Name: Why do airlines overbook flights? | CNBC Explains
Uploaded: 2019-09-04T08:20:25.000Z
Duration: 7 min 55 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

I'm talking about buying a plane ticket, packing your bags, getting to the airport and then finding out that the airline has deliberately overbooked your flight and you no longer have a seat.

Most of us hate when this happens, so why do airlines continue to do it?

Airlines have been deliberately overbooking flights for decades.

Following the deregulation of the airline industry in 1978, airlines became incentivised to increase the number of passengers on their flights.

And they identified one big missed opportunity for more revenue - all those sold but empty seats.

In fact, most flights take off without their seats completely filled.

Now for many, this may sound greedy but airlines argue that overbooking is a way for them to provide a long-term, sustainable service in a very competitive industry.

It helps them whether a number of variables that can affect their profit margins, such as rising labor costs and changing fuel prices.

Recently the International Air Transport Association downgraded its 2019 outlook for the global air industry by more than $7 billion in large part due to the rising price of jet fuel.

So overselling plane tickets helps airlines maximize profits, but according to industry experts it also benefits passengers.

It gives them more choice and access when booking flights and lets the airlines charge less for a ticket too.

Overbooking, as well as unplanned operational issues, meant that in the U.S. last year more than 380 thousand passengers were denied boarding.

Most were voluntary, but nearly 12,000 passengers didn't have a choice.

When overbooking flights, most airlines use sophisticated revenue management systems to choose which seats to oversell.

These systems are powered by AI software that analyzes historical flight data and other variables like date, time and even special events, enabling airlines to profile the type of fare sold and estimate the number of empty seats there will be.

For instance, it may spot an increased risk of no show passengers on connecting flights, who might miss their connection if their first flight is delayed.

There's also a chance that tickets booked speculatively may result in empty seats.

For example, large optional group bookings may later end up requiring less seats than expected, which is why airlines will oversell these flights until seats are named and paid for.

Once confirmed, group bookings are highly likely to show up, which means the airline's need to overbook will actually reduce.

Airlines are also alert to flights with passengers on flexible tickets.

These tickets cost more, but allow travelers to change their flights without a fee.

Usually used by business travelers, flexible tickets are a big reason for airlines overselling flights.

There's also a high chance that this type of traveler books flexible tickets on multiple flights to cover their options, leaving at least one seat empty.

This was especially true with the Concorde.

The supersonic jet could only seat 100 passengers, yet British Airways and Air France reportedly sold up to 130 tickets for each flight knowing that the majority of passengers were business travelers, booked on flexible tickets and could change their mind on what flight to catch at the last minute.

If BA and Air France hadn't oversold those flights, the empty seats would have been a huge hit to their profitability.

Conversely, if the ticket is non-refundable or non-flexible, it's more likely the passenger will turn up.

This is often the case for budget carriers.

Many of these airlines tend to not overbook as much, due to the low rates of no-shows, around roughly 5%.

Even with sophisticated airline revenue management systems, empty seats are still an issue for airlines.

Last year the global passenger load factor was 81.9%.

That means that on average planes are flying with almost 20% of its seats empty.

You'd be forgiven for thinking the number of people being denied boarding has increased, thanks to the many incidents that have gone viral on social media in recent years.

But as data gathering and technology has improved, that number has actually been in decline.

In 2018, there was a total of 11,835 involuntary denied boardings by the 10 biggest American airlines.

That may sound a lot but it works out as just 0.14 involuntary bumps for every 10,000 passengers booked to fly, the lowest number since records began in 1995.

Still, sometimes too many people do turn up for a flight.

First airlines will ask if any passengers are willing to give up their seat, also known as voluntary denied boarding.

The vast majority of overbookings in the U.S. last year, around 97% were solved voluntarily.

But if there aren't enough volunteers, airlines will then involuntarily bump passengers at the airport.

The criteria for who is denied boarding varies depending on the airline.

However, according to some industry experts, you're less likely to get bumped if you're traveling in first class, have an ultra high status in the airline's frequent flyer program, or you're traveling with your family.

If you're traveling alone, one of the last passengers to check in and bought your ticket last minute or at a cheap fare, then you're more likely to get bumped.

And if you are involuntarily denied boarding, there's nothing you can do about it.

That's because when you book a flight you're agreeing to the airline's contract of carriage.

The terms and conditions within that contract state that the airline has the right to deny boarding to any passenger they wish.

So, are passengers at the mercy of airlines?

Legislation on passengers' rights vary around the world, so it depends on where you are and which airline you're flying with.

If you're flying to or from EU airports on a European airline, you are generally well protected.

That's because of the EU's Flight Compensation Regulation.

Let's say you've been denied boarding on your overbooked flight from London to Paris.

One is a full refund of the ticket plus a return flight to your original point of departure if you had traveled on a connecting flight.

Or you can request to be re-routed to your final destination as soon as possible or at a later date that suits you.

Regardless of which option you choose to take, or the duration of your delay, you're also entitled to compensation relative to the flight distance.

In the U.S., compensation for being bumped is based on the duration of your delay and whether it is a domestic or international flight.

If you were involuntarily bumped off but arrived no more than an hour after your originally scheduled arrival on another flight, you receive no compensation whatsoever.

If the airline doesn't organize substitute travel arrangements, then the maximum you can claim is $1,350 on a domestic flight, regardless of whether the cost of the ticket exceeds that amount.

Airlines can offer such compensation in cash, travel vouchers or a combination of the two.

You may be surprised to hear that there are passengers who love getting bumped and will intentionally book flights at the busiest times to increase their chances.

Some airlines, like American carrier United, offer up to $10,000 compensation for passengers who get bumped.

People who need to travel urgently also benefit.

They can buy tickets for a departure, even though it's theoretically sold out.

In addition, filling every seat on a flight helps reduce the environmental impact per passenger, at a time when commercial aviation faces criticism for its carbon footprint.

As artificial intelligence and algorithms improve, the number of jetsetters being denied boarding will continue to decline.

But airlines make more money from overselling flights than they lose from compensating passengers without seats.

And that means the current business model isn't likely to change anytime soon.

So don't be surprised the next time you get bumped.

If you want to see more of our content then check out these videos.

And we'd love to know your stories about being bumped, how bad was it?

Comment below the video to let us know and remember, don't forget to subscribe.