How Does Overbooking Work? (Ask Cranky)

It’s time once again to answer a reader question. This time, the question is pretty broad, but it’s a very good one. I’ll let Nathan pick it up from here.

One thing I can’t figure out is the overbooking process, and if you could explain how and why airlines use it, and how it is profitable, I’d appreciate it. I traveled on United a few months ago, volunteered to give up my seat, and ended up receiving a voucher for $500. I understand that sometimes people don’t show up for their flights and the airlines would prefer to have seats filled, but does handing out these vouchers really make up for the empty seats? Or do they count on the fact that people either won’t use the voucher or won’t use all of it so it doesn’t actually cost them that much?

Nathan
Corvallis, OR

First of all, Nathan, you got pretty lucky. It’s not often you get a $500 voucher anymore since airlines have become much stingier. There are also fewer people getting bumped than there used to be, soAsk Cranky congrats.

Overbooking is one of those things that people hate, but it actually provides a benefit, believe it or not. Every time an airplane takes off with an empty seat, it’s a missed opportunity. Even if airlines sell every seat, there’s a good chance that not everyone will show up. It could be due to delays or cancellations by the airline or it could be because of last minute changes and cancellations by the traveler. Either way, it’s rare for every single person who was booked to be on that airplane.

Because of this, airlines began overbooking flights realizing that not everyone would show up. Over the years, they’ve become more and more sophisticated with the way they approach this process. Many variables go into determining how much to overbook. It can include things as varied as external events that might impact behavior during a certain time period or how easy it’s expected to be to find an alternate flight if things go wrong. But no matter how sophisticated they get with these predictions, there will always be variability. For that reason, it’s impossible to get it right every time. And when they guess wrong, there are either empty seats or not enough seats. When it’s the latter, people have to be bumped.

You might think that airlines hate when they have to bump people, but that’s not really true. They hate when they have to involuntarily bump people. Let me explain.

When a flight is oversold, airlines will start asking for volunteers to take a later flight. The better the flight option, the less money the airlines will offer to incentivize people to take the offer. Most of the time, people volunteer to take a later flight and then everyone is happy.

When that happens, everyone who needed to fly got on the airplane. Those who volunteered walked away with a little extra compensation. And the airlines were able to sell an extra, expensive last minute seat or two. You may have a vision of some guy who paid $100 for his ticket getting a $500 voucher to get bumped, but those two events aren’t really connected. By overbooking by one last seat, it enabled the airline to sell one last expensive walk-up fare. On the whole, they make money even if the compensation creeps up.

Then there are the involuntary denied boardings. These are bad. If the airlines can’t get enough people to volunteer to take a later flight, they are forced to bump people against their will. Naturally, that means that there are going to be some angry people who don’t get on that airplane.

This doesn’t happen all that often. For the first nine months of 2013, airlines that report to the Department of Transportation (most of the big guys) bumped 398,346 people, only 12 percent of those were involuntary. Overall, bumping numbers are down a lot. The rate for 2013 is about half the rate that we saw 10 years earlier, during the first nine months of 2003.

Why is that happening? Well, first of all, airlines have become better at predicting these things. But also important is that the penalties for involuntarily bumping someone have gone up a lot.

Not only can the penalty now be 4 times the value of the ticket, but the cap has been raised to over $1,000 (and rising). With the potential cost going up, airlines have had to get more conservative on how much they overbook.

But that’s an issue for involuntary denied boardings. When it comes to voluntary denied boardings, it’s a different calculation. It’s not hard money going out the door but rather vouchers. And those can have a lot of breakage. Airlines that offer vouchers good for a roundtrip ticket in exchange for bumping are the ones that made off the most like bandits over the years. Those were always capacity controlled and they weren’t easy to use. That’s why dollar vouchers are much more popular with travelers.

But even those dollar vouchers don’t all get used. And when they do, they don’t necessarily use the entire amount. And you usually don’t get the keep any residual amount to use on another ticket.

In the end, when you add it all up, it means good profit for the airlines. It’s not a practice that will be discontinued unless penalties rise so much higher that it no longer makes sense.


45 Responses to How Does Overbooking Work? (Ask Cranky)

  1. MathFox says:

    Nice story; especially on how some volunteers get shafted in the end. (I was offered a deal (for a roundtrip voucher within the US) once, but refused. Not living in the US would have made the voucher too hard to use.

    Also overselling does not mean that each bumped passenger is worth a walk up fare: yield management would say to create a few excess tickets in lower fare categories too.

  2. A says:

    I wouldn’t say that historically the airline was winning by giving out comp tickets. In the 1980’s my folks flew the family around quite a bit on comp tickets from being bumped. We never had issues with restrictions on where and when we wanted to go. Then again, it was the 1980’s.

    The voucher is the real scam. They have an expiration date and almost always they won’t give you enough $$$ to cover a R/T flight on the same route you’re being bumped from. I’d prefer it if they gave me 25,000 bonus miles to use towards a free flight, or a FF status upgrade. (Whats the difference of sitting in an airport for 4 hours vs. flying 2,000 miles??) Heck, if they would upgrade my FF status that might get volunteers of people that are most loyal to the airline and won’t be bad for PR as they’ll be less upset.

    As a frequent flier I’m onto the con job that vouchers are and never accept – even if I have the flexibility. Airlines need to do better – perfect example is the $500 voucher being a “big deal.”

    Also, I’m guessing that my meager status does keep me from getting involuntarily bumped so the airlines just step on the little guys even more.

    • Jason H says:

      I (and many other people) would rather take $500 vouchers over 25,000 miles or a free upgrade – you are implying that the free upgrade or the miles are worth $500, when in fact they are worth a lot less. Anyways, if you are an elite member in the airlines’ frequent flyer program, you can often negotiate an upgrade as well as a voucher.
      I haven’t found any unusual restrictions with any of the vouchers I’ve received over the years, other than they often can’t be used on codeshare flights other than express carriers and you have to use them within a year.

      • A says:

        To clarify, I’d like a FF Status Upgrade in lieu of a voucher. So as a Delta Gold I’d volunteer if they automatically put me platinum level for the next year. I’m being inconvenienced so in return whats it to them to treat me as a more valued customer? The cost to the airline is minimal but to the customer (i.e. frequent flier) it carries a higher value. Oh and the flight they bump me to I better have first class.

        • Noah says:

          awesome idea, but it would swell the ranks of people. But more limited MQM/MQD waivers would be nice. Cause of course, the “Delta Dollar” vouchers dont get you MQD’s!

  3. Zack Rules says:

    Or you could always fly jetBlue which does not overbook. I think they bumped maybe 30 people last year.

    • John Bratichak says:

      Exactly, JetBlue does not over sell, and if you get bumpped, then they needed to fly a necessary crew member, or there was too much cargo. I always know on DAL or UAL when they are oversold, you cannot reserve a seat at the time of the reservation. That is when i call the 800 number and ask if the flight is oversold. After stuttering and couching they will usually assign a seat as they will never admit it on the phone

    • Oliver says:

      I was wondering about that. Why does JetBlue have a different approach?

      • CF says:

        John Bratichak – Just because you don’t see a seat available for assignment on the seat map doesn’t mean it’s oversold. Airlines hold back plenty of seats for assignment at check in or for elites. You’ll see the JetBlue seat map empty often unless you want to pay up for Even More Space.

        Oliver – This was one of Neeleman’s things when he founded the airline. It was all in the name of customer service. They thought people would like it.

      • Respicio says:

        Oliver, Jetblue does not overbook because it does not use any GDS system for seat inventory/allocation. You simply pay-and-fly; there is no “booking” for Jetblue, By the way, this is not unique to Jetblue but to ALL carriers that do not use any GDS! Therefore, this is NOT because of Neeleman wanting his ex-airline to be fully customer-oriented! Understoof, “CF”?!? Other carriers that do not overbook because they DO NOT use any GDS: Gol (G3, in Brazil), Ryanair, easyjet, Air Baltic, VivaColombia, etc-etc. All the best from Rio de Janeiro, Brazil

        • CF says:

          Respicio – That’s not true at all. JetBlue converted to Sabre a few years ago. It can easily handle overbooking if so chose.

  4. In the old days you would get vouchers for free trips anywhere the airline flew or they gave you cash or both. These days with dollar amount vouchers they hope people loose them or can’t use them due restrictions.

    First there should never be a restriction on these vouchers and instead they should have to pay in cash. I know they can’t have stacks of money in the back office, but with todays computers they could issue a check anyone could deposit in their bank.

    At least airlines have gotten better and you don’t have 150 people show up for a 100 seat aircraft.

    • Noah says:

      involuntary denied boarding gives the passenger the right to take cash. Voluntary is a deal made between passenger and airline, and the passenger does not have to take the offer!

  5. Nathan says:

    I really like the dollar amount vouchers as they typically have a 1 year expiration date and can be used on any itinerary booked through the airlines website. My last experience was a $400 Delta voucher for taking a flight that departed 2 hours later. 2 hours of my time in exchange for a round-trip flight to Mexico was a great bargain.

    Frequently I can plan my business travel so that I have my return flight during a peak time to increase my chances of being offered compensation.

  6. Sanjeev M says:

    I also prefer dollar vouchers. I’ve heard though that the breakage (% that actually get used) is around 30-40% and even less for the “free roundtrip” ones.

    I’ve also seen AF/KL offer things like 150Euro cash or 250Euro voucher which I think is a nice way to offer it. Of course living in the States most of us would be better off with the cash.

  7. Dan says:

    Back in 2005-2006, I was a Platinum on NW, and I *lived* for those $ vouchers. “Free round trip ticket” was fairly useless to me for reasons Brett pointed out, and another he left out — those “free tickets” don’t count towards status, where $ vouchers do. Fully half of my travel in 2006 was paid for with bump vouchers. At the time, my travel plans were pretty much always flexible, so I could almost always take a bump.

    These days, my time is a lot more valuable, so if I have to miss a day of work, not only do I want enough $ to cover the vacation day I lost, but I also want it to be worth my while. That means I’m looking at closer to $500 before I will voluntarily get off the plane.

  8. Nathan says:

    Thanks for this answer. It does help clarify things.

    I found a discussion of the statistics of overbooking as part of a problem on the AP Exam for Statistics. It’s a bit simplified but does a good job of explaining how it works out over many flights. The summary is this: an airline sells 17 tickets for a plane with 15 seats, knowing there’s an 8% chance that any passenger will not show up for the flight. The probability of 17 people showing up is 25%, and it costs the airline two additional fares. The probability of 16 people showing up is 35%, and it costs the airline one additional fare. Over many flights, it will cost the airline an average 0.85 flights in vouchers, netting them an average of 16.15 fares for a flight with 15 available seats.

    http://yhoo.it/1aGXAN6

  9. RMF325 says:

    A couple of years ago I was flying from Reagan National to Atlanta on a Sunday; I gave up my seat and got a $200 voucher from Delta. When it came time for my next scheduled flight (about 90 minutes later), I again gave up my seat and collected a second voucher. I did it yet again about an hour later. I could have done it a fourth time, but decided I’d had enough. Delta was very happy that I was so willing to accommodate them; they couldn’t have been nicer about continuing to bump me.

  10. Bob Skinner says:

    Right before the NW-DL merger, I agreed to be bumped off a flight between DTW and MEM for a later flight and a dollar voucher which they said was deposited straight into my NW account. It turns out that the later flight was actually cancelled and they then booked me through ORD to MEM. So I took the flight to ORD and then on United Express to MEM. Only the folks at UA didn’t know anything about me being booked on their flight other than the revised ticket from NW. Fortunately, I was able to make it on the plane but instead of being in Memphis an hour later than scheduled, I wound up arriving 8 hours after scheduled. And then NW merged with DL and there was no record of my voucher passed on to DL. It was not a pleasant experience! From now on, if I volunteer to be bumped I want a round trip voucher instead of the cash voucher. I understand it won’t help my status but at least it’ll get me somewhere and back!

  11. Northern Traveler says:

    What has changed for the old days:
    One can no longer counter up and ask to be on a voluntary bump list.
    The only carriers I have experienced
    that still allows you to do it are Air Canada and WestJet.

    • Noah says:

      When DL oversells, they offer going on the list at checkin. They have gotten sneaky by putting 3 choices on screen $50, $100, $150. but at least you can say no before they make any changes

  12. RICH says:

    If I am flying under “NO time constraints ” I loved getting
    bumped for Vouchers… Vouchers have paid for
    many vacation flights for free…. I can’t complain.

  13. Ron says:

    Even the dollar vouchers are not really worth their nominal value, unless you’re certain to buy another ticket on the same airline anyway. I once volunteered off a Delta flight for $300; the next time I booked a flight, Delta was $50 more expensive than a competing airline, and for a 4-person itinerary it meant that the voucher would only net us $100, so I passed on Delta altogether. Months later I just gave the voucher to a relative, who used it to save $250 compared to cash alternatives on other airlines.

    Of course, now that Delta allows you to name your price for denied boarding, I’m practically out of the game, since I typically assume there would be lower bidders. Delta actually does a good job of framing the offers at very low price points: on a recent transatlantic flight they suggested 3 compensation levels, all of which were well below what I would consider acceptable. I could have entered a higher bid, but I figured enough people would accept Delta’s suggestions, so I didn’t even bother.

  14. Jon says:

    Are there any well known routes that have higher bump probabilities? I have been bumped from CMH-BOS on Delta before and they have solicited for offers frequently. Does that have anything to do with the small plane?

    • CF says:

      Jon – If there are routes that have higher variability, then the chances of getting bumped may be better. But it’s hard to know what those are. I remember we routinely overbooked flights from LA to Vegas on a Friday night by dozens because there no-show rate was so high. But it was consistent so you didn’t get a ton of bumped passengers (at least, not a ton more than on another flight). But if it varied a lot, then that would be your best chance.

  15. sjc user says:

    If I have time, I’ll take a $400 voucher. Vouchers are great if you know you are going to use them as you get qualification miles from the trip you purchased.

    The last voucher I got for VDB 4 years ago, I ended up getting in an airport closer to my house and earlier than the original flight because of flight delays on my original connecting flight. The only downside was that the luggage went the original route, but was delivered to my house within 12 hours of me getting home.

  16. DougYWG says:

    You can’t look at one flight in isolation. If an airline raises the booking level on 100 flights, they might be able to sell one more fare on each flight at the risk of bumping one person. Or whatever the probabilities are. It’s very much a good deal for the airlines.

    There is a fair bit of reservations ‘churning’ as you get closer to flight time. So if a flight has high demand, you can sell 115 seats on a 100-seater if it’s still two weeks out, knowing that you can expect 15 cancellations before departure. Give or take. Again, you are dealing with probabilities and it doesn’t always work out.

    When I worked in the Middle East a few years ago, 3 friends of mine got bumped at LHR by BA, involuntary. They got a voucher. Can’t remember the numbers but it went something like this. The voucher was worth $300. An excursion round trip to London could be had for $500. BA said the voucher could only be used against a full fare which was around $900. So the voucher was useless and they got taken. Except, as luck would have it, I knew the local BA manager socially and he did the decent thing and sorted it out for them.

  17. Dave Hubbard says:

    Some of the more sophisticated airlines are now using database technology to track no-show histories of their frequent flyers. They then set the overbooking limits for a flight based on the past history of the people who have made a booking for this flight. If there are many passengers who have a high history of no-shows, they can increase the overbooking percentage for that particular flight. This is particularly true for cities that have high content of business travel and the travel is scheduled for early morning or late afternoon. The airline’s most profitable customers are often the travelers with the highest no-show values because these are frequent flyers whose schedules are constantly changing. With this new technology, some of the better airlines are getting more and more accurate with their overbooking calculations.

  18. David says:

    Given a plane of 100 seats, suppose we calculate the likely profitability of overbooking an individual flight by 1 seat, 2 seats, 3 seats, etc… We of course take into consideration the revenue from the extra bums on seats, the cost of carrying the passenger, the number of platinum frequent fliers, and the cost of any volunteered or compulsory compensation for a passenger being bumped, etc…

    Do the maths, and we end up with an optimal figure from an accounting profit/loss standpoint for how many seats to overbook a particular flight. Suppose we find that it’s optimal to overbook the flight with 100 seats to 114 tickets sold. Does an airline think *purely* in terms of revenue and costs, or is there any consideration as well to the customer-is-annoyed factor, particularly around routes which are low frequency or hard-to-rebook ?
    Would an airline ever scale the overbooking capacity back from 114 to 112, because the inconvenience of overbooking has a negative brand value to the airline as well ?

    • CF says:

      David – To add more to the mix, remember that airlines don’t sell fares by segment. So it makes the revenue picture much cloudier when you think about how much will be allocated to that segment if someone is booking a connection.

      Airlines do consider how easy it will be to rebook someone when they’re looking at their overbooking levels. But as for brand value? The only airline I know that includes that is JetBlue by not overbooking at all. On occasion, you will see airlines cut overbooking across the board if the model isn’t working the way they want it to. But that’s still often a numbers-based decision.

  19. JayB says:

    Good explanation. But, pardon my skepticism about airline quality of performance, specifically related to overbooking, using DOT stats that the airlines furnished themselves.

    Just checking, I see UA in DOT’s Order 2013-8-27, issued iAug, 30, 2013, where DOT fined UA for not giving customers refunds in a timely manner, admitted that it had not always filed accurate reports with DOT concerning overbooking.

    DOT said it wasn’t fining UA over this matter because UA admitted its reporting errors, “on its own intitiative,” and corrected the reports, so says DOT.

    How convenient! Surely, there was no intent on the part of UA to file reports that might make it look good compared with its competitiors. And, like DOT knows what the real data is and the corrected data is God’s honest truth?

    Do I expect DOT to verify everything it receives from airlines? Not really. Do I think UA is the only carrier whose reports might not be factually correct? No. The data are interesting but I take it with a grain of salt.

  20. Jeffery says:

    Another important thing that Brett implied but didn’t say is that vouchers ($ or R/T) are basically only cost the airline in opportunity costs. A voucher can only be redeemed on the airline and most likely on a seat that would have been empty otherwise. So the actual cost to the airline for a voucher is the pax weight for fuel and beverage/meal service if applicable. Just another Non-Rev.

    • CF says:

      Jeffery – Since most airlines hand out dollar vouchers, then it isn’t something that can be forced to a seat that wouldn’t have been occupied otherwise. There is a real cost to the airline, but it’s far less than having to hand out cash for sure.

      • Jeffery says:

        CF- I wasn’t clear, I meant that since most flights dont leave with 100% loads the probability of the credit purchased seat displacing a revenue seat is reduced. So unless the voucher is used on a flight going full its cost is lost revenue but negligible actual costs.

  21. Joe says:

    Great job on ABC’s World News Now, Brett! Great advice and you sounded as professional as I know you are!

  22. Bobber says:

    In the last few years of the old United, I routinely used to look to book likely ‘oversold’ flights – consequently, my first three LHR-SFO trips one year gave me an opportunity to volunteer ; once, this meant connecting in JFK instead (but in C), the other two times I merely got upgraded to C-class on the same flight! The last time I volunteered resulted in an overnight stay in DEN, $500 in vouchers, and C-class home. Worth the hassle, I reckon.

  23. Pingback: [BLOCKED BY STBV] Why do airlines bump passengers? And other great links from the past week. | L.A. Airspace

  24. DaninSTL says:

    If I ran an airline I wouldn’t overbook. I would sell tickets on the flight that can only be canceled so many hours ahead of time or you forfeit the money. Like a hotel reservation. You know cancel but such time or your out the cash. That way I could still sell walk up fares and everyone is happy.

    I think it should be illegal to sell a product you don’t have so if you intentionally sell too many seats on an aircraft it should be illegal. Just my opinion. I don’t like being bumped and it seems to slow down the whole boarding process.

  25. Fred Bar says:

    Nathan:

    What Cranky forgot to mention is that on many special days, not necessarily holidays, such as this last Father’s Days, certain passengers can give up their seats again and again, getting even much more compensation. I had a situation where I missed the last connecting flight the night before due to weather, only to spend the next day in standby hell until I got into the 7th flight….The airline in question, Delta, had oversold each flight by an average of 5 seats. The problem was that everyone would show up. I did not see what appeared to be a single business traveler. The gentleman in question gave up his seats for vouchers of $900 and $500 on 2 different flights. So this seems to be more than happenstance.
    Additionally, below is a quote from USA.gov website:
    http://www.usa.gov/topics/travel/air/resolve-problems/flight.shtml
    “Federal rules protect you if you are “bumped” on most flights within the United States and on outbound international flights. Passengers who are involuntarily bumped are protected under Federal Aviation Administration guidelines. If you volunteer to be bumped, your agreement with the airline that is not regulated and will depend on negotiating at the gate.
    The airline must give you a written statement describing your rights, as well as the airline’s boarding priority rules and criteria. If the airline is not able to get you to your final destination within one hour of your original arrival time, the airline must pay you an amount equal to 200% of your one-way fare, with a maximum of $650. To receive this payment, you must have a confirmed reservation. You must also meet the airline’s deadlines for ticketing and check-in. An airline may offer you a free ticket on a future flight in place of a check, but you have the right to insist on a check.”

  26. Corey s says:

    I just got bumped from my united flight from lax to Eugene, they offered me 500 dollar voucher and then I waited alittle and then bumped 6 other people and the last person they offered a 700 dollar one so everyone got 700 dollars, I took a 2 hour later flight that was actually nonstop and I arrived 30 minutes before the first one would have arrived now I can travel first class to Vegas this year with a friend for under the 700 dollars good day!

  27. Bill Caspare says:

    Great website!Your comments are very helpful…I have one question-what percentage of seats are unsold on flight day?It would seem to me that if you paid for your reserved seat six months in advance,why would you be bumped?So the airline can sell yor seat twice?

    • CF says:

      Bill Caspare – It can vary greatly by flight. Sometimes there are a ton of seats unsold, sometimes none. No seat assignments are ever guaranteed, and airlines can bump you involuntarily even if you have a confirmed reservation. But they have to pay greatly for that.

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