Airlines offering vouchers for you to give up your seat. Why? How does the pricing scheme work?
Many airlines overbook their flights, in case someone has to cancel or re-book their flight for another time, or they miss the flight due to a connecting flight being delayed. If it comes down to it, they offer vouchers if a passenger is willing to give up their flight, in which case they get rebooked on a later flight *and* compensated for their “trouble”. However, if not enough people willingly give up their seat and they have to bump someone, the airline will compensate the individual more than if they gave up their seat willingly. The pricing scheme works because plane tickets are already overpriced if the flight is full. The last numbers I saw, which were from 2013, based on average ticket prices, if a flight is roughly 70% full, any further ticket sales are pure profit. The way that airline tickets are priced are profit enhancing: tickets are more expensive during “high-demand” timeframes, and less expensive during “low-demand” timeframes. The flights are going to go from Point A to Point B regardless of passenger count (they’re not going to cancel a flight simply because a plane holds, for example, 65 people and only 20 bought tickets), so they lower prices during “low-demand” timeframes in an effort to make *some* money on the flight. To make up for those situations, they jack up the prices during “high-demand” timeframes, thus making even more money on completely full flights.
Overbooking. Airlines sell more tickets than available seats on airplanes because they know some people won’t show up. They have models predicting how many excess tickets they can sell. However, sometimes it happens that all the sold tickets show up (or more than available seats), and they offer vouchers to buy back the seats. Theoretically, the price they pay for the vouchers are small compared to revenues made from overbooking a flight.
The general idea is that you can pretty much statistically prove that if you have 350 bought tickets to a flight, then a hand ful of people are not showing up. Someone is stuck in traffic. Someones mum just died. Someone overslept. And so on.
Which means that it’s an actual business practice to oversell. (Free money, amirite?)
Sometimes, though, it doesn’t work out as planned.
Some airlines also have a business model where the Super Ultra Fancy Platinum Starry VIP Members can demand a seat on a fully booked flight. Where the airline literally throws someone off to make room. Allowed to be used a handful of times per year. And you can bet that if you risk not getting home to your kids birthday and you happen to have one of those memberships, then you are gonna use it. After all, you paid for it by being loyal and by paying for all of your flights for a whole year in advance.
They also pretty much count on at least a handful of the passengers booked on that flight being so relaxed that they are the exact opposite of being in a hurry to get home. (as compared to the frequent flyer who is so far from being relaxed that he is prepared to force the airline to strand someone else on the airport just to get home when he wants to.) Or just on a tight budget and don’t mind getting financial compensation for putting up with a delay. (and maybe the business traveller would usually feel that it plays out kind of nice to get his dinner at the airport paid for and take a flight a few hours later, but this day just wasn’t it.)
So. In reality, They are always getting paid for more seats than they have. And occasionally someone calls their bluff on it. And when that happens, they have to toss some money around to not loose face. And they pretty much count on someone being so hungry and happy to have more of an adventure that they accept the offer.
I mean, if you are on a vacation in New York and about to go home, and have a few days vacation left before you start working again, then it’s not really the end of the world that the airline says *”We’ll give you $100 in cash and pay for your hotel if you are willing to be bumped to the flight tomorrow at 10.”* If you are going home because you are the only sibling not gathered around your dying father, then you are gonna say no.
Look at all these things together, you realise that it’s not really about how it’s financially sound to do this on this flight. It’s how it’s financially sound to do it on all flights and not really being forced to use it too often.
Airlines hate to have empty seats, but they know that some percentage of people booked on a flight won’t show up, or will reschedule, so they oversell most flights. Once in a while, this causes problems because more people show up with a ticket than will fit on the plane. Federal law requires the airline to pay cash (two times to four times the value of the ticket, depending on the length of the delay) to any checked-in passenger with a ticket who is denied boarding.
The airline would rather not do this, so instead they offer vouchers to volunteers who will give up their seats. The airline would rather give you a voucher you have to spend on their airline than cash you could spend someplace else. They also almost always start by offering vouchers worth less than the amount of cash they’d have to pay out if they don’t get a volunteer and have to bump someone involuntarily.
Vouchers are for you to use on the same product so they are made so that, you’re bound to return to the same business and spend money on them eventually anyway, so if you spare a seat now, they can sell it at higher price (usually because of demand and short time they hike the prices up) and you anyway are going to return to their business afterwards. So it is always a win situation for them.