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
I didn’t realize airlines still overbook. I thought if I bought a ticket and choose my seat than that’s guaranteed for me. How can they sell another ticket for a seat I already reserved?
It’s cheaper to give out a voucher which will expire and also forces the user to buy more of your services than it is to let a seat go empty.
The airlines don’t have to “pay extra” to passengers who are bumped. They’re given vouchers towards another flight on the same airline. So really they’re giving up some profits on a future flight that may or may not be full. So it doesn’t really cost them as much. Plus I’d be willing to bet a big percentage of the vouchers never get used.
One part of this is that the airline NEEDS that plane at the next location. At some point the money from subsequent flights and delays outweighs the losses from one flight’s overbooking.
Because on any given flight there is a probability of some percentage of 300 passengers not showing up and making the flight. And with good modeling, tracking, and math you can get a good prediction of how many.
eg: Say a flight that leaves at 6:30pm often has more than average people miss the flight because they didn’t plan for rush hour traffic. I’m making up numbers here but let’s say more often than not about 8 people miss that flight or don’t show up. Well that’s 8 more tickets they could sell, now they might not book 8, they might book 5 and leave 3 open (incase not as many miss the flight, or they need to move someone from a canceled flight or something). And many times they’ll be fine. An average ticket for that flight might be $250, but once the flight starts booking up or it gets closer to the date of the flight, those tickets are selling for $500 or more. That’s $2,500 they just made. Now if a bad day happens where more people show up and they have to re-book someone because of a canceled flight and they end up needing a few extra seats, it costs them if they bump them, but they don’t have to pay out on every flight, and even if they do they’ll often do so with gift certificates that cost them less than the face value.
In the end, even paying out for a bumped seat occasionally costs a lot less than what they make up for by filling those extra seats. Of course if someone gets bumped, you notice it, and if someone gets bumped and you weren’t there, they’ll tell you. I flight quite a bit, and many times I’m in a situation where I can take a later flight if they offer money. But it’s only happened to me twice. They don’t bump people as much as we think, we’re just very aware of it when it does happen.
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.
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