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Why Airlines Will Keep Overbooking, Even After United Incident 14 / 48

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© George Rose/Getty Images In wake of the fallout from the passenger incident on United Airlines, Southwest Airlines Co. is planning to stop overbooking flights by the end of June. But don’t expect other airlines to follow suit or for the practice to go away.
The strategy of overbooking, or overselling seats to account for no-show customers, remains a key part of most airlines’ game plans, especially as carriers enjoy their most profitable streak in history.
Involuntary bumping of airline passengers invariably leads to pain of some sort, ranging from customer inconvenience to the kind of crisis that hit United Continental Holdings Inc. earlier this month. On average, 111 paying fliers a day were involuntarily bumped for a host of reasons last year, according to government data.
Most carriers figure that there is more benefit than risk. Still, operational and safety reasons often also contribute to the shortage of seats. Mechanical or weather-related issues, for instance, lead to a reduction of available seats, which causes the unloading of passengers and luggage on a short notice.
Most large carriers, which have gotten larger and fewer in number over a decade of consolidation, believe if they don’t intentionally sell more tickets than they have seats, they would have to raise their fares. Their thin profit margins can rest on the last one or two passengers who board the plane and this decades-old practice is an embedded part of most carriers’ business plans.
Overbooking “is a valid business process,” Ed Bastian, Delta Air Lines Inc.’s chief executive, said told investors earlier this month. “It is not a question…as to whether you overbook. It’s how you manage an overbook situation.”Delta on Thursday stood by that remark.
U.S. airlines have been so successful at the strategy that they filled 82.2% of their seats in 2016, near the record of recent years, up from 78.8% a decade earlier.
It is rare that the practice leads to a physical altercation such as on United Express Flight 3411, an overbooked flight, when passenger Dr. David Dao was forcibly dragged off a plane.
Often, “mini-tragedies,” like people missing weddings, funerals, and job interviews, are the result, said George Hobica, president of flier advocacy group Airfarewatchdog.com.
How many seats they oversell is proprietary by airline, but experts said they have fine-tuned this practice relying in part on historical trends on no-shows by time of day, day of week, season and popularity of routes, among other factors.
Southwest Airlines said it typically oversold just one seat on its each of its Boeing Co. 737 jets configured to carry 143, though still had to involuntarily bump almost 15,000 passengers last year, by far the highest level in the industry.
United Express Flight 3411, which was to be the last flight to Louisville, Ky., from Chicago’s O’Hare International Airport on April 9, was overbooked by one person, triggering the “denied boarding” process, United said in a report released Thursday about the incident. The flight was operated by subcontractor Republic Airways Holdings Inc.
One flier was involuntarily bumped before the remaining 70 passengers boarded the plane, but agents had to find four more seats for a crew needed in Louisville the next morning to operate another flight, the report said.
A couple that was involuntarily bumped left the flight in return for compensation. Dr. Dao and his wife were chosen next but he refused to leave, triggering a series of decisions that led to his forcible removal.
United said in the report that its “forecast of no-shows is usually quite accurate.” It typically overbooks flights by less than 3% of a plane’s seat capacity, and 4% of its flights have more ticketed passengers seeking to board than seats available.
After the recent incident, however, the carrier said it plans to reduce overbooking, particularly on flights that historically have experienced lower rates of volunteers ceding their seats for compensation, on smaller aircraft and last flights of the day.
To be sure, the number of involuntarily bumped passengers has gradually declined as airlines have honed their operations and made it more attractive for passengers to volunteer to fly later. More than 40,600 people were involuntarily bumped in 2016, out of the 660 million passengers who flew last year, according to the latest data available from the U.S. Department of Transportation. That was down from 43,700 fliers in 2015, out of 601 million total air travelers.
Southwest CEO Gary Kelly said on an investor call this week that the number of no-shows has also fallen over the years. Unlike its rivals, Southwest, the larger hauler of domestic passengers, doesn’t charge fees for people changing the dates or times or their flights. A spokeswoman said its rebooking policies that are more flexible than some other airlines may be a contributing factor.
The government in 2015 also raised the mandatory minimums airlines must pay to involuntarily bumped passengers, with caveats, to as much as $1,350 for a flight, compared with a maximum of $800 as recently as 2011.
United said in its report that nearly 96% of its affected customers agrees to take another flight in return for compensation and incentives. With airlines required to look for volunteers first before bumping anyone involuntarily, it can be a “win-win situation,” for both customers and the airlines, said Henry Harteveldt, a travel industry analyst for Atmosphere Research Group.
But track records and policies for airlines vary, and carriers don’t report the reasons behind each involuntary bump, according to the Transportation Department.
And when it comes to involuntary bumping and other airline policies, fliers have few rights. “Airline passengers are in a consumer-protection no man’s land,” said Kevin Mitchell, chairman of flier advocacy group Business Travel Coalition.
United said it doesn’t gauge in advance a customer’s interest in giving up his or her seat on an overbooked flight, something some rivals do. The carrier selects passengers by looking at how much they paid for the ticket, when they checked in and whether they have frequent-flier status. Using this method, United denied boarding to 3,765 paying passengers last year, down from 6,300 in 2015. It hopes to reduce the number in the future, but still plans to use that policy.
“Compensating for that show rate can leave us with more passengers than expected,” she said.
JetBlue Airways Corp. is one airline already without an overbook policy, but aircraft swaps, weight restrictions and other operational factors caused it to involuntarily bump nearly 3,200 fliers last year.
Related video:  Southwest Airlines Says it Will Stop Overbooking [Provided by Wotchit]