Why do Airlines Overbook Flights?

On Saturday morning I was returning to the UK from JFK via American Airlines. For some reason the flight was in chaos. American Airlines had managed to overbook the flight by 37 people. There were 37 angry people who had bought a ticket but not having a seat. The previous night a flight had been overbooked by 20 people, meaning that when 17 too many people turned up the next day, they had a real problem. The flight was delayed by an hour, as American Airlines asked for ‘volunteers’ to give up the seat. I found out too late that American Airlines were offering $600 in flight vouchers for those willing to give up their seat.

For AA this was an expensive mistake. 37* $600 + Free hotels  + all the bad publicity which is hard to put a figure on. Overbooking flights is a gamble that badly paid off this time.

But, presumably most of the time they must make a profit on the deal. If 99% of the time, they overbook and get away with it. They are effectively increasing their profit margins. If usually 20 people pay for a ticket but don’t turn up, the airline is getting an extra 20 * $700 = $14,000 per flight – you can see the temptation to do it.

Is Overbooking Aircraft Flights Good or Bad for Consumers?

An instinctive response is that overbooking is unfair and a bad deal for consumers. However, is it really that bad?

Being compensated $600 for spending an extra day on holiday is a pretty good hourly rate. I wish I’d taken up the offer; $600 is a lot of money, for just sitting around an airport for a day. – It’s a better hourly pay than marking A Level exam papers anyway…

Also, without overbooking, airlines would be more inefficient and this would lead to higher prices in the long run. If aircraft lost the $10,000 bonus each flight, they would need to get that money from higher prices for consumers.

You could argue the average consumer is better off because of overbooking, it helps keep prices lower. If consumers are willing to volunteer to give up their seats for $600 compensation, then presumably they are better off as well.

The only problem is those passengers who have to get home that day and even $600 compensation would be inadequate for the inconvenience caused.

However, as passengers which would we rather do? Pay higher fares so aircraft are never overbooked? Or have low fares and have a very small probability that we have to spend an extra night to fly?

I know what I would choose, but, those passengers in the queue trying to get a ticket would probably think otherwise.


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