Airlines are willing to overbook flights because they know that people who make reservations do not always show up. Sometimes, however, this results in more people holding reservations at the gate than there are seats on the flight.
a) Is overbooking efficient from the airlines’ standpoint?
As a business owner, I do overbook. I have more clients that require work than can sometimes be done. However, I do know from experience that clients tend to disappear or take months to get all of the required information together. As a result, I tend not to say no to potential client requests and see what they have to offer. From this standpoint, overbooking is efficient.
b) Is overbooking efficient from the standpoint of passengers?
If I were a passenger that had been overbooked and was on a plane without a seat, I would be beyond furious. However, as I just mentioned, I do this to my own clients. So long as passengers understand when they are booking that there is a possibility of the flight being over booked (which is the airlines responsibility to inform them) then yes it would be ok.
c) As a consequence of a 1976 court case that Ralph Nader won against an airline that had “bumped” him, the federal government adopted a rule requiring airlines to compensate people who were denied boarding despite holding a confirmed reservation. As a result, the airlines started to ask for volunteers who were willing to take a later flight whenever a flight turned out to be overboooked. Who benefited from this new regulation?
Passengers benefited from this new regulation. I was recently stranded in Rome during an airport strike and my flight was bumped for three days later. However I took a train home since I could not wait that long. As a result of this law (we have a similar law here in Europe), I am getting a refund.
d) If passengers can in effect sell their confirmed reservations when a seat shortage arises, why can’t passengers sell their right to land at a crowded airport when a shortage of landing slots arises?
In effect, this can be done when making the reservation. For example, Monday through Friday from about 8 am till 10 am and again from about 5 pm to 8 pm is when most of the Milan-Rome business flights occur. They tend to be much more expensive then flights at different times and flights to other airports. Knowing this, I tend to take flights that land earlier or take off later if I need to go to Rome on business for a day.
e) Before 1976, the airlines often denied boarding to passengers who were flying on urgent business in favor of passengers who were not in any particular hurry to reach their destinations. This would seem to be a cooperative failure. What was the crucial step that lowered transaction costs sufficiently to transform the frustrating situation before 1976, when the last persons to show up at the gate were denied boarding, into the current system, where only volunteers are denied boarding?
This was due to the voice of those many who had made a reservation and been denied a seat. By speaking up, the airlines were forced to correct this problem and find a fair solution to consumers. Consumers do have a voice that can be a very powerful force in the economy.