follow-up to UA - no reason to "overbook"

Professor: Outstanding show; keep it up. My follow-up: when discussing the UA overbooking, I thought another important aspect to the "overbooking issue" could have been discussed - passengers pay whether they board or not and insurance covers the rest. When a passenger books a flight, he or she pays for the ticket in advance and the airline gets its money - regardless of whether or not the passengers shows at all. If a passenger so desires, he or she may buy insurance "on the ticket" in order to change the flight or cancel, etc., for whatever reason is covered. So, if an airline books 100 seats on a plane with 100 seats, the airline receives 100% of that airplane's earning capacity for those seats. The passenger buys a ticket and either flies or does not fly. The passenger pays for the seat and the airline receives the money. If the passenger desires to buy and buys insurance and, prior to departure, changes the flight (so that seat is empty) doesn't the insurance company pay the airline for that seat (or some portion thereof)? I presume airline ticket insurance, works like any other insurance: the insurers take money from customers in a group pool, whereby the company receives enough money to pay for any "covered loss" (some risk the policy is designed to cover the cost of in the event the risk occurs) incurred by a member of the group and retain a certain remainder. I would guess most of the insureds never experience a covered loss because they follow-through with their air-travel plans, so the insurer can offer the coverage for a small portion of the air-fare fee and earn enough money to pay for all losses and overhead and make a profit (otherwise, there would be no airline ticket insurance industry). Accordingly, if the airline gets paid by passengers in advance and receives payment for every customer (paid regardless or obtained insurance coverage), then why do airlines overbook? If for any other reason than to obtain more money (actual flyers plus the insurance for no-shows). And, in the latest UA case, they did not even overbook. And, like you said, the airline put profits (deadheading crew for other flights) ahead of the customer). So while the latest incident was not really an overbooking issue (although it's how the issue has been framed and how everyone is talking about it), I would like to hear your thoughts on why airlines overbook. Am I missing something? Is it just really not that significant? Or is it something else?

Official response from submitted

My understanding is that overbooking is just a way to sell more seats, more than exist on each flight. Under the various circumstances which might lead one ticketed flyer to miss or postpone the flight, the airline substitutes another ticketed passenger (and thus makes the seat revenue-productive) while it dickers withe original ticketed passenger about whether and how he.she might fly later etc. Selling more tickets than seats in advance and holding that money (often for many months) while paying no interest on it is profitable even if and when a limited auction needs to be held to persuade ticketed fliers to give up their seats. The bean counters have figured that out. Remember too that a certain number of ticketed passengers who miss flights simply assume they have list the money they paid and never make any further claims on the airline who ticketed them. Its all about profit. The annoyance, aggravation, lost time and energy, and even now (as in UA example) the violence doable to fliers, even ticketed ones, is deemed a "cost" of profit maximizing strategies. If such costs are lower than the revenue generated by overbooking and violently bouncing recalcitrant ticket holders, the overbooking and violence are pursued. Individuals fighting back - and better movements of aggrieved people fighting back - can change they did already in the UA case. 

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  • Richard Wolff
    responded with submitted 2017-04-16 17:00:14 -0400
  • Christopher Kavanaugh
    commented 2017-04-16 00:13:58 -0400
    I refer you to Ralph Nader’s radio hour broadcast on Radio Pacifica and the latest discussions on this issue. I find no little irony it WAS Ralph himself who successfully filed suit after being bumped by Allegheny Airlines. Any protections we have are because of Nader.
  • Jc S
    published this page in Ask Prof. Wolff 2017-04-14 23:44:22 -0400