What Is Overbooking?

By | 2018-10-24T22:40:09+00:00 October 24th, 2018|Business Travel|

When you’re traveling for business, it’s common to be on a fixed schedule. You count on your travel arrangements to run smoothly so that you can get to that meeting or conference on time. All too frequently, however, travelers arrive at their departure gate to hear the familiar announcement that the airline is seeking volunteers to take a later flight, sparking dread that someone will be bumped from the overbooked flight. Overbooking represents a serious concern for business travelers operating with little margin for error. Knowing why overbooking happens and how you can reduce your risk of being bumped can save you both anxiety and the headache of having to rearrange your business travel plans on the fly.

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Is This Legal?

Airline overbooking, the practice of selling more tickets for a given flight than there are available seats on the plane, is legal. Federal law does not specify any limits on overbooking, but it does require airlines to compensate passengers who are involuntarily bumped due to overbooking according to a formula that takes into account how long they are delayed from their original itinerary.

The Reason Behind Airline Overbooking

Why do airlines overbook their flights? Economics. Historically, the airline industry has run on very slim profit margins. As noted in The Economist, in addition to “stiff competition from their rivals, airlines face the problem that there is little competition in the industries that supply them. Two firms—Airbus and Boeing—provide the majority of the planes, and airports and air-traffic control are monopolies. At the same time, the industry is vulnerable to outside shocks, such as the 9/11 terrorist attacks, outbreaks of illnesses such as SARS or bird flu, and rises in the oil price.” These competing pressures combine to keep profits low. While newer price structures that have introduced fees for everything from baggage (checked or, in some cases, carry-on) to extra legroom or even guaranteed seat assignments have begun to increase revenue, those depend on having passengers on the plane.

Every empty seat on a flight represents a lost opportunity to make money, which means that airlines have a strong incentive to ensure that every flight they run is as full as possible. Airlines know that, according to historical data, on any given flight a certain percentage of ticketed passengers will fail to show up. According to a 2017 TechCrunch article, “[o]n 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.” Worse, “unused tickets cause a liability on the balance sheet—the tickets you sold are often still valid, you just don’t know exactly when those passengers are going to show up to try to re-book their seats.”

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Thus, rather than run the risk of flying under capacity and losing money, airlines employ sophisticated statistical models to project how many tickets they should sell to make sure that all the seats on any given plane will be full on takeoff. They “use historical flight data to calculate the expected no-show rate for each route. For example, business travelers may switch flights at the last minute, but those traveling on summer holidays are less likely to change plans.” (Reuters) When they underestimate, seats remain empty. If they overestimate, someone will have to stay behind to catch another flight.

How Often Do Airlines Overbook Flights?

Experts agree that airlines routinely overbook flights for the reasons above. If their calculations are correct and their statisticians accurately estimate the number of no-shows, travelers never know that their seat on a flight might have been at risk. However, when it comes to overbooking flights, statistics show that airlines frequently get these numbers wrong. In 2016, 41,126 passengers were involuntarily denied boarding on the top 12 U.S. airlines, according to numbers from the U.S. Department of Transportation (Air Travel Consumer Report, March 2018, p. 35). In addition to this number, 429,819 passengers volunteered to leave an overbooked flight.

Numbers improved in 2017, due in large part to a highly publicized incident in April of that year when a doctor was physically forced off a United flight. The firestorm of negative publicity afterward prompted many airlines to reevaluate their overbooking policies. Still, according to the same government report, 23,233 passengers were involuntarily denied boarding in 2017 and 341,703 passengers volunteered to take a different flight. After the initial uproar following the incident, “Lawmakers introduced a flurry of legislation, but in the end, airlines were largely left to police themselves.” (Washington Post, April 9, 2018). Now, over a year later, the vast majority of airlines continue to allow overbooking, which means that business travelers who need to get where they’re going on time should still be wary.

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Who Gets Bumped?

Airlines are required to first seek volunteers to take an alternate flight in cases of overbooking. If not enough passengers volunteer, they can theoretically select any passenger to remove from the plane. In practice, however, airlines follow criteria that are laid out in their “contract of carriage,” or the terms and conditions that you agree to when you purchase a ticket on their airline. These criteria tend to be similar from airline to airline and may include frequent flyer status, fare class of the ticket, and the time of check-in. For example, according to CNN Money, “American Airlines says it denies boarding based on order of check-in, but will also weigh ‘severe hardships,’ ticket cost and status within the carrier’s loyalty program. Delta Air Lines also considers check-in order and loyalty status and looks at if a passenger is slated to fly first or business class.”

Business travelers may already enjoy an advantage over other passengers in this regard. Flexible tickets that can be rescheduled without steep penalties are more popular with business travelers, who need to retain the ability to reschedule projected trips or meetings if necessary. They pay for this convenience up front, in higher ticket prices. Airlines are understandably reluctant to irritate customers who make greater contributions to their bottom line. This also explains why they put a higher priority on members of their loyalty programs, particularly frequent travelers who have reached the upper tiers of those programs based on miles traveled.

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What Can I Do to Keep from Getting Bumped?

While it may nudge the odds in your favor, being a business traveler is no guarantee that an airline won’t bump you. However, there are a few simple steps you can take to minimize the chance of being forced to accept a delay:

  • Check-in promptly: When airlines have to decide who to deny boarding to, they will often take a “last in, first out” approach, meaning that passengers who wait until the last minute to check in for their flight are in more danger of involuntary bumping. Most airlines let you check in online or through a mobile app up to 24 hours in advance, so check in as early as you can.
  • Get a seat assignment: Get an assigned seat when you purchase your ticket, or if that is not possible, try to get one as soon as you check in for your flight. Passengers without confirmed seat assignments are more likely to get bumped.
  • Join the frequent flyer program: All other things being equal, an airline will prefer to accommodate its loyal customers. Even if you have not attained elite status, your membership may tip the scales in your favor.
  • Board when your group is called: It’s far easier for an airline to deny boarding to a passenger who has turned up late than it is for them to force someone who has already boarded to deplane.

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But Wait—Hotels Overbook Too

Business travelers might think that if their flight was on time, their problems are over. However, like airlines, hotels have an incentive to overbook capacity to maximize revenue: Daniel J. Jones, former hotel manager, notes that “[t]hey know that on any given night there will almost always be a certain percentage of reservations that don’t show up. Hotel rooms are perishable, just like bananas on the shelf in a grocery store. The opportunity to earn revenue from that room is gone forever each and every time it goes empty.” (Huffington Post) Wendy Norris, corporate director of revenue and e-commerce at the Valencia Group advises managers, “If you’re not walking, you’re not being aggressive enough and there’s more money to be made….You shouldn’t be walking 10 to 20 people, but one-to-two a month shows you’re doing a good job on the revenue management side.” (Hotel News Now) While there is no comprehensive data to enlighten business travelers on the frequency with which hotel overbooking results in oversold rooms, the practice is common, and you should be prepared to take steps to minimize the chance it could interrupt your trip.

Like airlines, hotels base their overbooking decisions on historical data informing them of the likelihood of no-show guests on any given day. Should their calculations come out wrong, someone who thought they had a reservation will have to be “walked” (the industry term for turning guests away). This does not mean throwing you out onto the sidewalk, however. When hotels overbook and cannot accommodate all their guests, they “are obligated to make other, similar accommodations for someone without an available room and pay for that customer’s transport to a different location.” (Fortune)

For a leisure traveler, this may be a minor inconvenience, but it could potentially throw a serious wrench into a work trip. Business travelers select their accommodations carefully to facilitate the purpose of their trip. Being sent to an alternate location at short notice is unlikely to make it easier to get to that meeting or conference.

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How to Avoid Being Walked

Hotels take many factors into account when deciding who to walk. These include the length of a guest’s stay, whether they are a single traveler or part of a group, membership in a loyalty program, and how late they arrive at the hotel. Obviously, hotels prefer to find the simplest solution to an overbooking situation, so they are more likely to walk a single guest who is checking in for only one night than someone who is projected to stay longer or is part of a group. They will also be reluctant to inconvenience frequent guests at their hotel. To lower your odds of being walked, you should:

  • Be mindful of your check-in time: Your travel plans may not give you the option of checking in early, but if you know you’re going to arrive well past a normal check-in time, call the hotel to let them know. If they know you’re on the way, they are less likely to give your room away.
  • Join the hotel’s loyalty program: Even if you’re not in the top rungs of their loyalty program, your membership in a hotel’s loyalty program signals your intention to become a repeat guest, if you’re not already.

Strategic Booking Can Help

Shep’s open booking platform gives business travelers the flexibility to choose from a myriad of options when booking their itineraries and accommodations. They can use this factor to their advantage to select in-policy choices for both airlines and hotels where they maintain memberships. In addition, you can use Shep to book with two of the very few airlines who maintain a “no overbooking” policy, JetBlue and Southwest. Should the worst happen,  your team back home has the details of your travel itinerary via Shep’s Admin Dashboard, so they can help you troubleshoot if necessary.

Overbooking is a potential pitfall of business travel, but the situation may be improving. There are welcome signs that improved analytics and a renewed focus on customer satisfaction are reducing the trend for airlines, in particular, to put profits over people. In the meantime, understanding why it happens can help you take proactive steps to avoid having your next business trip disrupted.