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Economically speaking, non-refundability doesn't necessarily make overbooking unnecessary. Let's take two airlines, A and B. Both only sell non-refundable tick
by rlpb 10y ago
Economically speaking, non-refundability doesn't necessarily make overbooking unnecessary.
Let's take two airlines, A and B. Both only sell non-refundable tickes. A never overbooks. B always overbooks. What happens?
A will fly with some number of empty seats on average, because they still get the occasional no-show. B flies with fewer empty seats on average because they overbook.
Which airline can offer more competitive prices? It's B. Because by overbooking B's revenue per plane leg is higher.
If that isn't clear, here's an example. Say the planes have a capacity of 100, and on average 2 people fail to show. A sells 100 tickets for $100.00 each. B sells 101 tickets for $99.02 each. On average, B makes more money on every flight, _and_ is more competitive on price.
Of course with the numbers in my example the compensation paid by B on the odd occasion that everyone shows up probably kills any additional profit. The real numbers matter in order to determine to what extent this really happens in practice. But I hope I've demonstrated that non-refundability of tickets doesn't necessarily or automatically mean that overbooking is not profitable.
So there is some potential level of competitive benefit to overbooking even on non-refundable tickets, assuming that some people still occasionally fail to show (because they miss a connection, become ill, or whatever).
- pif 10y ago> If that isn't clear, here's an example. Say the planes have a capacity of 100, and on average 2 people fail to show. A sells 100 tickets for $100.00 each. B sells 101 tickets for $99.02 each. As usual, people striving to save one dollar no matter what (in this case, giving up the certainty of flying) are the problem.
- rlpb 10y agoIt could be much more than one dollar. Those were my made up numbers to demonstrate the principle, not any kind of indication of the magnitude of the real numbers. > As usual, people striving to save one dollar no matter what (in this case, giving up the certainty of flying) are the problem. It's not necessarily a problem. Flyers can choose between certainty of flying and other nice things that cost money. Most appear to choose having other nice things instead. Southwest is banking on flyers choosing the other way. There may well be space for both approaches in the market.
- pif 10y agoAre you aware of any airline that exploits overbooking while letting you choose a "no-overbooking-for-my-seat" fare?
- ghaff 10y agoNot explicitly, but I'm guessing that if you've paid for business/first, there is some small chance you'll be bumped back to economy (as in the story making the rounds a few weeks back) but probably a vanishingly small chance you'll get bumped off the plane entirely.
- dx034 10y agoOn the other hand, the discussion delays boarding, you need better/more gate staff, you need the infrastructure to pay out, quickly book to other flights, etc. I think Ryanair's approach of not overbooking is sensible as it keeps the operation very easy. Also, they can book every flight to 100%. If you deny boarding, you need to offer alternatives. That's not possible if you're the only airline flying from the airport (Ryanair used to use a lot of regional airports) and your next flights are already at 100%.