{"id":338085,"date":"2017-04-12T02:35:48","date_gmt":"2017-04-11T18:35:48","guid":{"rendered":"http:\/\/techcrunch.com\/?p=1475452"},"modified":"2017-04-12T02:35:48","modified_gmt":"2017-04-11T18:35:48","slug":"why-do-airlines-overbook-their-flights","status":"publish","type":"post","link":"https:\/\/people.utm.my\/asmawisham\/why-do-airlines-overbook-their-flights\/","title":{"rendered":"Why do airlines overbook their flights?"},"content":{"rendered":"

<\/p>\n

We\u2019ve all been there: You arrive at the gate and it turns out there are more passengers wanting to fly from point A to point B than there are seats on the plane. You wouldn\u2019t be the first person to have thought the thought that, \u201cWell gee, if you only have 200 seats, why would you sell more than 200 tickets?\u201d It turns out, however, that there are a couple of excellent reasons for doing this, powered by money, efficiency and a whole lot of statistical analysis.<\/p>\n

Moving 900 million passengers around within the U.S. every year is no mean feat, and people travel for all sorts of different reasons, with leisure and business being the two dominating categories. The thing is, not everybody turns up to every flight. On average, the number of people not turning up to flights is around 5 percent, but, in certain circumstances, that number can be up to 15 percent. Obviously, that puts airlines in an interesting position.<\/p>\n

Sometimes too many people turn up to a flight. Usually, this is resolved by asking people to volunteer not to fly, but that doesn\u2019t always work out. Last year, 46,000 travelers were involuntarily bumped from flights.<\/p>\n

Your ticket isn\u2019t for a specific seat<\/h2>\n

The thing is, when you book a flight, you book a plane ticket from, say, New York to San Francisco. You do usually choose which plane you want to get on. You may even choose<\/em> a seat, but technically, you\u2019re not buying that specific seat on that specific flight. You are buying a journey from one city to another. If you are coming in from London and you miss your connection in New York, for example, the airline will usually re-book you onto a different flight without extra charge. The same usually happens if you arrive 10 minutes late because of traffic.<\/p>\n

If you have a flexible ticket, you can also switch your ticket from one flight to another, sometimes at very late notice. If you\u2019re a business traveler, you\u2019re among royalty: You are one of 12 percent of passengers on the flight, but you represent 60 percent of an airline\u2019s revenues. Why? Because business travelers usually need the highest degree of flexibility. A meeting might run late, or an opportunity might come up so you need to take an earlier or later flight, possibly to another destination. That also means that if you are among that group, you\u2019ll probably fly on the flight you\u2019re booked on, even if you\u2019re not flying business class and even if the flight is \u201cfull.\u201d<\/p>\n

All of which is to say that if you sell 200 tickets to a particular flight, a number of your passengers may not turn up to the flight. So what do you do?<\/p>\n

One option would be to fly with empty seats, but that\u2019s the worst possible scenario in an industry that can run at a profit margin of as little as 1 percent<\/a>. From a financial point of view, this causes lost revenues (a plane flying at less than full capacity is a waste of money). More importantly, unused tickets cause a liability on the balance sheet \u2014 the tickets you sold are often still valid<\/em>, you just don\u2019t know exactly when those passengers are going to show up to try to re-book their seats.<\/p>\n

To try to avoid this, airlines use a wealth of statistical data to try to ensure that the flights are as full as possible, and if they maximize for customer satisfaction, they often get it right.<\/p>\n

When people don\u2019t turn up<\/h2>\n

You may have seen an airline offer someone $500 to voluntarily give up their seat on a flight because they are overbooked. If you are going to a funeral, to an important meeting or if you\u2019re a doctor on your way to see a patient<\/a>, that may not fly. If you\u2019re on your way on a holiday, however, and you figure that $500 to spend on another flight later in the year means a free trip to visit the family, you may be willing to let yourself be bumped off the flight.<\/p>\n

\u201cThe money we offer passengers to give up their seats makes perfect sense to us,\u201d says George, a statistician who works at a major airline, but who wishes to remain anonymous as he\u2019s not been cleared to speak with TechCrunch. \u201cIt is far cheaper to give someone a $500 travel voucher every now and again than letting planes fly at less than full capacity.\u201d<\/p>\n

When you spend $500 on a flight, it means that $500 disappears from your bank account. When an airline gives you a $500 voucher, it isn\u2019t even nearly $500 worth of losses to them.<\/p>\n

\u201cPersonally, I see the travel vouchers as penalties. We have to give them out when I don\u2019t do my job well enough, and they help inform the algorithms we use to figure out how much to overbook certain routes.\u201d<\/p>\n

Making overbooking predictable<\/h2>\n

\u201cIt turns out that a lot about business travel is predictable. If there is a Super Bowl happening in Houston, Texas, we often see a sharp uptick in the percentage of people who actually use their tickets. The reason is simple: If you have a Super Bowl ticket, you\u2019re not going to want to miss the game, so you\u2019ll use your flight ticket. When that happens, we are aware of it, and we adjust our models to ensure there\u2019s a lower percentage of overbooking,\u201d George says. \u201cThe reason is that there\u2019s a much bigger downside to not letting people fly. The PR cost of someone not making it to the Super Bowl is greater than flying with one or two empty seats.\u201d<\/p>\n

\u201cSimilarly, we see a huge spike around Thanksgiving and Christmas,\u201d George continues. \u201cWhen people fly home for the holidays, the number of people who fail to use their tickets drop significantly. And, much like when the Super Bowl happens, the downside for us if someone fails to make it home for Christmas is significant. Worst-case scenario, someone makes a mental note never to fly with us again.\u201d<\/p>\n

On any given Tuesday, however, the situation is different; people can \u2014 and often do \u2014 miss flights for various reasons, whether that happens because of delayed connecting flights, a traffic accident on the way to the airport or something else happening in people\u2019s lives that means they are unable to travel or they prioritize something else in their lives above going to the airport.<\/p>\n

\u201cBudget tickets are our way to try to resolve some of that,\u201d George tells us. \u201cWith non-flex tickets, we are giving you a great deal on air travel, but we attach a significant penalty to not turning up to your flight: They are expensive to re-book, and if you miss your flight, you have to buy another ticket.\u201d<\/p>\n

Putting together a 1 billion-piece puzzle<\/h2>\n

In the process of having different ticket classes, the airlines have created a way for passengers to self-select into different risk categories.<\/p>\n

\u201cIf you buy a Y class ticket,\u201d says George, referring to the airline\u2019s classification of economy, non-flex tickets, \u201cyou have given us a piece of information. This helps inform how high of a risk you are for not turning up to the flight. I work with an enormous data set going back decades, which means that if you fly on April the 11th, on a direct flight from San Francisco to New York without flight connections on an economy ticket, the weather forecast is calm, and a few other factors, I can tell to a pretty high statistical accuracy whether or not your butt is going to be in seat 17A when the plane takes off.\u201d<\/p>\n

The problem, of course, is that all of this is statistics, and all statistics come with a margin of error.<\/p>\n

\u201cWe try to correct our error margins. If we mis-calculate in a way that results in empty seats, we hope there are people on standby tickets who can fill the seats,\u201d George explains. \u201cIf we get it wrong in the other direction, there are luckily usually\u00a0a few passengers who are willing to take a couple of hundred dollars\u2019 worth of vouchers and a hotel room in order to compensate.\u201d<\/p>\n

\u201cOf course, we can change our financial model in such a way that everybody is always guaranteed a seat on the flight they booked: It means selling 180 tickets for a 200-seat plane. The remaining 20 tickets would be for people who were delayed for an earlier plane, or who for other reasons need to get re-booked. But doing so would make the price per ticket much more expensive,\u201d George explains, and tells me that airline seats are basically interchangeable goods<\/a>: It doesn\u2019t matter if the metal tube you are flying in has Virgin, United or American Airlines written on the side of it, as long as it gets you from one place to another.<\/p>\n

Ultimately, air travel is a cut-throat, extremely low profit margin business. If George\u2019s airline changes its\u00a0booking model to guarantee that everybody flies, they\u00a0will soon be\u00a0flying mostly\u00a0empty planes. And soon after that, they probably\u00a0won\u2019t be flying at all. Some<\/em> people are willing to\u00a0buy tickets for an airline that\u2019s 20 percent more expensive\u2026 But not enough to make it a viable business.<\/p>\n

Featured Image: Dave and Les Jacobs\/Getty Images<\/small><\/p>\n","protected":false},"excerpt":{"rendered":"

\"\" We’ve all been there: You turn up to the gate and there are more passengers than there are seats on the plane. You wouldn’t be the first person to think, “If you only have 200 seats, why would you sell more than 200 tickets?” It turns out there are excellent reasons for doing this, powered by money, efficiency and a whole lot of statistical analysis. Read More<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

\"\"\/ <\/p>\n","protected":false},"author":5817,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[25],"tags":[59,66,26],"class_list":["post-338085","post","type-post","status-publish","format-standard","hentry","category-technology","tag-media","tag-techcrunch","tag-technology"],"_links":{"self":[{"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/posts\/338085","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/users\/5817"}],"replies":[{"embeddable":true,"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/comments?post=338085"}],"version-history":[{"count":0,"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/posts\/338085\/revisions"}],"wp:attachment":[{"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/media?parent=338085"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/categories?post=338085"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/tags?post=338085"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}