CHARLOTTE, N.C. -- In a little noticed development in the airline industry, the often misunderstood and widely condemned practice of overbooking has vastly diminished. The decline has resulted primarily from the move to nonrefundable fares and substantial fees for changing flights, both of which began following the Sept. 11, 2001, terrorist attacks and escalated recently during the record run in oil prices over the summer. Airlines and passengers alike have benefited from the change. In the case of passengers, fewer fliers have been denied boarding, according to recent statistics, while for the companies, reducing overbooking is another step being implemented to weed out inefficiencies. Combined with such factors as new bag fees, heavy cost-cutting, sharply lower fuel prices and decreased capacity, the falloff in overbooking has contributed to the widespread perception that airlines are one of the few sectors that could actually show an improvement from this year to 2009, despite the growing evidence that the U.S. has entered a recession. In the first nine months of 2008, the 18 largest airlines kept 523,413 passengers from boarding planes, or about 11.9 occurrences for every 10,000 travelers, according to recently released Transportation Department figures. During the same period in 2000, the rate was about 21 times for every 10,000. AMR ( AMR) unit American, for instance, is reaping a financial gain of tens of millions of dollars annually because it now faces lower costs related to overbooking, says Scott Nason, the airline's vice president of revenue management.
Typically, those expenses can include compensation to passengers, meals and lodging, travel on another carrier and increased work for airport agents. Largely because of higher fees to change flights, not showing up "is not something people do anymore," Nason said in an interview. "People may get sick, or have a serious car problem and not get to the airport, but they don't just no-show as much." Where American's failure-to-show rate was about 6% to 7% before the Sept. 11 attacks, it's between 2% and 3% today. With passengers far more likely to arrive for their flights, American and other carriers overbook far less than they once did. Many passengers and travel advocates condemn overbooking, but in truth it provides one of the few ways airlines can protect themselves in cases where travelers fail to make their flights. The possibility of no-shows pushes carriers into risk-management mode as they seek to balance lost revenue from unsold seats against overbooking-related costs. "Airlines are allowed to overbook because, when they compensate properly, especially if it is done with volunteers, people are happy," Nason says. "It is not a customer-service issue. It is an economic way to deal with the no-show uncertainty, as long as it doesn't get out of line." In the vast majority of cases, problems are solved when volunteers accept compensation. However, in rare cases, passengers are bumped, in what is termed an "involuntary denied boarding." Historically, American has had a relatively low rate of bumping fliers. In the first nine months of this year, for instance, it bumped 0.71 people per 10,000 passengers, the lowest among the legacy carriers and below the industry average of 1.11.
"For airlines, and for passengers who voluntarily accept compensation, overbooking makes perfect sense," says aviation consultant Bob Mann. "But if I am a business traveler who has to be somewhere, and the airline hasn't presolicited volunteers, and they just decide 'well, it's Bob," then I'd be fit to lash out. If you need to be someplace, no amount of compensation is adequate." From January through September, US Airways ( LCC) was the most aggressive major carrier when it came to overbooking. According to Transportation Department figures, it had about 17.9 denied boardings (voluntary and involuntary) per 10,000 passengers. Spokeswoman Michelle Mohr says the airline overbooks because 7% to 8% of its passengers don't show, adding that it "offers refundable fares as an option." UAL's ( UAUA) United had the second-highest rate, with about 17.4 denied boardings per 10,000 passengers. Meanwhile, JetBlue ( JBLU) had the least overbooking, at just 0.04 per 10,000. Hawaiian ( HA), AirTran ( AAI) and Alaska ( ALK) were also below American's rate of 8.1 denied bookings per 10,000 passengers, which was the lowest rate for the six network carriers.