “entire process” consist of? How is the paperwork required by AirHelp easier than the paperwork required by the airlines? What’s the evidence that working with AirHelp takes the stress out of making a claim?
So I went back to the spokesperson. Here’s a summary of her responses, with my take on each of them:
• Entire process. Through AirHelp’s tools such as its app, AirHelp customers can file a claim instantly from the airport, the spokesperson said. And if an airline doesn’t respond to a claim filed by AirHelp, AirHelp’s contract lawyers step in, and you pay only if these efforts result in a payout. “Our agents and lawyers work on your behalf to push these airlines for swift responses,” she said.
My take: Words like “instantly” and “swift” imply that working with AirHelp is faster than filing claims on your own. However, as I explained earlier, if AirHelp was doing anything to speed this process along, it wasn’t apparent to me based on my two starkly different experiences using their service with two different airlines on the same trip. What’s more, when I asked for evidence that working with AirHelp results in faster compensation, the spokesperson politely dismissed this issue as largely irrelevant. “Ultimately,” she wrote, “the most important question for our consumers is not how long it takes to get a claim payment, it is if they have a partner in this process who is as committed to making sure they receive the money they rightfully deserve as they are.” She added that if passengers don’t have a partner, airlines are “more likely to misbehave,” refusing to pay out what they legally owe. This last part sounds very plausible (and is a big reason for why I ever used AirHelp in the first place)—yet she provided no actual evidence that it is true. Also, if it’s not known whether payouts are any faster through AirHelp, and if the question isn’t important to AirHelp’s customers, why does AirHelp use words like “swift?”
• Easier paperwork? The spokesperson cited the company’s own study, which focused only on U.S. airlines and U.S. passengers, showing that these airlines reject “an average of 25% of claims on wrongful grounds,” and that “73 percent of U.S. passengers admit to giving up after their initial compensation claim is rejected by the airline.”
My take: The first statistic implies that U.S. airlines accept the majority of eligible claims filed by passengers directly. The second statistic, about most passengers giving up after initial rejection, makes me wonder if passengers would be better off going to a company like AirHelp only at that point. Why pay a commission of 25 percent or more if yours turns out to be one of the many claims that U.S. airlines do accept?
• Less stress? When I posed this question, I thought of the New York Times Magazine story on the commercialization of sleep, in which reporter Jon Mooallem asked a mattress executive (who had asserted that his company’s designer mattresses relieve stress) how they do that. After a brief pause, the exec answered: “Well, it’s a combination of the sleep surface materials and the peace of mind that comes from it being a Vera Wang.” AirHelp’s spokesperson, who was responding by email, had much more time to collect her thoughts to back up her assertion of less stress, and I was eager to hear what she came up with. Her eventual response: an anecdote about a customer named Meredith Phelps, quoting this customer gushing about how AirHelp “completely took over and did all the heavy lifting.”
My take: A single anecdote is rarely if ever a strong piece of evidence—but it is especially weak considering that AirHelp’s Web site touts “over 16 million happy passengers.” Suggesting that one satisfied customer shows that AirHelp relieves stress is about as convincing as pointing to your 98-year-old chain-smoking grandfather to show that cigarettes are a key to a long life. I wondered if there was more to the Meredith Phelps story, so I searched online, where I found her story posted on AirHelp’s Facebook page—followed by a bunch of complaints from other users about AirHelp’s high fees, lack of transparency, and non-responsiveness to repeated requests to stop the claims process. How interesting that the one happy story AirHelp chose to share with me was surrounded by several decidedly unhappy ones.
In sum, I never got a satisfactory answer to the basic question of what AirHelp actually achieves in exchange for its fee.
Redeeming qualities?
I believe AirHelp provides a useful public service in one way: it alerts passengers to rights they might not know they had. Unfortunately, AirHelp cannot earn money just by providing that basic information. In fact, if their business ended there, they would lose money because they would have no revenue to offset their costs of getting flight data and finding eligible passengers.
And that is the root of the problem with AirHelp: they can only make money by becoming your agent, yet the only way they can become your agent is by leading you to believe that they can do something you could not effectively do yourself. That explains the customers left with the impression of having been misled: AirHelp’s slick user interface performs a sort of sleight of hand, enticing passengers with a genuinely free service (telling them if they are eligible for compensation) and switching them to AirHelp’s paid service before the passengers know what happened. Then, when passengers realize what they’ve signed up for and try to cancel, AirHelp doesn’t make cancelling easy.
Based on everything I’ve reported here and in previous articles in this series, I would write the company off entirely if it weren’t for a couple of special circumstances where I could, believe it or not, see someone wanting to use their paid services.
The legal-action exception
AirHelp’s commission of 25 to 35 percent for simple cases seems high for a simple case. Unless your own hourly rate is hundreds of dollars, it’s probably worth it to spend a few minutes filing a claim on your own, especially if the claim is for 600 euros per person. (This is true in spades if you are filing for your whole family, because it doesn’t take much longer to submit claim documents for four or five people than it does for yourself alone.) But if you get nowhere on your own, yet you believe your claim might be legitimate under EC 261 rules, it might then be worth it to give AirHelp a shot; just know that if AirHelp is successful they will deduct 25 to 35 percent from the payout if they are successful without bringing in lawyers (plus an additional 15 percent deduction if they do have to use legal services).
Even with AirHelp’s legal services, there is a caveat: AirHelp might unilaterally decide that your case is not worth taking. Like law firms, AirHelp must weigh the expected value of an uncertain legal victory against the costs of legal action. If so, the decision to pursue legal action might have less to do with the merit of your case than with the size of the likely payout. My guess is that AirHelp’s decision is tied to how many other passengers AirHelp is representing on the same flight (much as a law firm’s decision would in a potential class-action lawsuit).
AirHelp might take the long view and decide to file costly lawsuits for the sake of future gain—the company might see such lawsuits as an investment in a reputation for toughness. One of the company’s executives said as much in a 2015 interview: “When we open up a new country, we have to take a number of claims to court to show we’re there and we mean business. Then when that’s done, they respect [AirHelp] more.” In other words, some lawsuits might pay off in the long run if they succeed in getting airlines to take AirHelp’s subsequent threats seriously; if so, after a few such lawsuits AirHelp would be able to bark without actually needing to bite to get the airlines to comply.
That’s the theory, anyway. Whether AirHelp actually succeeds in getting airlines to pay where passengers fail is another story. In any event, deciding how hard to fight for your case is entirely up to AirHelp. And if you do win, after AirHelp’s service fee and legal fee you end up with only 50 to 60 percent of what the airline paid out.
The “laziness” exception
Much as I think that AirHelp’s fees are too high for the service the company provides, I am confident that some passengers just don’t mind.
To understand why, consider another type of middleman: the financial advisor or wealth manager. A common criticism of these financial services professionals is that their investment choices don’t consistently outperform the market; actively managed funds don’t sustainably do better than index funds, which anyone can buy on their own without paying high management fees. But the reality is that most people who turn to these financial experts would not otherwise invest in index funds on their own; they either don’t know about these funds, or don’t trust their own financial skills, or just never get around to doing what little work it takes to make those simple investments. For lack of a better word, I will call such people “lazy”—a word I am putting in quotes because I am using it as shorthand for “unwilling to do easy work in a particular domain.”
For these “lazy” people, turning to a wealth manager is indeed better than the alternative, such as keeping all their money in a low-yield bank account or betting it on horse races. So even though I cannot see myself paying someone 1 percent of my assets each year for something I can do myself without much effort, I understand why there is demand for such services, and in that sense alone these services are creating value.
Well, I have come to see AirHelp the same way. Even if all they do is work that you can easily do yourself, maybe you’re the type of person who nonetheless wouldn’t do it. AirHelp told me that 42 percent of United States passengers who didn’t file claims “did not submit because they did not think the airlines would listen, and 55 percent of U.S. passengers don’t trust airlines to handle their compensation claims fairly.” Note that even according to AirHelp’s own research mentioned above, these beliefs about the airlines are false—U.S. airlines pay out the majority of eligible claims—but AirHelp isn’t interested in disabusing customers of these beliefs. Still, if despite everything I have written you are inclined to trust AirHelp more than you trust your airline, and you don’t have misgivings with AirHelp’s practices, then you might actually be better off paying AirHelp 25 percent of what they obtain for you because, after all, getting 75 percent of something is better than getting 100 percent of nothing. Just know what you’re in for.
Where to read more
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About the author
Marina Krakovsky, the voice behind Power of Three, is the author of The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit (Palgrave Macmillan). She is also co-author, with economist Kay-Yut Chen, of Secrets of the Moneylab: How Behavioral Economics Can Improve Your Business (Portfolio/Penguin). In her writing, speaking, and consulting, her main focus is on the practical application of ideas from psychology and economics. Her articles and essays have appeared in Discover, FastCompany, the New York Times Magazine, Scientific American, O (The Oprah Magazine), Psychology Today, Slate, the Washington Post, Wired, and more.