It's been demonstrated in countless other threads (1) and articles (2) how economically important it is to overbook.
Overbooking is central to airline profitability and their ability to provide flexibility - like partial refunds, or SW's "open tickets" policy on business select.
As a consumer I appreciate these things and find them incredibly useful.
United's response of "We'll push the allowance up to $10,000" is completely acceptable to me, that seems like the simplest solution.
I still don't believe this claim. A 727 seats 129, a 787 seats 290, and a 747 seats 366. That means it only makes flights slightly less expensive. I only travel a few times a year and I'd rather pay 2% more than get bumped off my flight.
Why do we allow airlines to overbook but not movie theaters or other industries? This seems like an artificial advantage we've given them and it doesn't seem beneficial at all to the average consumer.
Paying 2% more and getting bumped off your flight is a false dichotomy. United's approach of offering $10k avoids both.
I don't see a reason to waste seats if it can be avoided without hurting consumers. Wasting seats is inefficient economically and bad for the environment.
I think you're missing the fact that a percentage of people don't turn up for their flights, so on most overbooked flights, the airline doesn't have to buy back tickets at all.
If theaters had an escalating buyback price for their tickets, I could be persuaded to, say, not see the next Star Wars movie for $100 and then see it later. I have a price. Most people do.
Almost nobody gets bumped involuntarily on competent airlines. They just increase the bid until someone has a hell of a great day by clearing first class round trip tickets across the globe for volunteering to spend the night.
This isn't your point, but, in case anyone's wondering, Southwest doesn't fly any of those planes. An interesting thing about their operation is that they exclusively fly Boeing 737 aircraft.
Overbooking is a technique used by legacy airlines. Pure LCCs don't use it (certainly in Europe) because their tickets are non-refundable other than from EC261 claims and they don't have inter-lining or partnerships with other carriers. I'm surprised Southwest were overbooking in the first place given they're a budget airline...
Edit: An exception may be Easyjet (though I've never seen it happen and I fly them a lot). They offer flex tickets mainly aimed at business flyers which would make it worthwhile for them to do some limited overbooking.
Economically speaking, non-refundability doesn't necessarily make overbooking unnecessary.
Let's take two airlines, A and B. Both only sell non-refundable tickes. A never overbooks. B always overbooks. What happens?
A will fly with some number of empty seats on average, because they still get the occasional no-show. B flies with fewer empty seats on average because they overbook.
Which airline can offer more competitive prices? It's B. Because by overbooking B's revenue per plane leg is higher.
If that isn't clear, here's an example. Say the planes have a capacity of 100, and on average 2 people fail to show. A sells 100 tickets for $100.00 each. B sells 101 tickets for $99.02 each. On average, B makes more money on every flight, _and_ is more competitive on price.
Of course with the numbers in my example the compensation paid by B on the odd occasion that everyone shows up probably kills any additional profit. The real numbers matter in order to determine to what extent this really happens in practice. But I hope I've demonstrated that non-refundability of tickets doesn't necessarily or automatically mean that overbooking is not profitable.
So there is some potential level of competitive benefit to overbooking even on non-refundable tickets, assuming that some people still occasionally fail to show (because they miss a connection, become ill, or whatever).
On the other hand, the discussion delays boarding, you need better/more gate staff, you need the infrastructure to pay out, quickly book to other flights, etc.
I think Ryanair's approach of not overbooking is sensible as it keeps the operation very easy. Also, they can book every flight to 100%. If you deny boarding, you need to offer alternatives. That's not possible if you're the only airline flying from the airport (Ryanair used to use a lot of regional airports) and your next flights are already at 100%.
> If that isn't clear, here's an example. Say the planes have a capacity of 100, and on average 2 people fail to show. A sells 100 tickets for $100.00 each. B sells 101 tickets for $99.02 each.
As usual, people striving to save one dollar no matter what (in this case, giving up the certainty of flying) are the problem.
It could be much more than one dollar. Those were my made up numbers to demonstrate the principle, not any kind of indication of the magnitude of the real numbers.
> As usual, people striving to save one dollar no matter what (in this case, giving up the certainty of flying) are the problem.
It's not necessarily a problem. Flyers can choose between certainty of flying and other nice things that cost money. Most appear to choose having other nice things instead. Southwest is banking on flyers choosing the other way. There may well be space for both approaches in the market.
Not explicitly, but I'm guessing that if you've paid for business/first, there is some small chance you'll be bumped back to economy (as in the story making the rounds a few weeks back) but probably a vanishingly small chance you'll get bumped off the plane entirely.
Southwest flights aren't that cheap unless you book in advance. And they used to (still might?) have a very flexible refund policy. You could not show up for a flight, never call, and still get a full credit for the value of your ticket to any other Southwest flight in the next 12 months w/ no penalty. I really like Southwest.
They've restricted it slightly: now you have to notify them at least 10 minutes before the flight. But still no penalties - I really hope they don't have to do away with that policy since that's the main thing I like about Southwest.
The 10 minutes prior departure cancellation rule is for full refund to the original payment method, i.e. refund to credit card or cash. If you missed the flight without cancellation, you got back SW credit as refund, which has to be used within a year.
For the lowest-price ticket, "Super Web Saver" or whatever, there is no way to get a cash refund for a cancelled flight 24 hours after purchase. You just get the credit for cancelling 10 minutes before departure.
After that, you get nothing. It's in the contract. I think it's only been that way for 2 years or so.
They recently added quite a few international flights [1]. They now offer service to Aruba, Belize, Cabo San Lucas/Los Cabos, Cancun, Cuba (not sure if it has started yet), Grand Cayman Island, Liberia, Costa Rica, Mexico City, Montego Bay, Nassau, Puerto Vallarta, Punta Cana, San Jose, and Costa Rica.
The majority of seats sold in Europe are now one-way / singles, due to the rise of low-cost carriers which don't offer anything else.
However it's still a good idea to book each individual flight in a different transaction. Avoids any shennanigans on the airline's part for no-shows and there's no downside for the passenger other than a slightly longer booking process.
The article pretty clearly suggests this policy was under consideration anyway, though the United incident at least seems to have affected the timing, and might have made it easier to pull the trigger.
> Overbooking is central to airline profitability
Flying full is certainly beneficial to profitability, and overbooking makes that more likely. But it's not without costs, and it's quite possible that the cost/benefit has changed since the policy became a norm.
The main budget airline in Europe (Ryanair) doesn't overbook flights, and as far as I am aware never has done. They managed a net profit of 1.4 billion dollars last year.
Yep, the main difference in Ryanair's model is that basically all tickets are nonrefundable. This way, even if the plane leaves half-empty on the day despite being fully booked, it will have paid for itself - which is what should happen, really.
What you lose by renouncing overbooking is the ability to change your ticket without paying for it again (which is what happen with Ryanair - fees to alter bookings are so huge, it's cheaper to just buy a new ticket).
That's not really an argument. Profits could have been even higher if they had leveraged overbooking. And some of Ryanair's tickets are certainly below marginal costs - making me wonder if really all fights pay for themselves that easily.
My guess why they don't use overbooking: it's really complicated. Both finding the right balance of overbooking as well as managing the procedures at the airport. Ryanair has simply decided in favor of simplicity forgoing some additional revenue
> Profits could have been even higher if they had leveraged overbooking.
But risk would also be much higher - as you say, handling overbooking correctly is complicated, and when it goes wrong it can go very wrong. Ryanair didn't just renounce revenue, they renounced risk and the costs associated with managing that risk.
> And some of Ryanair's tickets are certainly below marginal costs
The operational word being some. Much-fanfared rock-bottom prices nowadays are very limited, and the cost of a seat goes up very very quickly after they're exhausted. The cheap tickets are now a marketing proposition for the real ones.
Even their normal ticket prices are regularly cheaper than their competitors. I fly a short hop once every six weeks or so (edinburgh to Dublin - maybe 40 minutes). Even the full price tickets for the flight are almost always cheaper than their only competitor on the route (aer lingus). I've noticed this on other European flights too, where they are often 40-50 euro cheaper than their competitor.
Ryanair are running at >90% seat capacity across their routes, without overbooking. Not sure the complexity of introducing it would be worth the gain given their load factors.
Edit: then again, with their relatively recent business plus fare (which allows ticket holders some flexibility), who knows...
Oct - Dec 2016 Passengers Denied Boarding
by U.S. Airlines. United's Denied Boarding is 0.40 per 10k passengers vs JetBlue DB of 1.19 per 10k passengers.
JetBlue doesn't overbook, but they do swap A320 for A321 which have 50 fewer seats, fairly randomly, which leads to a lot of IDBs (you can ask for volunteers and get them when it's 1-5 people on a 200 person flight; you are probably screwed if you need 50 people on a 250 person flight.)
> Overbooking is central to airline profitability and their ability to provide flexibility - like partial refunds, or SW's "open tickets" policy on business select.
Are you sure of that?
I would think that airline profitability is largely dictated by competitive forces, rather than the particulars of in which practices the overall industry is permitted to engage.
(Note that I'm assuming a world where all airlines, or no airlines, overbook. If only some of them overbook, then I agree the practice could affect relative profitability of those who do / don't overbook.)
You're right that it's not intrinsically essential.
To an airline, a flight that leaves with an empty seat is basically throwing money away; that empty seat doesn't mean you can take less fuel, fewer flight crew members, or wear out the airplane less. Therefore, the empty seat saves the airline no money.
Furthermore, people often miss their flights.
Overbooking is one way to deal with these two assumptions. Assume a certain number of people will miss the flight, and sell some seats twice. Then you don't fly with money-eating empty seats, and you can lower the ticket price a bit, because you don't have to charge customers the cost of those statistically-likely empty seats.
There are other solutions. Don't offer any refunds or reaccommodation to no-shows. The seat was empty, but someone paid for it, so who cares? But customers probably don't like that. The might even like it less than overbooking. I don't know, I don't run an airline. There are options, but overbooking exists for a reason.
Well, there is more fuel left in the tank, so there is less on the refill so yes it does save fuel, not much but it does save some. I prefer no refunds for no-show policy myself, that is how it works when I buy a ticket to see a play. Now refundable upto 48 hours before the flight might be even fairer.
The fuel increase is marginal. You still have to burn fuel to carry that fuel to the next airport. And you have to carry the airframe with capacity for that empty seat. The 100 kg for a passenger+luggage is much less than the fractional weight of the plane required to carry them!
For some numbers, a 777-200 carries 313 passengers, weighs 135k kg, carries up to 100k kg of fuel, and has a max takeoff weight of about 250k kg. 313 passengers and luggage, averaging 100kg, weigh just 31.3k kg. Your ticket therefore pays for your weight, plus 5x your weight in airplane structure, plus (up to) 3x your weight in fuel.
If you don't show up, they're still carrying 8x your weight anyways, so saving 200kg isn't that important.
(PS: apologies for the 'thousands of kg' units. I thought it was more readable than Mg or fully written out numbers.)
> I prefer no refunds for no-show policy myself, that is how it works when I buy a ticket to see a play.
What about if you are flying long haul and linking up to a domestic flight on another airline? "Oh, we can't help you because your previous flight was delayed due to weather/mechanical/congestion.you should have flown on one carrier even if the price was 2x"?
Airport congestion is a big issue in the US, as is weather related delays.
There are absolutely circumstances where flights on different carriers end up on different itineraries. Sure, TS is one possible solution in the event of delays but so are processes that make dealing with delays out of the ongoing carrier's control more passenger friendly.
>that empty seat doesn't mean you can take less fuel
I was under the impression that the fuel load for each flight is calculated based on a formula that averages the weight for each passenger and their expected luggage. Fewer passengers than expected = more fuel left over after the flight.
If the 100-passenger airplane always had only 99 passengers, there would probably be noticeably lower fuel cost. But a 99-person airplane would be even cheaper.
Yep you're right, everyone employed by Southwest to research and implement this apparently crucial detail of airline travel has no idea what they are doing and totally fucked up.
I honestly think hacker news should implement a feature where your comment is read back to you slowly before you post. Or you have to retype it out twice. Something, anything, to give the blowhards on here pause before they bless us with their cited[0] wisdom.
I think if there's any airline that I'd give the benefit of the doubt for making a change like this, it would be SW. I can't imagine that a conversation around this issue ONLY came up for them after the (most recent) United fiasco.
Not all airlines overbook. Case in point, JetBlue, which as a practice does not overbook. United heavily overbooks, which is closely related to their practice of trying to offer the cheapest tickets on major competitive routes.
United lost over $2 billion last year. JetBlue made about $800 million in net income last year. So which strategy is "economically important" again?
Yes, that's what "standby" tickets basically are. Some airlines would (not sure it's still a thing) sell you a "standby" ticket for cheaper than a normal ticket, which meant you show up and wait at the gate until near departure time, and then if there are any seats available they let you on the plane. If not you have to wait for the next flight.
Yeah, but the problem is that most tickets are now, in effect, standby, but not labeled as such. Hence why the parent suggested making the status (and the option to upgrade) clearer and more readily available.
On Delta the Basic Economy (E) basically are standby since you can't select your seat and are only assigned one at check in (or at gate? can't remember). It's not even that much cheaper than regular main cabin.
According to the article, 4% of planes are overbooked. And if they are, <5 will usually be re-booked. Which is a low single-digit percentage of passengers. So your chance of being denied boarding is probably <0.1%. Wouldn't say that all tickets are standbye.
It's rather that thanks to the internet we know of stories like these. 10 years ago no one would've known.
I say that you're "effectively on standby" when there's a potential for the overbooking to keep you off the plane, which is the kind of risk that should be made explicit.
If you buy a higher fare class you won't get bumped -- or extremely rarely. I fly 60,000 miles per year and I have never been bumped. But I also don't buy bulk-fare consolidator tickets from travelocity-type sellers either.
Involuntary bumps are extremely rare statistically anyway.
While I generally agree -- Southwest is more of a budget airline, so it may not be subject to the same magnitude of loss from people missing/skipping their flights. I could see the United demographic having far more no-shows.
For those who aren't aware, airlines overbook because there are, on average, a significant number of people who miss or skip their flights. It's wasteful (and bad business) to leave those seats empty when instead, you can overbook and have an extremely low percentage of flights end up without enough seats.
Edit: as others mentioned, overbooking also allows airlines to be more flexible with refunds.
I understand the benefits of overbooking and I think it's an overreaction to stop it entirely.
But, couldn't they make the tradeoff more explicit and transparent for the customer? "This ticket allows you to be bumped, for which you will be paid $X. You can pay $Y more to make it a permanent you-own-this-slot-we're-not-f'ing-around reservation."
None of this, "oh, you didn't read and memorize the minutiae of overbooking policies and have to figure everything out minutes before the flight you thought you were going to be on!"
It already IS transparent. Every single ticket counter generally has some form of overbooking notice. -- at lesst they did when I flew through DFW a few weeks ago. I don't think anyone reading this is unaware of overbooking. It isn't some mysterious secret clause on a TOS page somewhere.
Overbooking is key for maximizing producer surplus. Whether or not that is economically advantageous to the economy as a whole is a different and more complex question.
But the notion that a company maximizing it's surplus is _always_ beneficial to consumers is tricky but more likely false within the confines of my limited understanding of contemporary economic theory.
It's necessary to maximize total surplus as well. If someone wanted to get on the plane, and they took off with a seat empty, that's a deadweight loss. The guy sitting next to an empty seat is a little happier, but it's pretty minimal.
United increasing the maximum bump fee completely solves the problem. Short of the apocalypse, you're going to find plenty of takers on any flight for $10k, even if it's a multiple day delay. The people who take the payoff are better off -- if they weren't, they wouldn't have taken the voluntary deal to fly later. Then the airline just needs to gather some statistics about how high the auctions go, and optimize the overbook rate to maximize their revenue. Everyone then is better off. In fact, on a lot of flights, you can probably find multiple people to bump with just a token payment -- they'd rather stay another day.
The other great thing about dynamic overbooking like this is that you never have to have a sold out flight, some of them are just really expensive. Someone who really needs to be on a plane walks up and plunks down $5000 or something, and the airline finds the least disrupted passenger, and pays him a few hundred. The bumped guy is happy to have the money, the last minute guy is happy to be on the plane, and the airline is happy to make $4700 extra.
This works even better with a name-your-price bump question on checkin for flights that are oversold. Even if it's nonbinding, the airline now knows that it has willing passengers to bump and can keep selling tickets.
This is why I left it vague...it really is a complicated issue with several angles. That...and my Bachelors only goes so far.
That said, I think you are conflating a couple of economic principles.
> It's necessary to maximize total surplus as well. If someone wanted to get on the plane, and they took off with a seat empty, that's a deadweight loss.
I think you are confusing utility [1] with surplus somewhat here. If someone wanted to get on and they took off with an empty seat that is a loss in Utility. If the airline turns around and sells that seat to the new person that increases Producer Surplus (and conversely decreasing Consumer Surplus) to increase Utility.
I don't think this situation (empty seat) is DWL in the traditional sense [2]. The traditional DWL scenario is when producers could supply more but don't because of pricing constraints or other artificial ceilings/floors. It is definitely a marketing allocation inefficiency which results in Utility loss and I am kind of interested to see if there are better quantifications of this loss...but it isn't a DWL in surplus technically.
> Everyone then is better off. In fact, on a lot of flights, you can probably find multiple people to bump with just a token payment -- they'd rather stay another day.
It's totally possible that everyone can be better off. The issue isn't about when everyone is better off...it's when the system breaks down and you have situations where no one wants to make that trade.
> The bumped guy is happy to have the money, the last minute guy is happy to be on the plane, and the airline is happy to make $4700 extra.
This is an example of maximizing producer surplus. In my mind it's a variation of Price Discimination [3]. And while this overall beneficial situation is plausible, it isn't really overbooking.
For me, overbooking is basically selling more goods than you actually have and playing on the statistics trying to bank on people not making the flight. If you sell 30 seats and 5 people don't show, you take off with 25 people on board. If you sell 35 seats and 5 don't show, you take off with a full flight and pocket some additional revenue from the 5 no shows.
Now there is a lot of gray area since most no shows are from missed connections and so some of that additional revenue can go back into the system to allow for cheaper cancellation fees as well as accommodating rescheduling costs for these missed connections. But in general I suspect that producer surplus increases more than the gain in consumer utility.
> This works even better with a name-your-price bump question on checkin for flights that are oversold. Even if it's nonbinding, the airline now knows that it has willing passengers to bump and can keep selling tickets.
This is again, Price Discrimination but now adding information imbalance in order to help the airline more effectively Price Discriminate thereby maximizing their Producer Surplus.
Technically the United situation isn't the result of overbooking anyway...but I still think the practice warrants scrutiny. United's recent announcement to increase payouts and mileage compensation is testament to the fact that there was Producer Surplus to spare.
Like I said, all of this is speculative discussion and there is a lot of gray area. It is also plausible that overbooking results in maximizing Utility and an even handed redistribution of benefits to both producers and consumers. But I believe Producers are driven by incentives...and they don't have strong incentives to share the benefits of overbooking altruistically back to the consumer.
I fly from SFO - PDX every other weekend and consistently, no matter how early I book, Virgin America flights are cheaper than United and Virgin doesn't overbook whereas United does. Generally speaking, if United were even slightly returning the added revenue from overbooking to the consumer shouldn't their flights be cheaper than non-overbooked competitors?
Again this observation and subsequent question is anecdotal and broad...but I like it for FFT.
There is a difference between Surplus and Utility. I think there is a case to be made that this practice increases Consumer Utility and trades it somewhat for Producer Surplus...but generally speaking, Price Discrimination increases Producer Surplus (thereby reducing Consumer Surplus).
Price discrimination does not necessarily reduce consumer surplus. In this case in particular, there is a large surplus being created by the fact that planes fly more full, and I don't know any reason to think that consumers don't capture much or most of this .
I would be interested to see how you would graph price discrimination not reducing consumer surplus. Price Discrimination in itself is about redistributing surplus from consumer to producer.
> a large surplus being created by the fact that planes fly more full
I think you are conflating surplus with utility. Full flights have more utility than not full flights...but the market surplus available is unaltered.
Maximizing utility is not a bad goal to have...but it is distinct from Consumer and Producer surplus.
> I don't know any reason to think that consumers don't capture much or most of this .
Because in general most of the surplus is captured by the Producer and the producer doesn't have any incentive to redistribute it back to the consumer. Not having an incentive doesn't mean they don't, I am just pointing out airlines aren't incentivized to reduce the seat cost of a late purchaser by the amount of the cancellation fee for the person that cancelled their flight...or even offer the seat at the price the original person paid.
Anecdotally (as mentioned in my other comment) we can compare United to Vrigin. Let's assume that a whole bunch of "surplus" is created by overbooking. United overbooks, Virgin does not. If the consumer captures most of this than United flights should be cheaper than Virgin ones in almost every way (ticket price, bag check fees, cancellation provisions, etc.). I fly from SFO-PDX twice a month. Virgin America consistently has lower priced fares than United.
This is observational and anecdotal...but the result casts doubt on the hypothesis that the consumer captures most of the surplus generated by overbooking. Admittedly, I wouldn't expect the consumer to do so from a purely theoretical stand point .
> I think you are conflating surplus with utility. Full flights have more utility than not full flights...but the market surplus available is unaltered.
Utility is quantity that is measured with respect to an individual (subjective), whereas surplus is an objective measure. This is but one difference, and I am not conflating them. Fuller flights (less dead-weight loss) means there is more surplus to go around, and which will in general be divided up between the buyers and sellers.
I could say similar things about your understanding of price discrimination. My guess is that most of your confusion comes from thinking in terms of an idealized model where prices are dominated by marginal costs, whereas fixed costs for planes are very large.
This can all be inferred from the definitions you link to, you just haven't internalized them.
The $10,000 change at United depends a lot on the implementation.
For instance, if they continue to have rapidly-expiring vouchers, most travelers will not have any practical way to use the whole reward. Also, the airline could add conditions to vouchers such as a voucher that is completely “used up” by a ticket purchase even for tickets that cost less than the voucher amount. There are lots of ways they can try to create good press by technically giving you something that is hard to use.
The first claim in your first link... exactly what I expected to find: "By overbooking it actually does help keep the fares down"
Money. Low low prices. That's why people that have paid for tickets are getting beat up and kicked off planes.
In all sorts of other aspects of our world we're expected to gladly accept higher costs as the price of our "values." Higher energy costs, mandates for various types of insurance, taxes to fund one agenda or another and on and on. Perhaps you haven't considered this yet but delivering the seat that a paying customer has paid for and not subjecting any of these otherwise compliant paying customers to the possibility of being thrown off a plane --- by martial force if necessary --- is a "value" we might aspire to.
And if that means maybe you are a little more careful about just how often you bop across the continent in a 600 mph jet because the cost is a little higher, or you can't play ticket games with as much abandon as you're used to well... perhaps that isn't really the end of the world.
The only time I experience overbooking is when travelling in the US. I have never had someone come on a flight, or announce at the gate, that people must give up their seat and offer compo (something I have experienced on probably 20-30% of my domestic US flights).
If it gets really high, I imagine passengers would do their best to drive it up. Would you volunteer if the offer was $2k out of a $100k vs a $10k pool? It defies classic game theory to an extent, but humans like to roll the dice.
You're going to collude with ~100 random strangers to prevent anyone else from taking the offer until it gets to the level you want it to get to, and then agree to split it somehow? Ha ha ha.
Last year when I was flying back from LIH this happened but on a very small scale. These two guys both were joking about just driving the price up and so they did, all the way to the max Guy got a free hotel stay and food as well since there was only one flight per day to LAX.
There's nothing to suggest the model is overly simplistic. Good luck convincing 100+ people to collude on those shenanigans at their own personal loss.
Someone will eventually defect, probably far lower than $10k. If it becomes a very high cost for airlines, they will simply price that externality into their calculation for double booking.
It's been demonstrated in countless other threads (1) and articles (2) how economically important it is to overbook.
Overbooking is central to airline profitability and their ability to provide flexibility - like partial refunds, or SW's "open tickets" policy on business select.
As a consumer I appreciate these things and find them incredibly useful.
United's response of "We'll push the allowance up to $10,000" is completely acceptable to me, that seems like the simplest solution.
(1) http://www.businessinsider.com/overbooking-flights-is-good-f...
(2) https://techcrunch.com/2017/04/11/overbooking/