Why do airlines sell too many tickets? – Nina Klietsch
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Why do airlines sell too many tickets? – Nina Klietsch

September 12, 2019

Have you ever sat in a doctor’s
office for hours despite having an appointment
at a specific time? Has a hotel turned down
your reservation because it’s full? Or have you been bumped off a flight
that you paid for? These are all symptoms of overbooking, a practice where businesses
and institutions sell or book more
than their full capacity. While often infuriating for the customer, overbooking happens because
it increases profits while also letting businesses
optimize their resources. They know that not everyone
will show up to their appointments, reservations, and flights, so they make more available
than they actually have to offer. Airlines are the classical example,
partially because it happens so often. About 50,000 people get bumped
off their flights each year. That figure comes at little surprise
to the airlines themselves, which use statistics to determine
exactly how many tickets to sell. It’s a delicate operation. Sell too few, and they’re wasting seats. Sell too many, and they pay penalties – money, free flights, hotel stays,
and annoyed customers. So here’s a simplified version
of how their calculations work. Airlines have collected years worth
of information about who does and doesn’t show up
for certain flights. They know, for example,
that on a particular route, the probability that each individual
customer will show up on time is 90%. For the sake of simplicity, we’ll assume that every customer
is traveling individually rather than as families or groups. Then, if there are 180 seats on the plane
and they sell 180 tickets, the most likely result is that 162
passengers will board. But, of course, you could also
end up with more passengers, or fewer. The probability for each value
is given by what’s called a binomial distribution, which peaks at the most likely outcome. Now let’s look at the revenue. The airline makes money from each
ticket buyer and loses money for each person
who gets bumped. Let’s say a ticket costs $250
and isn’t exchangeable for a later flight. And the cost of bumping
a passenger is $800. These numbers are just for the sake
of example. Actual amounts vary considerably. So here, if you don’t sell
any extra tickets, you make $45,000. If you sell 15 extras
and at least 15 people are no shows, you make $48,750. That’s the best case. In the worst case, everyone shows up. 15 unlucky passengers get bumped,
and the revenue will only be $36,750, even less than if you only sold 180
tickets in the first place. But what matters isn’t just how
good or bad a scenario is financially, but how likely it is to happen. So how likely is each scenario? We can find out by using
the binomial distribution. In this example, the probability
of exactly 195 passengers boarding is almost 0%. The probability of exactly 184 passengers
boarding is 1.11%, and so on. Multiply these probabilities
by the revenue for each case, add them all up, and subtract the sum from the earnings
by 195 sold tickets, and you get the expected revenue
for selling 195 tickets. By repeating this calculation
for various numbers of extra tickets, the airline can find the one likely
to yield the highest revenue. In this example, that’s 198 tickets, from which the airline will probably
make $48,774, almost 4,000 more than without
overbooking. And that’s just for one flight. Multiply that by a million flights
per airline per year, and overbooking adds up fast. Of course, the actual calculation
is much more complicated. Airlines apply many factors
to create even more accurate models. But should they? Some argue that overbooking is unethical. You’re charging two people
for the same resource. Of course, if you’re 100% sure
someone won’t show up, it’s fine to sell their seat. But what if you’re only 95% sure? 75%? Is there a number that separates being
unethical from being practical?

Only registered users can comment.

  1. I’ve never experienced overbooking before until I went for a holiday in the US. I’ve lived in three countries, I have never seen such poor customer service & rudeness for the sake of greed. Incredible.

  2. Overbooking is wrong. It’s just some arrogant, greedy, obnoxious, inconsiderate people wanting more money even though they have more than enough. They shouldn’t be allowed to just treat passengers like disposable paper plates.

  3. 0% chance all passengers show up? every flight i've ever been on they offer vouchers because they're so overbooked and even then there's at least 7 people on standby too…. lol

  4. As always, maximizing profits makes everything awful. Can we finally do something about it, like try new economic model, which is not so simply driven by demand-supply? Sounds impossible to most, I know.

  5. This happened to me before with my sister for a flight. Our ticket got upgraded for free and we got business class instead 🙂

  6. No one likes being bumped off a flight. It’s just not fair because people made plans for weeks or even months ahead. An example is a hotel reservation and they have to cancel because they can’t get on the flight. The hotel then loses money and so they end up having to overbook so they can make up for that lost money. It’s a continuous cycle that never ends

  7. If they’re asking for volunteers to get off a plane ask the highest they can go for and then some. The reason they want volunteers is so that they can give you airline vouchers instead of having to bump someone off and paying full price for their ticket in cash + a free flight. You can get $1000 dollars in vouchers this way.

  8. There are 2 culprits:
    -the company that just make what they're here for: money
    -people who don't take their flights.
    Since it's no news that companies make money, the only culprit are people who miss their flight. If everyone went to take their flight, companies wouldn't overbook.
    When you have to take a flight, you MUST be there on time, even if you need to come hours and hours before it, because all of that overbooking thing is caused by the late people, and don't get me wrong with stuff like "there was a slowdown on my way to the airport" "I forgot something" and cie, all of that is YOURS to take account of.

  9. I think they should be heavily fined and faced an absolutely TANKED reputation. It shouldn't be viewed as even remotely acceptable. It ought to be viewed as incredibly scummy and make the airline completely toxic. I also disagree with the end premise that it's okay to sell someone's ticket to someone else if you're 100% sure they won't show up. That ISN'T okay. The original person paid for it regardless. It's THEIR business whether they use it or not. The grocery store can't decide to just hang on to my strawberries and sell them a second time to someone else because they're confident I won't eat them before they go bad. I bought them, they can damn well sit in my fridge till they go moldy! Likewise if I buy out a whole plane's worth of tickets and don't show up or fill even one seat — the plane should still be obliged to fly empty to its destination.

  10. I feel like some of the doctor's office overbooking is also that appointments often run over. Good medicine means they shouldn't be rushing people out, and sometimes what one expects to be a much quicker appointment turns out to be more complicated.

  11. I was flying home from college during the holiday season and the airports and flights were packed and obviously overbooked. On one flight me and 5 other people were bumped off the flight. One lady was extremely distressed. She starts crying and trying to explain to staff that she’s trying to get home to see her dying father. I felt for her because my grandma died during the holiday season so I was trying to help her and comfort her and she told me he had cancer and he seemed to be doing much better but got a shocking sudden prognosis of 2 weeks just the day before and so she was trying to rush home early from her business trip. She said the doctor said two weeks but her sister was telling her she wasn’t sure if he’d make it another 2 days. NO ONE was willing to sacrifice their seat for her. It’s the airlines fault obviously but it was sad to see how cold people really are… It was another 4 hours before we got on our later flight. When we arrived in Baltimore she got a phone call and it was too late. He died right after landing. If she had been on the flight she paid for she would’ve been able to say goodbye. She was falling apart at the baggage claim and I didn’t know what to tell her I just put my arms around her… it was the saddest thing I have ever experienced. Their HAS to be a better system. Greedy airlines need to get it together.

  12. I don’t know why people are complaining you get much extra benefits for getting bumped I would rather get bumped for extra payback

  13. One time I was with my mom dad and brother they said it was overbooked and one person showed up they said me and my mom had to get off and we did not get another flight until two days later

  14. I don't know how airlines predict their outcomes, but if they do as it is described in this video then they surely should take into consideration demand, which will change over time because of overbooking.

  15. Internet companies do this too. they assume that no one customer will use 100% of their bandwidth all the time. So they will take on more customers even though the combined bandwidth of customers on a single line is over capacity. which is why peak hours you might experience slower speeds than you pay for.

  16. isnt most tickets are sold in the time of booking if they dont show up then no refunds, I could imagine I can murder a teller if this happen to me.

  17. I wonder how these airline CEO's would respond if the university their child would have applied to was like: "We are so sorry! We accepted two students, but only had one spot. Better luck next year." Do you still like overbooking then?

  18. Who are these people who dont show up for flights or appointments?

    If I have a plane flight at 11am tomorrow, You better believe Im wide awake at 3am ironing socks getting ready to leave

  19. Why dont they sell cheaper tickets and tell them about this? Many people only go to vacation and dont have an important thing to do

  20. That doesn’t happen in HK, I think it is illegal

    Edit: HK people just don’t miss any flights, plane tickets are really expensive here

  21. This video is biased because it fails to mention that this is also more eco-friendly as without overbooking there would be "empty planes" flying all over which could and should be deemed ecologically harmful and this is one way to prevent it. Also, not in all countries do doctors gain financially with more patients treated so the financial incentive is doubtful and this video is nearly all about airlines as if they were the only to do so. Last but not least, this is simply a reasonable usage of statistical distribution / large numbers and if you call it unethical right away than you could be surprised how often does statistics enter your life and how worse would it be without using these principals in practice.

  22. Selling non-refundable tickets makes it less ethical to overbook. They already made what the flight is worth, the rest is greed. I also prefer the flight not to be full.

  23. I hope this doesn’t happen to me, I just started working and I’m saving up for a plane ticket to go to El Salvador.

  24. Of course it's wrong. If you pay for a seat, that's your seat during the flight. Even if you don't show up, you paid for the seat and it's yours during the flight.

  25. Life Pro Tip: If you are removed from a plane you can receive up to $1300 if your rebooked flight is greater than 2 hours from your original flight.

    I don’t know when but maybe since that united airlines debacle, you can get money for being involuntarily removed from a plane due to over booking.

    I was removed from a plane and my rebooking was greater than two hours, and the airline paid me 400% of the one way ticket value. What’s worse is that they are supposed to cut you a check at the gate, but the agent didn’t tell me and I didn’t know. I asked for a partial refund once I got home and the customer service agent said sorry nothing we can do, even after I told them of me being kicked off. Begrudgingly I accepted it, a few days later, just out of curiosity I googled removal from plane policies and that link popped up from DOT. I submitted a claim with them and told the airlines of the regulation, and a few weeks later I was told I would be getting a check for over 900$. Yay.

  26. Show me the airline that refuses to overbook, because they realise how insulting it would be to their customers, and I'll fly with them please.

  27. Its not ok even if it's true that people have not shown up the space has already been paid and leased for that period of time it does not belong to the company for that period of time and in today making someone waste time is not a minor thing I feel this would be like apple taking your phone whenever you are not using it giving it to someone else and not returning it until the other person has finished its use it would not be okay there and it's not okay in here

  28. They should at least give you a refund, because I’ve only ever seen a few polite airlines that actually give you money back or get you another flight for free.

  29. Its just "practical" greed at the expense of a customer. If a company offers you a service, and you pay for that service, it should be illegal not to get it just because a company wants to make some extra cash, in this case from potential (already sold) empty seats.

  30. why did no body understand the video
    if in 1000 flights, at least 10 passengers did not show up every time
    why do not sell 7 seat extra. and 1 out 1000 cases, you will get bumped and you will get free flight and money.

    we all do the same thing, we go to work and there is probability that we will have accident

  31. I was once bumped from a flight so I went to the bathroom and got myself some food only to then hear later that all those bumped were later allowed on the plane and I didn't hear the announcement. So I had to pay for the ticket for the flight I "missed" then stay in the airport for 12 hours with no hotel I was originally promised while I waited for the next flight which I also had to pay for. Such a scam.

  32. there is something to consider, everyone wants cheaper flights and the airline has the choice of dividing the price of a ticket by 1 (no overbooking) or by ~1.15 (overbooking) at the end the ones who doesn't show up end up paying a part of the ticket for the ones who did show up, reducing the ticket price (making the airline more competitive + ecological (pollutes to fly an empty plane) + permits the lower classes to see family)

  33. But if you'd end up risking almost $9000 of revenue for a potential increase of $3000 in revenue…

    … I'm sorry, but that's just bad risk assessment and bad business. On top of the obvious moral/legal issues.

  34. Remember when the TSA and safety concerns were what airlines commonly got a bad reputation for?

    … Delta doesn't.

  35. I thought it will be a proper discussion of alternative methods and how they failed, instead, it's just a basic math lesson. Downgrading for lack of insights.

  36. Why can't they make a system that's call "waiting list" where customer can be listed if there's empty spot in the flight base on the price of when they sign up.

    It is how our local ferry does. If the ferry is full they will go to the waiting list.

    Of course people might wait there and then not get call to be aboard but they are the one who sign up for it. If they want confirmation they need to be early to buy the ticket or buy a later one instead of overbooking

  37. Happened to me in my first flight which I board but luckily I was the passenger who 1st board the flight then a middle aged man came and claimed it's his seat then an old aged aunty who was sitting besides me get annoyed from our conversation & scream at the man afterthat from no where an air hostess bumped in and settle the matter…horrible exprience for a life time…after this senario I usually try to aviod flights & try to travel via 1st class trains like satapdi express & Rajdhani which almost cost same price but included various types of meals , snacks & breakfast..😌✌

  38. It's completely unethical. They value money, profit and revenue over peoples lives. They don't take into account why people are flying to where they're flying.
    What if one of their customers family members are dying? And their bump causes them to miss their final moments?
    Or a wife is pregnant and this causes them to miss the birth of their child?
    An important job interview?
    An exam?
    A doctors appointment?
    It's so wrong. Just another reason among so many why I avoid flying as much as possible. It's worse for the planet anyway.

  39. take this scenario:

    company A overbook their flights but the ticket price is 200$

    company B does not overbook, ticket price is 300$

    customers will always go with company A 🙁

  40. it is unethical simply because renting something means it is yours for the duration of the time it takes to go from point a to point b (if you rent a seat by an airplane company) you can't justify something thats "probable" they should lose more money if they overbook and bump someone of the flight. The person should get a full day paid (work salary), flight repayed, food and a hotel everything should be payed by the company and then a fee for the trouble (maybe somewhere around 3000 dollars) not even then i would find this ethical.

  41. Refusing to let someone on the plane is unethical, but overbooking is not. For every passenger on the flight there will be a compensation amount they will take to take the next flight, be it $500 or $10 thousand or $300 million. For overbooking to be ethical all airlines need to do is always pay whatever it takes to bump passengers off the flight.

  42. When companies decide how many tickets to sell, they only care about money. As you noticed, the fact that it wastes people's time is not even slightly considered. Surprised why this is legal.

  43. Its simple…. if you paid for the seat its yours! … irrespective of any other consideration – the 'ethical' debate is a construction of the provider not the consumer

  44. I understand it if people don’t like this act, but I think people are conveniently forgetting that in the unlikely event you are bumped from the flight, you not only get compensated or refunded for the flight but you may get another flight altogether.

    If it’s 0% likely for 100% of the passengers to show up, I can’t see what the issue is in issuing 5 more tickets, especially when people like me absolutely cannot wait to volunteer to get more free flights out of airlines

  45. If they wanted this extra money, then they should make a higher-priced Confirmed booking, as well as the non-confirmed booking for non-urgent flight, e.g. for someone travelling back home, and for the second case they should still assure him/her a flight on another time/day if someone else did not show up. Selling what you no longer own, and taking the extra money while still not repaying the persons who missed the flight is totally not acceptable.

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