PHOTO: Overbooked flight? Here's the reason why. (Photo via Flickr/frankieleon)
While the recent UA debacle was not directly related to an oversold situation, but rather an internal problem with crew positioning, all the attention seems to be focused squarely on overbooking of flights.
These days, airlines have enough data to determine their average load factor on all flights, routes, departures, days of the week, time of year, you name it.
Why the perception by the consumer and the trade, for the most part, that overselling a flight is an unexplained crazy accident or some kind of a technical error, is beyond me. What most airlines do is oversell the flight based on average no-show factor to maximize revenue. Not all airlines oversell flights and some don’t oversell during peak periods such as Christmas, Easter, Thanksgiving, and so on, but for the most part, it is a general practice in commercial aviation. The fact is that based on U.S. industry averages, only 6.2 out of 100,000 passengers are involuntarily denied boarding annually.
The decision to oversell is not driven by greed but rather at reducing spoilage. Airline seats are a perishable product. The revenue airlines drive from overselling flights has a direct benefit to the both the trade and consumer.
Ask yourself this question; if you could find a technique, overnight, to increase your margin without impacting service levels in your business, would you? If you said no, then you should close shop and start driving for Uber.
Overselling a flight is a financial decision, made by the airline, to maximize revenue. Taxes and fees that are imposed on the aviation industry require that they monetize all that they can. As an example, if on average there is a consistent no-show factor of 5 percent, the airline will match that no-show factor by pre-selling an additional 2-3 percent (or any number they are comfortable with) and gamble that, based on the numbers provided by revenue management and their incredible data set, they will be 5 percent empty. It is a huge revenue opportunity. Do the math.
Let's say they oversell a flight by six seats at $600 per seat. That's $3,600 of addition revenue contribution. Multiply that by 100 flights per day and boom!..$360,000. Now multiply that by 365 days in a year and ba-boom!...$131,400,000. Not bad, eh?
READ MORE: How to Make Money on Oversold Flights
So, let’s say you take the gamble and your numbers are wrong 25 percent (ish) of the time and you have to pay out $1,200 as compensation to two passengers per flight (on average) who have been ‘voluntold’ (I love that phrase) that they are being "re-accommodated". Your revenue contribution of $131,400,000 drops to $108,550,000. Oh, the humanity!
The BIG component which has been overshadowed by this commercial decision is "without impacting service levels”. The unfortunate incident on United would not have happened had they offered up more cash. I would bet dollars to doughnuts (another phrase I love, but don't understand) that had they offered $2,000 per passenger, half the flight would have had their finger on the call button with their hands in the air shouting “Pick Me! Pick Me!”. Cash is King by the way. The frequent flyer has become very weary of “Future Travel vouchers” and the difficulties surrounding actually making a booking or finding seat availability.
It's all about the money. SHOW ME THE MONEY! If the airline is making revenue gains on overselling flights they need to be prepared to "give back" when they have to. Simple.
The current selection process to re-accommodate based on fare class and time of booking, for the most part, is not fair and does not work.
I once met a high-ranking bank executive on board a flight, who flew at least twice a week, had hundreds of thousands of points, status, etc. He told me the story of how he and his wife had been "re-accommodated" off a flight to Boston en route to a romantic weekend. They were selected because, unbeknownst to his wife, she purchased the lowest fare class at the time of booking. I mean how the heck was she supposed to know this? There is no big warning sign that says "If you book this flight now because it is the best deal, you have a 50/50 chance of getting ‘re-accommodated’." He swore he would never fly that airline again.
Here is a free suggestion for all my airline friends. Why not ask passengers at the time of booking if they’re willing to be bumped? Be upfront and transparent about the process. Right in the booking path. "Should the need arise, are you willing to be randomly selected for re-accommodation to the next available flight and receive $1,000 as compensation?" Ermmm..Hell Ya! Remove the conflict at the gate or on board, forecast your windfall of margins better, and have a happy customer who will feel like they just won a thousand bucks at the Bingo when their name is called.
Visualize this with me. The captain comes out to the gate prior to boarding. “Good afternoon folks Captain Sarah Greenwin here. We’ve got a bit of an overbooking problem, and if you opted into our re-accommodation plan when you booked, today may be your lucky day! Who is going to make $1,000 cash today?” Gate agents hand her a slip of paper. “Mr. Dram Booie, originally seated in 15 Bravo, congratulations you have been selected for re-accommodation. Collect your belongings, come on up to the gate and see Angela who will wrap things up for you. Congratulations Dram!” The crowd goes wild and everyone lives happily ever after. Even revenue management is happy.
Just sayin’! Anything is possible.