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Overbooked airlines are here to stay

Posted at 6:58 PM, Apr 12, 2017

Don't expect airlines to stop overbooking anytime soon.

Not even after the public relations nightmare suffered by United Airlines this week after a screaming passenger was dragged off a plane by law enforcement when the airline needed to give his seat to a crew member.

Booking more people than there are seats is just too important to airline profitability.


Of course, it's good for some passengers, too: Of the 475,000 people who were bumped off flights on the 12 largest airlines last year, 91% did it voluntarily, agreeing to take cash or a travel voucher and a seat on a later departure. Sometimes even in first class.

"There's a lot of people who make a ton of money being bought off airplanes," David Neeleman, the founder and former CEO of JetBlue, told CNN on Wednesday.

But far more important, overbooking is critical to how airlines make money and how they manage the hundreds of millions of people crossing the nation's skies every year.

Airlines sell more seats than they have because they are counting on a certain number of passengers not to make the flight as planned.

If more people show up at the gate than there are seats, it's a better deal for the airlines to compensate a handful and rebook them. Most passengers who agree to be bumped receive vouchers rather than cash, which limits the cost to the airline.

"I don't think customers realize how many people really do not show up for flights and how much money overbooking keeps fares a little bit lower than they would otherwise be," Ben Baldanza, the former CEO of Spirit Airlines, told CNN.

Last year, U.S. airlines filled 82% of seats with paying passengers, a statistic known as load factor. That was close to a record.

Banning overbooking would reduce load factor, and airlines would try to compensate, said Philip Baggaley, senior airlines credit analyst for Standard & Poor's. That could mean higher fares or higher fees, making it more expensive to miss flights.

About 40,000 passengers were involuntarily bumped from flights at the biggest carriers last year, meaning they were reassigned after the familiar back-and-forth of gate agents calling out voucher amounts and asking for volunteers.

Those 40,000 account for less than 1% of passengers on those airlines.

The passenger dragged off the United plane in Chicago was forced to give up his seat not because of traditional overselling but because another kind of overbooking: A crew needed to commute for a flight the following day, and the flight was full.

The debacle that followed has triggered calls for Congress to investigate or for airlines to change their ways.

"My concern now is that someone in Congress says 'OK, let's make a law, now nobody can overbook.' That wouldn't be good for anybody," said Neeleman, the JetBlue founder.

New Jersey Governor Chris Christie told CNN on Wednesday that President Trump should "stop the overbooking until we set some more different rules about how the airlines can conduct themselves."

President Trump told The Wall Street Journal that airlines should not be prevented from overselling flights.

In any event, it's unlikely.

Not allowing overbooking and bumping would also make it more difficult for airlines to recover from problems such as storms or computer outages, which lead to canceled flights and the need to rebook passengers.

On a conference call with investors and reporters, Delta CEO Ed Bastian called overbooking a "valid business process."

"It's not a question of if you overbook," he said. "It's how you manage the overbooking situation."