Why Airlines Overbook Flights
After the United incident, there has been some confusion and bewilderment about airlines overbooking flights. Do they do it to screw us over or is there a logical reason? So I dug in last night and found out why.
The purpose of a company is to generate profit for it’s shareholders. That can be one self-employed person or a gigantic, publicly owned company like United. Some may argue this fact, but a for-profit business has one main goal: profit. Without it, the business will fail.
To break it down into simple math, let’s say an airplane has 100 seats and each seat sells for $300. If the airline sells out, they make $30,000 in revenue on that flight. But airlines know something you don’t. On any given day, a certain percentage of people won’t make their flights. If United knows only 93% of people will make the flight, they can sell 7 more tickets at full price and make an extra $2,100 per flight — 7% more.
Suppose only 4 people miss the flight. In this case, they have 3 more passengers than seats. What do they do? Offer the passengers a monetary incentive to catch the next flight. If they bump 3 people at $400 each, they still come out ahead by $900. Per flight. How many flights per day does United fly? Over 5,000. That’s about 4.5 million dollars per day extra for overbooking. Obviously I’m guessing at these numbers but it wouldn’t shock me, considering United Airlines grossed 36.56 billion dollars in 2016 — of which 2.3 billion was shareholder profit.
So I’m ok with it, especially if I own airline stock. What I’m not ok with is beating and dragging a paying customer off a plane because you need seats for employees non essential to that flight. I’m also not ok with the CEO publicly supporting what happened. But I sure am excited to see what goodies they’re offering if I get bumped on my flight back from Denver next month!