I don’t think any other application of the law of supply and demand counts “selling more widgets than actually exist” as “increasing supply”. Overbooking doesn’t actually manufacture more seats.
I think it is more akin to “recovering waste” in a manufacturing process.
I’d mostly agree with that.
One of the things that’s kinda weird is this is a manufacturing operation where you buy the product right at the factory door as it rolls off the assembly line. There’s no intermediate warehouse or retail chain to buffer supply or demand shocks.
Another oddity is the product is instantly perishable. It comes out of the machinery chute and either lands in a customer’s outstretched hands or it goes down the drain lost forever. We can’t even recycle any parts of it; it’s 100% waste.
Last of all, the product is kinda expensive on the scale of ordinary routine retail purchases. If rides cost $5 there’d be a lot different incentives on both sides and a lot less angst. But when a typical consumer is paying a big slice of a months’ discretionary spending for a ticket the stakes go up a lot.
The central gotcha in this whole thing is the historical accident that customers are free to get in line to grab a widget as it slides down the chute then to pull their hands away and let “their” product fall into the drain without penalty. And we’re obligated to make them another one for no additional charge.
All the irrational stuff flows from that central inanity, the original sin if you will, of sensible buyer / seller relations. Every adaptation since then on either side has been a Band-Aid pro or con. Band-Aids stacked to the level now, as massively evidenced in these several threads, that people believe they’re buying a particular flight & seat, not a generic license to ride whenever.
When most customers don’t understand what they’re actually buying that’s pretty much proof positive there’s a big problem with the industry’s product marketing.
First of all, airlines do not literally “sell seats”. That is a figurative expression, that people take far too literally. They sell transportation. Southwest, for example, does not assign seats. People file on the plane and sit wherever.
The airline knows that 99% of the time that 50 out of 500 are just not going to show up for whatever reason. If you were to make an arbitrary rule that they can only sell 500 tickets (note, I said tickets, not seats), then you are constraining them to selling less transportation than they can reasonably be expected to supply.
Or, put another way, airlines do not sell seats to people. They sell tickets: tickets that can be redeemed for transportation at a particular time and place. Yes, as an added benefit some of them try to tell you which seat you will be occupying (if you show up) in advance, but that is by no means guaranteed. Airlines compete with each other to sell more tickets. The more tickets that are available for sale, the less the price will be (barring collusion, regulation, etc).
And, yes, 1% of the time they may not be able to redeem a ticket for transportation and remedial measures will be taken at that time. But that does not mean they are not competing with other airlines to sell the maximum allotted number of tickets.
Going back to your widgets theory, if one widget dealer is selling widget coupons for delivery next Tuesday and a new widget dealer opens up shop and starts selling more widget coupons for delivery next Tuesday, the price of widget coupons is going to drop. Now, if the second widget dealer is unable to produce the widgets next Tuesday, maybe next time people are going to be reluctant to buy his widget coupons. But if he has a scheme to make sure that 99% of the time he’ll be able to produce enough widgets for the people who show up to redeem their coupons and he pays off the remainder at a nice profit to them, most people are happy and continue to buy widget coupons.
To clarify: I’m not referring to some goofy situation whereas: I’m “flexible” in my itinerary, and have something akin to a 72 hour window for departure. When I book a ticket for a given date and time,** I expect to arrive at the airport and leave at that time.
**
Let me simplify. I wish to fly from Chicago to Seattle on a given date and time, and the lowest price found (for the sake of argument) is on Expedia. Let’s not quibble between the ethereal concept related to the differentiation between the idea of “most economical” vs “cheapest sticker price”. Suffice it to say, I am looking for the least costly ticket between Chicago and Seattle on that day and time.
If your implication is that a better deal may be had by digging deeper into other offers given by other brokers over time, or, perhaps by a direct query into the airline carrier’s offer at any given time, then OK… That is simply called shopping.
What I don’t understand is this multi-booking, multi-flight, multi-carrier, multi-date & time, etc., etc., etc., “flexibility” that others refer to, as related to somehow reliably going from point A to point B on a given date and time, as economically as possible.
Apparently I’m too unsophisticated to understand the shenanigans involved in reliable air travel anymore.
When you buy an airline ticket, you are not buying a seat on particular flight. You are buying a (very good) *chance *of a seat on a particular flight, but the fine print says that the airline can bump you if the flight is over-full; and they are more likely to bump someone on a lower fare.
This means there probably is no ticket that absolutely guarantees you a seat on a particular flight.
Consequently, while you say you are looking for the least costly ticket “between Chicago and Seattle on that day and time”, whether you realise it or not, that’s probably not what you are actually finding. Unbeknown to you, what you are actually finding is merely the least costly ticket which gives you *a very good chance *of getting a particular flight.
To have an even better chance of getting that particular flight you would need to pay for a more expensive ticket. Whether the additional expense of such a ticket is or is not more economic depends on what the odds are on being bumped, and how much it will cost you if you are bumped.
Consequently, the distinction between the most economical ticket and the cheapest sticker price ticket is not a mere quibble, and you can’t handwave it away.
Do I understand correctly that the cheapest tickets tend to be non-refundable?
If the original sin is that customers can elect to get a raincheck for any reason, doesn’t the popularity (because they’re cheapest) of non-refundable tickets mean that that inanity is not present for most airplane tickets?
Among the 14 different options, are there higher end tickets which guarantee a seat aboard if the plane takes off? Or is that moot since bumping would never need to make it to business class seats?
If a small proportion of tickets account for most of the income, wouldn’t we expect significant specialization for those higher end customers among airlines? Why isn’t that the case (to my knowledge)?
To answer your questions in order:
1/ Yes
2/ Yes. However, a key consideration is that the inanity is not present for most tickets by number but it is present for most tickets by value. And money talks…
3/ I’m not sure. And yes, for the reason you give, it’s moot.
4/ No, what advantage would that give to the specialist? On the contrary, an airline that just catered to high end customers would be at a disadvantage and couldn’t compete. They would have to underbook their flights since they would have sold tickets that guaranteed both a seat and flexibility. Consequently they wouldn’t know if you were going to turn up, but would be contractually bound to take you if you did. The only way to cope with this would be to fly 2/3 (or so) empty
Actually, a valid way to think about the current situation that normal airlines *already do *specialise in the way you describe, but then they sell off the remaining seats to the hoi polloi for cheap on the basis that the hoi polloi will get kicked off if a Master of the Universe wants their seat.
Interestingly, there is actually specialisation at the bottom end: there are charter airlines (maybe more common in the UK than the US?) that only fly holidaymakers who have booked way ahead. They are cheap, and the seats are guaranteed. But they only fly when there is reason to fly. They don’t have the overhead of running scheduled services that may not be filled.
**Princhester **nailed the last couple. Here’s a small addendum to his comments:
3/ The bumping issue isn’t first class vs. business class vs. coach class. It’s 99.999% high fare coach vs low fare coach. Bumping off the flight happens more or less in inverse ticket price order.
Once in a great while you get a bumping situation across the class boundaries: an excess first class person is pushed back to business who pushes somebody else back to coach who pushes somebody else back to the terminal. Overselling isn’t (AIUI) done in first, but broken airplanes, last minute passenger decisions, etc., can trigger more meat than seat. if so, the shuffle downwards begins. It’s a statistical near certainty that somebody sitting in first is a mileage upgrade or some such actually traveling on a lower fare, where he/she can be pushed back down a class without triggering a riot. The same applies between business class & coach; there’s almost always an upgrade in there someplace who can be displaced without needing a riot or a refund.
4/ The real tradeoff is this: The business travelers want 10 flights a day between X & Y. That provides the least wasted time for them, and time is extremely valuable. The carrier with the densest schedule will capture the high fare market. The problem is that given the size of airplanes, putting in lots of flights means too many seats chasing too little meat. So those “excess” seats are sold to the price sensitive leisure traveler.
The business traveler is creating schedule density and the leisure traveler is making that density affordable for the business guys. After all, you can charter a bizjet and have total on-demand schedule “density” with zero wasted time. But if you think full fare airline travel is expensive, you haven’t priced bizjet charters recently. Airlines are a friggin’ bargain, even at full fare.
Getting the mix of aircraft size, schedule density, timing, loyalty, geography, pricing, etc. is the 10-dimensional chess game the airlines compete in.
There absolutely are airlines that specialize in one or another corner of the 10D trade space. But they’re all so tiny you’ve never heard of them. Most are also short-lived because the fixed overhead of being in this highly regulated business at all is hard to amortize over the small niche market.
The various attempts at a Boston/NYC/Washington shuttle service are instructive. High yield, high demand, short flights; sounds like a made to order scenario for a “boutique” dedicated businessperson’s airline. Nobody made it work long term and the last incumbents in that market are simply a series of flight numbers operated by American and by Delta.
I had no idea the airline (booking) industry had become such a mess, as described in this thread. Thanks, all.
Greyhound is looking better and better.
Not if you’re looking to avoid overbooking, though. Previous thread.
People are just looking into how the sausage is made and freaking out. The sausage is still delicious.
Unless I missed or forgot a post (my apologies in advance if I did), no one yet has complained that they were involuntarily bumped from a flight.
There’s no reason to think Greyhound is better. Just google “Greyhound overbooked,” you’ll find many anecdotes.
Let’s take a practical example - Toronto to LaGuardia. I pick a random date a ways out - Tue. June 13th; they have their own code names for “cheap, not so cheap, etc.” Every airline will have their own euphemistic names…
A -Economy Tango - $144 (all in northern pesos, not real dollars!)
B - Economy Flex - $281
C - Economy Latitude - $815
D - Business Lowest - $386
E - Business Flexible - $864
(My own letters, not booking codes)
Now seriously, look at that - an economy seat for 7 times the cheapest rate. Nobody buys that unless they really need flexibility.
Only C and E are refundable.
Change a flight - $200 for A,B, D - free for C and E
Change a flight same day - cheaper on the La Guardia flight - $100 normally $150 for A, $75 for B, free for C, D, E
Standby is free for C and E
See a pattern here? The people with a C or E ticket have paid through the nose for the privilege of being able to no-show, select a different flight (or decide to fly earlier) without a penalty - over and over. Rebooking costs as much as the flight originally cost for some others.
So there’s a good chance a decent number of C and E passengers will not show up, or will change their mind within a day or so of the flight. If you can make a good guess how many, you can sell a chance to use those seats to the $144 customers. Plus, you only sell so many $144 seats (to encourage early booking) so people buying a week or less before on a popular flight will pay $281. If the C customer is a no-show, you’ve made an extra $241.
Plus statistics tell you that a certain number of A, B, or E passengers will not appear for assorted reasons - illness, death in family, car broke down, brainless…
If overbooking is disallowed or the penalty becomes too high, then the airlines will simply adopt a different strategy. The most obvious is to raise prices for everyone, or eliminate no-charge ticket changes, or some combination of that.
There’s nothing magical about this - it’s the same as the hotel business. If you don’t rent that room, they you lose that chance at money forever. So if the customer doesn’t show up on time, rent it to someone who’s waiting. We’ve all heard those “sorry but we thought you weren’t arriving” hotel stories. Same idea.
I wouldn’t go quite that far; the sausage is still adequate. 
Well, the data say that the sausage tastes far better than it did 10 years ago, is less likely to give you food poisoning, and costs much less.