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
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.
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 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
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.
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.
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.
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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.
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.
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.
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