The Networker Lessons #4 : Overbooking

 I am sure that you have heard the word overbooking at least once. What is overbooking? Why do airlines overbook?

 Overbooking is the process of an airline booking more passengers than the available capacity on a flight. For example, in an Airbus A320 aircraft with seating capacity for 180 passengers, an airline may opt to book 185 passengers on board.

 This need for overbooking arises from the need to minimise spoilage. (Spoilage is the term used for pre-departure cancellation of booked tickets and no-shows) Spoilage means that a flight will leave with empty seats that could have otherwise been sold to earn revenue. And in an industry as marginally profitable as ours, it has become critical to minimise this spoilage and earn the highest possible revenue. This created the need for overbooking and it has proven to be a valuable tool for the airlines.

 Overbooking in fact, is a very complex process. An airline must ensure that it is not overbooking too aggressively, which would result in rejected passengers and disappointed customers that will hurt the airline’s image. To achieve this, the airline researches a flight’s historical load and spoilage data, and sets an optimal overbooking rate for that flight.

 Naturally, if an airline has a high frequency of flights on a certain route, that means it gets the ability to overbook more aggressively. This is because that the rejected passengers could be easily booked in the next available flight without a heavy delay to the passengers’ travel plans.

 It was the legacy carriers that began the process of overbooking, however, recently some low cost carriers too have adopted it.
 The strategy of overbooking has saved the airline industry billions of dollars to date, and will continue to play a critical part in any airline’s revenue management.

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