I know the answer here might be obvious, but I thought it would be interesting to take a bigger picture look at the practice of airlines overselling flights, often leading to overbooking situations. Why do airlines do it, and is it ethical?
In this post:
Why airlines sell more tickets than seats
It’s a widely accepted practice in the airline industry that airlines will sell more tickets for a given flight than there are seats. Maybe you’ve been bumped off a flight at some point, or at a minimum, maybe you’ve heard an airline solicit volunteers at the gate, to take another flight in exchange for compensation.
Just to clarify some terminology:
- A flight is oversold when an airline sells more tickets than there are seats on a plane
- A flight is overbooked when more people actually show up at the airport for a flight than there are seats
In other words, overselling can (but doesn’t have to) lead to overbooking. In situations where a flight is overbooked, airlines will generally try to solicit volunteers to take another flight in exchange for compensation. This is known as voluntary denied boarding. If there aren’t enough volunteers, the airline may have to force people to be bumped off the flight. This is known as involuntary denied boarding.
So, what causes airline flights to be overbooked? There are a variety of potential factors, which I figured I’d cover below.
Airline seats are perishable goods
Airline seats are perishable goods, and understandably airlines want as many seats as possible to be filled. The second the airplane door closes, the airline loses the opportunity to monetize seats.
Airline revenue and inventory management is incredibly complex, and airlines use all kinds of methods to both price discriminate based on different consumer segments, and fill seats. Airlines want as many seats as possible filled, with people paying as much as they’re willing to.
Airlines have a ton of data about historical no show rates, last minute cancelations, etc., and they use that to oversell flights in a (mostly) rational way. If a flight has 160 seats and an airline finds that on average four people don’t show up (I’m making up that number — this differs with every flight based on a variety of factors), the airline might oversell by that much.
For that matter, airlines have eliminated change fees on many kinds of fares, so we’re seeing a lot more people making flight changes than in the past. If a flight is sold out two weeks in advance, an airline might realize that on average 10% of ticket holders cancel within a week of departure, and oversell accordingly.
Airline passengers no show for a variety of reasons
As mentioned above, airlines have good historical data on this kind of stuff, and there are all kinds of reasons that confirmed airlines passengers may not make it to a flight:
- With some airlines eliminating change fees on most fare types, many people book speculative tickets, and only cancel last minute
- Even among those who intend to travel, they may run late to the airport, the check-in or security line may be long, etc.
- Many passengers are on connecting itineraries, and their inbound flight could be delayed, meaning they miss their connecting flight
- For arriving international passengers with connections, they could get stuck in customs and immigration, waiting for their bag, etc.
On some flights every single passenger shows up, while I’ve been on some flights that were oversold, but ended up with dozens of empty seats. It can go either way.
Airline operations are complicated
There are plenty of situations where a flight might be overbooked, even though the airline didn’t intend to oversell the flight. How can that happen?
- Airlines have different kinds of planes, and even the same types of planes may have different seating configurations; all kinds of operational issues could lead to a last minute aircraft swap
- It could be that there are pilots or flight attendants who need to deadhead on a flight, in order to work another flight; they can be booked on at the last minute, and are considered “must rides,” since another flight could be canceled if they don’t get on (and some pilots may even clear upgrades ahead of elite members)
- Weather factors can cause flights to be weight restricted, meaning an airline can’t fill all seats; this could be due to a storm, due to hot temperatures, or even due to cargo sometimes being more lucrative than passengers
Sometimes a specific cabin is oversold
In some situations a flight as such might not be oversold, but rather a specific cabin may be. The most common situation is that economy class is oversold, while there are lots of empty seats in first and business class (this is rare within the United States, given that all elite members are typically eligible for complimentary upgrades).
In some cases passengers may not be bumped from a flight, but rather will be operationally upgraded to a higher cabin (there’s a pecking order for this, and it’s not based on how you dress, contrary to some reports). This is especially common on Gulf carriers, where economy may be oversold by dozens of seats, while business class is wide open.
The logic is that some revenue is better than no revenue — sure, airlines would rather sell premium seats at high fares, but at the end of the day someone paying for an economy ticket and flying in business class is above the marginal cost of carrying that passenger, assuming the seat would have been empty.
Some might wonder why airlines don’t just lower business class fares in those situations. Welcome to the wonderful complexities of revenue management, and how airlines don’t want to cannibalize their own premium demand.
In other words, if the normal price for a roundtrip business class ticket is $10,000, and you sell tickets last minute for a fraction of that, business travelers will catch on and start rebooking at the last minute. There’s the potential for a lot of lost revenue that way.
Bumping may not be expensive for airlines
Even in instances where a flight does end up being overbooked and volunteers are needed, keep in mind that it’s not necessarily going to be costly for the airline. Typically an airline will offer a volunteer a travel credit, which can be used on that airline.
The actual cost of that to the airline is next to nothing, assuming the flight they end up booking isn’t full. In many ways this gives airlines an incentive to oversell. An airline may be happy selling a last minute ticket to someone for $600 in cash, and then in turn giving another passenger a $600 voucher to take another flight.
Assuming an airline doesn’t involuntarily deny boarding to anyone, this is a win-win.
Is it ethical for airlines to oversell flights?
I often see people make the argument that airlines shouldn’t be allowed to oversell flights. That’s a fair argument, since it seems kind of deceptive to sell a product you may not have available. Legally airlines cover themselves with this, since airline contracts of carriage are highly one-sided.
Is it ethical for airlines to oversell flights, though? Here’s my take on that:
- I think there’s absolutely nothing wrong with overselling if you only have to voluntarily deny people boarding; after all, when it’s voluntary, it’s a win-win
- It’s a much bigger issue if it’s an involuntary denied boarding, but in fairness, that’s an area where airlines have improved considerably since the David Dao incident, as they’re much more sensitive to that now
- If I made the rules, I think airlines shouldn’t be allowed to involuntarily deny boarding to passengers as a result of overbooking; I would make an exception for situations where there are operational issues (admittedly that becomes a slippery slope)
- At the end of the day airlines should have to do whatever it takes to get volunteers, and that’s an area where we’ve seen many airlines step up; that’s why we’ve heard stories of airlines offering some $10K bumps to people (admittedly that’s really rare, which is why it makes headlines)
Bottom line
Overselling flights is a commonly accepted practice in the airline industry. While airlines have good data and get things right most of the time, this does sometimes lead to overbooking situations, where some people need to be removed from flights.
Airlines are always supposed to solicit volunteers first, before involuntarily denying boarding to people. That’s something airlines have gotten much better about since the David Dao and United Airlines incident.
What do you make of airlines overselling flights? Should it be allowed?
Another reason for people not showing up are bogus returns. Its usually way less expensive to book a return ticket than a one way (international). My wife has a YUL-LHR in October that she won't need for that very reason.
Most hotel chains also oversell (the finest 5 star hotels being the exception). Large convention/business focused hotels are the most notorious for overselling, mainly due to the high number of no-shows and last-minute cancellations. When I worked at a large Intercontinental, it was not uncommon to oversell by 100+ rooms per night. Walking guests became an uncomfortable art form.
For a long time I thought overbooked = oversold. Married an airline pilot and learned otherwise. Frequently there are pilots and flight attendants added at the last minute that must ride or the flight they will operate next will cancel. These reservations are unpredictable and often added last minute.
Overselling is unethical to me as a customer, if I am involuntarily facing consequences, despite my fairly paid ticket.
Years ago, I volunteered myself to not board an overbooked, short haul european flight, and I profited from that, but I was young, my schedule was flexible, and was happy to have received significant compensation.
They could stop a practice you find unethical, but that guarantees they will fly with more empty seats and have to raise the price per ticket accordingly. Or, they could not offer refunds or credits if you cancel/don't show (similar to the way sporting teams sell seats) and even preclude changes. Which do you want?
Good question, however you may not like my answer:
- I do not believe the ticket prices would go significantly higher because of that. I may be naive (and willing to pay 10, 20 or 50 USD/EUR/CHF more anyway), but so far I have only seen general, abstract threats about "raising the price per ticket", no concrete estimation.
- Lowest fare business class tickets at LH and LX are non-refundable anyway. And most...
Good question, however you may not like my answer:
- I do not believe the ticket prices would go significantly higher because of that. I may be naive (and willing to pay 10, 20 or 50 USD/EUR/CHF more anyway), but so far I have only seen general, abstract threats about "raising the price per ticket", no concrete estimation.
- Lowest fare business class tickets at LH and LX are non-refundable anyway. And most of the other airlines that I fly with charge rebooking or cancellation.
I disagree with your economic analysis on one point. If an airline gives me a voucher I use to buy a future flight that is full, causing them to loose one sale, I agree that costs them the amount of the airfare they didn't get. If I book on a flight with unsold seats, their marginal cost is low. There only cost if that if I wouldn't have taken that flight with them. But, if...
I disagree with your economic analysis on one point. If an airline gives me a voucher I use to buy a future flight that is full, causing them to loose one sale, I agree that costs them the amount of the airfare they didn't get. If I book on a flight with unsold seats, their marginal cost is low. There only cost if that if I wouldn't have taken that flight with them. But, if I use the voucher for a flight that I would have paid cash for, they have lost the airfare I would have paid and marginal cost. (Now, let's not get into the possibility if I'm voluntarily bumped whether that increases/decreases the liklihood of traveling with them in the future once the voucher is spent.)
All passengers are not equal though. Some corporate customers (individual or collective) have much higher value than losing a single ad-hoc customer due to bumping them.
I've signed corporate contracts in the past where the corporate customer got a certain number of "must fly" seats every quarter. If a flight was overbooked, they would simply contact their account rep and we (the airline) would deny boarding to someone else to accomodate them. When the account...
All passengers are not equal though. Some corporate customers (individual or collective) have much higher value than losing a single ad-hoc customer due to bumping them.
I've signed corporate contracts in the past where the corporate customer got a certain number of "must fly" seats every quarter. If a flight was overbooked, they would simply contact their account rep and we (the airline) would deny boarding to someone else to accomodate them. When the account is worth hundreds of thousands of dollars (or more), thats the kind of leverage they get versus individual customers. Similarly high value frequent flyers have protections against denied boardings (formally or informally) as well as the ability to force themselves onto oversold flights on full fare basis.
You're not including the first, oversold flight in your analysis.
Let's say you paid $400 for a seat on the first flight, and some last minute VIP comes in and pays $600. They bump you, give you a $600 voucher, and accommodate the VIP. The cost of rebooking you *for that first flight* is basically zero: they put you on a flight later that day (or the next) that has empty seats. They're not going...
You're not including the first, oversold flight in your analysis.
Let's say you paid $400 for a seat on the first flight, and some last minute VIP comes in and pays $600. They bump you, give you a $600 voucher, and accommodate the VIP. The cost of rebooking you *for that first flight* is basically zero: they put you on a flight later that day (or the next) that has empty seats. They're not going to bump someone else.
So basically, they've taken $1000 in revenue for a seat they originally sold to you for $400. In exchange, they give you a voucher for $600. Even if, in the worst case scenario, you use that voucher for a seat on a full flight, and they "lose" that $600 in revenue, then they're back down to $400 in revenue for that initial flight, i.e. at worst, they break even on that first flight (while keeping the VIP happy), and the second flight is paid the going rate ($600) by the original $600 that the VIP paid (and was transferred to you as a voucher/credit).
So in this worst-case scenario they break even while keeping both you and a VIP happy. And in the best case scenario (the voucher they give you is less than what the VIP paid to kick you out of your seat, and/or you use the voucher on a seat on an empty flight), they come out significantly ahead.
One of the biggest reasons for international overbooking in my experience is government mandated such as inadmissable passengers, etc.. It is not unusual to have multiple passengers arriving on an international flight to be denied entry to the destination country and then have to be transported back immediately from whence they came. In such a situation the airline has no choice but to kick off a previously confirmed passenger in order to give their space...
One of the biggest reasons for international overbooking in my experience is government mandated such as inadmissable passengers, etc.. It is not unusual to have multiple passengers arriving on an international flight to be denied entry to the destination country and then have to be transported back immediately from whence they came. In such a situation the airline has no choice but to kick off a previously confirmed passenger in order to give their space to the person being removed.
With passangers allowed to cancel flights for no fee 10 minutes prior to takeoff, it seems fair airlines are allowed to overbook flights to compensate for the lost revenue.
Do you only fly Southwest Airlines? I don’t think that is true at all with other airlines, domestic or foreign carriers. You can read up on Ben’s post here about canceling a ticket as spelled out by airlines in the U.S.
https://onemileatatime.com/guides/cancel-flight-24-hours/
My experience is on Southwest and American domestically.
Here's a question for the experts:
If you accept a voucher of, say $1,000, from AA for denied boarding, can you later convert this to AAdvantage miles?
This would give the voucher more value in my eyes.
ELAL oversell almost all international flights. Just last week I flew to LHR and was booked in PE. Was offered a flight following day in Business and Financial compensation
Does this happen anywhere outside the USA?
Everywhere. From the EU airlines must pay between Eur250 and 600 depending on the distance.
Overbooking can also be a result of a change of aircraft, or denied boarding due to capacity restrictions caused by for example, weather.
Bizarrely if you fly on a US carrier from the USA and are bumped because they changed the aircraft, there’s no right to compensation whereas if it’s an EU carrier there is.
So what you're saying is on a sunny day with no disruption, the only countries that oversell are USA and Israel? Got it.