Overbooking: The Rules, The Rates & How Much Airlines Make From It

In case you missed it, we had a post yesterday about a United passenger being forcibly removed from a flight. I thought it would be interesting to have a look at your rights when it comes to being on an over booked flight and being bumped.

The Rules

The U.S. Department of Transport has clear guidelines when it comes to overbooking:

• Airlines must first seek volunteers that are willing to be “bumped” from their overbook flight. DOT has not mandated any minimums when it comes to be voluntary bumped.
• If  a customer is involuntary bumped there is strict rules in place:
  • They must provide you with a written statement describing your rights and also explaining how the carrier decides who gets on an oversold flight and who doesn’t
  • Compensation is as follows:
    • If you are bumped involuntarily and the airline arranges substitute transportation that is scheduled to get you to your final destination (including later connections) within one hour of your original scheduled arrival time, there is no compensation.
    • If the airline arranges substitute transportation that is scheduled to arrive at your destination between one and two hours after your original arrival time (between one and four hours on international flights), the airline must pay you an amount equal to 200% of your one-way fare to your final destination that day, with a $675 maximum.
    • If the substitute transportation is scheduled to get you to your destination more than two hours later (four hours internationally), or if the airline does not make any substitute travel arrangements for you, the compensation doubles (400% of your one-way fare, $1350 maximum).
    • If your ticket does not show a fare (for example, a frequent-flyer award ticket or a ticket issued by a consolidator), your denied boarding compensation is based on the lowest cash, check or credit card payment charged for a ticket in the same class of service (e.g., coach, first class) on that flight.
    • You always get to keep your original ticket and use it on another flight. If you choose to make your own arrangements, you can request an “involuntary refund” for the ticket for the flight you were bumped from. The denied boarding compensation is essentially a payment for your inconvenience.
    • If you paid for optional services on your original flight (e.g., seat selection, checked baggage) and you did not receive those services on your substitute flight or were required to pay a second time, the airline that bumped you must refund those payments to you.

Keep in mind airlines can offer you payment in vouchers, if you were involuntary bumped you can request this as cash instead (well, a check at the very least). If you volunteer to be bumped, make sure you clearly understand any and all vouchers the airlines offer you including restrictions and amounts. For example, if they offer you $550 in vouchers, is that a single voucher that is $550 off any flight? Or 11 $50 vouchers off a single flight, limit of one coupon per booking, non peak times only?

Rates Of “Denied” Boarding

Bureau of Transportation Statistics provides some amazing statistics when it comes to “denied boarding” or being bumped. They are categorized into two groups: voluntary and involuntary.

Table 1-64: Passengers Boarded and Denied Boarding by the Largest U.S. Air Carriersa (Thousands of passengers)
	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015
Boarded	420696	429190	445271	449184	457286	460277	480555	502960	514170	523081	543344	477970	467205	485797	522308	516553	552445	567740	576476	548041	595253	591825	600774	599405	535551	613141
Denied boarding,b total	628	646	764	683	824	842	957	1071	1136	1070	1120	900	837	769	747	597	674	685	684	719	746	626	598	494	467	552
Voluntary	561	599	718	632	771	794	899	1018	1091	1024	1062	861	803	727	702	552	619	621	620	651	681	578	539	440	418	505
Involuntary	67	47	46	51	53	49	58	54	45	46	57	39	34	42	45	45	55	64	64	67	65	48	59	54	49	46
Percent denied boarding	0.15	0.15	0.17	0.15	0.18	0.18	0.2	0.21	0.22	0.2	0.21	0.19	0.18	0.16	0.14	0.12	0.12	0.12	0.12	0.13	0.13	0.11	0.1	0.08	0.09	0.09

The chance of you being denied boarding is relatively low (0.09). It seems that voluntary bumping has been somewhat decreasing, but the ratio of involuntary to voluntary bumping has been increasing.

How Much Does Overbooking Save Airlines & Customers?

Economist James Heins says that $100 billion has been injected into the U.S. economy due to overbooking and being able to offer customers compensation for being bumped from a flight over the last thirty years. I’d take that number with a heavy grain of salt as no specifics are given on how that number was calculated and I was unable to find any peer reviewed research that backs up this claim.

Our Verdict

Airlines obviously make more money from overbooking than they do from paying voluntary and involuntary compensation for bumping customers. I don’t think it’s unreasonable expectation for a customer to expect to have a seat on aircraft that they have paid for (unless a change of aircraft is required or other operational reasons).

The easiest solution would be to increase the amount airlines need to pay if they involuntary bump passengers, this provides them with more incentive to find (and compensate) volunteers. Involuntary bumps should be an absolute worst case scenario, as they are bad for everybody involved. Considering that in the last three years we have data for that 11%+ of passengers being bumped are involuntary suggests to me that more can be done by airlines.

It should also be noted that some airlines are already significantly better at getting passengers to volunteer than others:

Delta for example seemingly overbooks like crazy (or has other issues), but has relatively few involuntary denied boarding.