Some of the discussion around United’s PR problem with Dr. Dao centered on flight overbooking. This is unfortunate, as overbooking did not cause this situation and the process of overbooking saves customers money and makes more low fares available.
Airlines overbook because some passengers don’t show up for their flights. It is that simple. They may not show up because they forget, get caught in traffic, spend too much time in the airport bar, or their connecting flight arrives late. Airlines sell a spoilable product, which means that once the plane backs out, any empty seats lose all ability to generate any revenue. If a passenger misses his or her flight for any reason, that seat goes empty and could have been sold to someone else.
Airlines rely on data and forecasting to estimate the amount to overbook. They try to balance two kinds of errors: overbooking too much and having too many passengers, and overbooking too little and having empty seats. These are called “spoiled seats”. Balancing means understanding the cost of each. The cost of a spoiled seat is the revenue for which it could have been sold. The cost of an oversale may be much higher, equaling the compensation needed to pay a passenger to give up their seat, other costs like hotel or meals, and potentially negative customer reaction.
Airlines that have decided to stop overbooking because of this recent incident have succumbed to the “availability bias”. This is when we over-weight information that is more recent or more easily available. We all saw how difficult it was for United when they needed to take people off their airplane, so instinctively the “cost of the oversale” went through the roof in some minds and overwhelmed any benefit from having a few extra seats to sell. This is emotionally appealing but economically shortsighted, and will punish airline travelers the most.
Most of the time an oversale occurs, passengers willingly accept some level of compensation to take a later flight. They “win” in a sense, and another customer who would have been told the flight was sold out now gets to take the flight. Without overbooking, that customer would not be asked to give up their seat, but the other sale would never occur either. This would have the effect of reducing total airline revenue, resulting in higher ticket prices to cover this loss.
The best answer is to use good data analysis and improve forecasting capabilities to overbook accurately. Add to this good training and tools to quickly and effectively handle the relatively few instances of oversold flights. Customers will be better served than if overbooking stops. Reacting to the recent United situation is very appropriate. Over-reacting would be costly and inefficient.