Airlines utilize overbooking as a revenue maximization technique. Flights are overbooked on the assumption that not all passengers will make their flights due to factors within and beyond their control. For example, passengers may miss flights due to previous flight delays or have a change of travel plans. Overbooking is a legal practice. When an overbooking occurs, the U.S. Department of Transportation requires the airline to ask passengers to voluntarily surrender seats in exchange for compensation. Passengers involuntarily denied boarding (bumped), against their will, are with a few exceptions, entitled to compensation. Per the U.S. Department of Transportation Airline Consumer’ Rights FAQ, an airline must offer 200% of the one-way fare up to $675 for a passenger who is bumped, arriving on a substitute flight within one to two hours of the planned arrival time of the original domestic flight. However, airlines are free to offer these passengers more money than required.
The U.S. Department of Transportation tracks the number of passengers voluntarily and involuntarily denied boarding for larger U.S. airline companies along with other metrics of performance including mishandled baggage and on-time flights in their monthly Air Travel Consumer Report. The number of passengers involuntarily denied boarding is relatively small compared with those who voluntarily give up their seats. In the period from October – December 2017, the twelve largest airlines had a total of 70,909 passengers voluntarily denied boarding vs. 3,148 who were involuntarily denied boarding. To provide an idea of how widespread bumping may be, there were 0.18 per 10,000 passengers involuntarily denied boarding for the 171,086,202 passengers enplaned during October – December 2017 for the airlines covered in the Air Travel Consumer Report. These numbers are much improved over the same period in the prior year, with 0.55 per 10,000 passengers involuntarily denied boarding for the 164,817,906 passengers enplaned being reported.
The forceful removal of a passenger who was bumped and physically removed from a United Airlines flight in April 2017 brought the practice of overbooking into the spotlight. United and Delta Airlines have both increased the amount of money that gate agents can offer passengers to voluntarily give up their seat. Southwest Airlines subsequently announced that it will no longer overbook its flights. The bump rate reduction during October – December 2017 over the same period in the prior year may support the notion that airlines have made a concerted effort to reduce overbookings.
Jeffrey Wong, Ph.D., CPA is a professor in the University's accounting and information systems department. His research interests focus on factors influencing management strategy, how strategic actions map to financial results and the airline industry. Professor Wong is the chair of the accounting department and currently teaches auditing and assurance services.