Why Airlines Sell More Seats Than They Have

United’s flight 3411 was scheduled to leave Chicago O’hare airport at 5:40 pm on Sunday,
April 9th to Louisville, Kentucky, but after dragging a passenger off the flight and a
two hour delay, it turned into one of the biggest PR disasters an airline has ever seen.
Of course, the impetus of this entire news story is that airlines sell more seats than
they have—its just better business.
With any flight, a certain number of people won’t show up—that’s called the no-show
rate.
Flying with an empty seat is a lost opportunity for an airline to make money—even if someone
did buy a ticket for that seat—so many airlines have instilled complicated systems to predict
how many people will miss their flight.
That no-show rate varies hugely by route and date.
In United’s network, Chicago, where flight 3411 left from, likely has a high no-show
rate since it is their hub.
A large percentage of the passengers taking a flight from Chicago connect from another
flight and, since 1/4 of US domestic flights arrive late, many people miss connections.
In addition, there are a ton of competing airlines and modes of transportation from
Chicago so it’s not a huge deal for passengers to change their plans to leave a few hours
or days later.
On a flight from, say, Bangor, Maine, a small rural airport, to Washington DC, passengers
are much less likely to miss or decide not to show up for their flight.
No passengers are connecting through Bangor onto this flight to DC and there are also
very few alternatives.
With only 10-15 flights a day and no train service, missing a flight out of Bangor is
much more inconvenient than one out of Chicago.
Flights on Sunday nights, like flight 3411, are also likely to have a lower no-show rate
since travellers are wary to get back to work on Monday.
There’s no good public data on how many passengers miss their flights—it’s a closely
guarded secret—but this data is used by airlines to build models that predict how
many seats they can safely oversell.
The good news is that these models are getting better.
In 1990 US airlines denied boarding to about 16 out of every 10,000 passengers while today
its down to 9 out of every 10,000 passengers.
With better and better data and smarter and smarter programs, these models are constantly
improving to let airlines sell these nonexistent seats more safely.
In the end, what airlines pay to compensate those half a million yearly passengers who
are bumped from their flights is far less than the hundreds of millions of dollars they
can make overbooking—until of course, it turns into a worldwide PR disaster.
So how can you be sure that you won’t be bumped?
When airlines do have to involuntarily select individuals to offload, they’ll often use
a hierarchical system—choosing the individuals that supposedly have the least merit to be
on the flight or least value to the airline on paper.
Normally a computer will pick those who checked in last and have no or low frequent flier
status.
So, if you check in early, even online, select a seat, and get your boarding pass, you’re
much more likely to fly on your flight.
In addition, having a frequent flier account, even if you don’t use it much, will improve
your odds over the majority of people who don’t have one at all.
You can also fly airlines that overbook less: JetBlue had to involuntarily deny boarding
to only 18 out of its 21 million passengers in 2013.
Since they sell mostly sell inflexible tickets with fewer connections, passengers are much
more likely to show up for their flight so JetBlue has a blanket policy not to overbook
flights.
What you have to remember with airlines, however, is that they’re constantly trying to find
ways to make more money per seat so that they can reduce ticket prices.
That’s not to say they’re altruistic organizations, they just recognize that the number one determinant
to whether someone will fly their airline is that one number—the ticket price—so
they’ll take almost any opportunity to reduce it in order to gain a competitive advantage.
Time and time again it’s been proven that the majority of consumers want cheaper flights
more than they want a better travel experience—that’s why budget airlines are making such a disruption—so
this whole trend of unbundled airfares, fees for everything, and even overbooking is all
in response to what the consumer as one entity wants—cheap flights.
I hope you enjoyed this short and extra Wendover Productions video.
If you’d like to support the channel, you can do so over at patreon.com/WendoverProductions.
I’d also encourage you to subscribe to catch all my future videos right when they come
out and follow me on Twitter @WendoverPro to get updates along the way.
Lastly, if you enjoyed this video you’d probably enjoy the one on the Economics of
Airlines Class which you can find here.
Thanks for watching, and I’ll see you in two weeks for the next full-length Wendover
Productions video.

Why Airlines Sell More Seats Than They Have

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