UF Researcher: Crowded Flights A Boon To This Summer’s Travelers

June 23, 1998

GAINESVILLE — The cab was late, the kids are starving, two suitcases got left behind and now the ticket agent says your flight to see Grandma in Duluth has been overbooked.

Ready to boil? Try cooling your summer-travel temper with this: As frustrating as it can be, overbooking actually saves travelers money in the long run because it keeps airlines from having to fly with empty seats, a new University of Florida study finds.

“People may not like overbooking because they can show up for a flight and lose their seat, but our research shows that the practice is actually good for customers,” said Steven Shugan, a UF marketing professor who did the research with Ramarao Desiraju, a business professor at the University of Delaware. “When a flight is overbooked, the average fare is actually lower than the fare would be if the flight were not overbooked.”

Airlines reserve a certain share of their seats for business travelers, who are charged much higher rates than other passengers, Shugan said. But when flights are overbooked and business travelers don’t show up, their seats go to low-fare leisure travelers, he said.

Without overbooking, he said, something far worse would result: costlier air fares. To fill planes profitably, airlines use a complex system of overbooking and early discounting called “yield management,” in which passengers are charged different rates according to how soon they buy their tickets, he said. Airlines reserve a limited number of discount seats for travelers who book weeks ahead of the flight, charging increasingly more the later reservations are made. Last-minute business passengers pay the most, he said.

“Business travelers may pay $1,000 apiece to fly to New York when a deep discount fare is $300,” he said. “One reason is that $700 is insurance to be sure they get a seat. Most people would not want to pay that much for the insurance and convenience of being able to book at the last minute and not have to worry about getting a guaranteed seat.”

The practice also allows airlines to avoid charging passengers to cover the cost of flying with empty seats. The principle is the same behind grocery stores including a charge in the price of milk to offset losses from cartons that spoil and cannot be sold, he said.

Furthermore, without overbooking, no airline could make money, said aviation industry analyst Morten S. Beyer of Morten Beyer & Agnew in McLean, Va.

“Overbooking ensures lower prices and fuller aircraft,” he said. “About 20 percent of passengers who make reservations on airliners are no-shows.’ The airlines are reluctant to penalize full-fare passengers who don’t show up, and therefore deliberately overbook flights to compensate for the no-shows.”

The good news for passengers who lose their seats is that ever since the airline industry had the misfortune to bump consumer advocate Ralph Nader in 1972, it has tried to give these passengers something in return, usually a free future flight, Shugan said.

The airlines lose little, needing only to find a seat on a plane that is running empty. By first asking for volunteers to be bumped, they also risk little public relations fallout, Shugan said. Moreover, some passengers may be happier being bumped when they leave with a free ticket, he said.

Other industries are intrigued by the way airlines can fill up their jets with yield management, Shugan said. “Hospitals are looking into this practice, but it can’t possibly work for a hospital,” he said. “Who is going to book early to have a baby? And how are you going to get patients to volunteer to give up their rooms if the hospital is overbooked.”

Just as empty planes cost airlines, empty beds drain patient revenue from hospitals, which still must pay nurses, doctors and utility bills, he said. But the same pricing system isn’t practical for hospitals or other industries because they cannot take advantage of business expense accounts the way airlines can to charge business travelers more, he said.

Airlines are in the enviable position of being able to tell how much a customer is willing to pay by when they buy their ticket, Shugan said.

“They know that if someone calls up two months early to order a ticket, they’re not willing to pay very much, and if someone arrives a minute before the flight, they’re willing to pay a lot,” he said. “Very few industries can do that. A restaurant can’t tell how hungry people are when they walk in. If they could, they could charge each person a different price.”