Basically, they know a good number of passengers have to cancel due to emergencies or mistakes. They oversell to try and compensate for that, so no plane leaves partly empty.
Say you have a 100 seat flight. You know thanks to 30 years of experience that 3-9 people out of every 100 are gonna bale.
So you strategically sell 106 tickets, so that on average you have most of the seats full, so that the flight still makes enough of a profit to pay wage and fuel costs.
If everyone actually shows up (not common), and you have to reimburse some of them, oh well. The extra money you make when this does work is more than enough to compensate, and it doesn’t happen often.
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