IMHO AC didn't really do anything "wrong" here, however much of this confusion could have been avoided fairly early on when the agent "slapped a standby tag" on the bag. Had the check-in agent simply taken 15 seconds to explain what GTE meant and the reason for the standby tag, these people (while still frustrated), could have called the grandparents with different information instead of "everything is ok."

I do like the part in the article about how the couple paid "full price" for their ticket. I'm sure they would be shocked to see what full Y would have been.