Saturday, June 08, 2013

The mysterious economics of overbooking in the airline industry

I don't understand the economics of overbooked flights. Before today, I thought I got the basic idea--airlines are trying to squeeze every dollar they can out of a flight. So if a plane has 50 seats, and all 50 are sold but three people (for whatever reason) don't show up for the flight, the airlines view that as a loss because they could have sold those three empty seats to someone else. Never mind that they sold fifty seats for a fifty seat aircraft. The airline thinks, "yeah, but we could have sold 53 seats for that 50 seater!" And so, to capture those three hypothetical seats, they sell more seats than there are on planes and then figure if too many people show up they will just shuffle them to another flight with unsold seats, with the net result being more seats overall paid for.

But that logic doesn't hold when you add in the money that the airlines pay out to people who pay for tickets but find they have to fly later on an overbooked flight, or the incentives they offer passengers on overbooked flights to give up their seats if a flight is overbooked.

Take what happened to the noz clan today: we had tickets for the three of us (Mrs. Noz, Noz Jr. and I) to fly to Quebec City. The flight was overbooked, and when we showed up, I was assigned the last seat on the plane, with Mrs. Noz and Noz Jr. bumped to standby. They made an announcement asking for volunteers for people who were willing to give up their seat in exchange for a new itinerary on a later flight plus a $425 voucher. There were no takers. Because I was not willing to fly ahead of the others, all three of us missed the flight. Instead of taking three seats on a single direct flight, we took three seats on an itinerary with a connection, which meant we took three seats on two separate flights. They also gave us a $425 voucher for a future flight, to be used within one year, plus cash (well, two checks) totalling $2600.00.

So while they sold an extra two seats on our original flight when they overbooked it, they ended up paying us significantly more than we paid for our original ticket cost, plus we took up a total of six seats in their network, rather than just three. Yes, we made a profit off of our original round trip purchase, and that was from only using the first half of the round-trip itinerary. How did overbooking possibly benefit the airline in this case? Actually, everyone lost. Never mind the windfall, I think we would have had a happier day if we hadn't had our first vacation day flushed down the toilet by a greedy airline. It's even more infuriating because it seems that the airline was so bad at being greedy. I mean, if you're going to fuck people over to make more money, you should at least make sure that you will actually make more money.