Why do airlines seem to overbook flights so often, especially when they end up having to pay extra in rewards to passengers who give up their seats?



It just seems like it happens so often, and airlines will sometimes offer you three times the price of the ticket just to stay a few extra hours. Seems like it’d be easy to just…stop selling tickets once the plane is full??

In: Economics

If your way costed them less overall then that’s what they would do. They’re very price sensitive, so it obviously wouldn’t.

There are always some people who don’t show up so airlines use algorithms to predict how much to overbook so the plane will be exactly full. Of course algorithms like that cannot be perfect so overbooks at the gate still happen here and there. Apparently the bottom line works out better for the airlines even if they have to pay a few people not to fly.

The amount they spend in compensation is less than the amount they get for selling the same seat twice and having one person not show up before take off.

They’ve worked out what % of passengers on average never board the plane after buying tickets for whatever reason, so they sell the seats twice.

They do overbook every flight because it happens very often that people don’t take their booked flights. So often that otherwise they would fly with empty seats. So paying for hotels or for people simply waiting still is cheaper for the airlines.

I’ll use an example to help illustrate this.

You, a traveler for pure pleasure has spent a few weeks tripping around europe. You booked your return ticket well in advance and got a great deal (say $500 because it makes the math easier).

Me, a traveler for work, found out this morning that I need to go to New York for an important client meeting tomorrow. Crap, should have planned better but you know gotta keep the lights on. So I look up flights and lo and behold it’ll be $2000 for the ticket. Boss says go we need you there so I buy it.

We both get to the gate and look at that it’s oversold. So they make the announcement for someone to fly to NA tomorrow instead (the plane is not full so this is easy). You as a pleasure traveler don’t really care so you go up and take the $500 they give you and go to a pub to enjoy your extra day.

Now at the end of the day the airline comes out ahead. I overpaid for the same seat on the plane by $1500, you got $500 and the airline gets $1000 for free.

I used to work for an airline. We didn’t overbook every flight, just ones on routes where we had more then one flight every day (so that if someone did ever have to be left behind we could accommodate them on another flight as quickly as possible)

The ‘no show’ rate for flights was between 4% and 7% and that was pretty reliable. It was very rare for everyone booked on a flight to actually turn up.

If 99% of the time a handful of passengers aren’t going to turn up, and you can fill some of those extra seats, it just makes commercial sense to do it.

They overbook to ensure full capacity… they know that on average, X% of people who book a flight will cancel or change their flight. So they’re better off overselling the flight and compensating people if they have to bump people than flying with unnecessary empty seats

They make more money that way.

A certain number of people are going to miss every flight…their plans changed, they caught an earlier flight, or they just didn’t get to the airport in time. Airlines anticipate this and sell a few extra tickets rather than fly with empty seats. Most the time, they do a good job and no one has to get bumped. Occasionally it doesn’t work out, and they have to bribe someone off of the plane. If they stopped selling tickets when the plane is full, they’d have to charge everyone more.

It might seem like they are spending a lot of money, but it is not every flight and that last-minute traveler might have paid $800 for the ticket you bought for $200 three months before.

Because it’s worth it. It’s really that simple.

The airlines have done their homework, they did the math. The amount that they pay to passengers that get bumped is less than the potential revenue lost by having empty seats.

And it’s not like you have much of a choice, either. There are half-a-dozen airlines left, and they don’t all service every city. So you’ll probably have a choice of 2 or 3 airlines at most, who all do the same thing.

FWIW not every flight is overbooked. It *seems* like it because people flying observe more full flights, because there are more people to observe it. If there are 20 flights that have 1 person on them, and one flight that’s overbooked with 100 people, most people will have an overbooked flight even if that’s not the majority of flights. A lot of flights are, in reality, far from full, it’s just that people aren’t necessarily there to observe them.

Plenty of people miss their flight by simply being late. Also, there are people who fly for business, and it would be a huge problem for them to take a later flight due to scheduling an important business meeting. The problem is when a businessman gets bumped off of a full flight, even if he arrives on time. So…many business people book two separate tickets, and cancel one as they are boarding.

Most business that have a perishable product do this to maximize revenue and profit. You can’t re-sell a rental car that didn’t get used the previous day. Yes, you can rent it today, but you can’t get back the missed revenue from a previous day.

They make more money this way—they sell more tickets by overbooking a flight. That’s why they do it.

They make more money this way because some number of people will cancel or modify their flights. Usually this means everyone can be accommodated.

Sometimes their predictions are wrong, and then they have to offer people something to take a later flight. Usually this is dollars toward a future flight, which costs them less than the face value.

Basically they have done the math and even factoring that in, they come out ahead.

Economically, it’s due to the fact that the airline industry is one with huge fixed costs but small variable costs.
For the airline, gasing up the plane and flying it is extremely expensive because of the costs of fuel, the plane itself, salaries etc. An extra passenger on the plane is such a small percentage increase in costs(luggage handling, in flight food) that they want as many people on every flight they make so they can make a substantial profit from the sale of tickets. They would rather overbook and have to pay a few people to get off the plane than run an extra flight because each additional flight is extremely expensive but each additional passenger is almost nothing.

Every empty seat on the plane is considered a loss. Quite significant because of the costs of flying. Basically flying the plane there has a base cost of X, whether there are passengers or not. Each passenger adds a much smaller cost (Significantly less than the ticket).It’s a big deal for airlines to just to book every flight as close to full as possible.

It’s always assumed some people won’t show up, so if you can get paid for 110 tickets, but only have 100 seats on the plane, you’re making 10 tickets worth of profit. But what if 102 people show up and now you have to give 2 people rewards. Well that’s okay because you still got paid for 8 extra tickets and only had to pay out for 6…

But it’s even better than that for airlines. Because $800 in rewards might only accrue $100 in actual costs to the airline. Most of the people who accept the deal aren’t regular flyers either, because regular flyers usually have plans they can’t delay. So the airline doesn’t even lose much in ticket sales.This is also why they often black out flights likely to be full for rewards customers. Because they’d rather not kick a paying customer for one using rewards. But if the flight is probably going to have empty seats, it costs them relatively little to put your butt into one of them.

So TL:DR: The airline gets it right often enough that the money made by selling extra tickets is more than the money spent on giving rewards.

Let’s say that a flight has 100 seats, each selling for $100 For this flight historic dropouts of 10 people. So the airline says that theres a 10% no show rate. This means they can sell 10 more tickets, but then one of thos wont sell so they can sell 1 extra extra ticket. This means they sell 111 tickets for a 100 seat flight. Revenue wise this means that they make $11,100 instead of $10,000. So pocket the extra $1,100 you made. Unless that 10% is off. Let’s say that for each person they need to re-book it costs $200. As long as no more than five extra people show up they can still make a profit.

Airlines spend a lot of money to figure out these margins and how much risk they can take. This is money that can be made as a side revenue stream without setting up more flights, so they do it. Better from the airlines perspective to have two unhappy customers on a flight and still make $$$ than leave the $$$ on the spreadsheet and let some lucky customers have extra space to stretch out. Eventually the number of unhappy people will cost them, but airline research shows that customers dont have much loyalty or hold grudges, they just follow the cheapest price that fits their travel window.

To simply put it, there is greater likelihood for people to not show-up versus the excess bookings.

It is cheaper to compensate these excess bookings that cannot be accomodated compared to the profit being realized for these excess bookings that can be serviced in lieu of those who didn’t actually made it to their flights.

Depends where in world you are.

Minium legal penalties/regulations for over booking and failing to get extra passengers to destinations in the US on time, virtually non existant.

In EU, for example, far less common due to legal penalties.

By raising the minimum penalty other countrys have made the numbers not ‘add up’ for airlines that want to play the over booking game.

In short, frequent over booking is mainly a US thing. In my life probably took over 500 flights around the world, only ever seen over over booking issues in the US.

There’s a built in attrition rate that they’re planning for. Let’s for simplicity sake say that every flight has 50 seats and each seat costs 500 dollars. Airlines have figured out that 2 people on average cancel every flight, so they always sell 52 tickets on a 50 flight plane. Sometimes everyone shows up for the flight and they have to pay 2 people 200-300 dollars to not fly. Thats a way better deal than having an average “loss” of 1000 dollars for the 2 people on average that don’t show up.