How airlines can overbook without their guests hating them

May 27, 2021

As the summer travel season heats up, it's more likely than ever that travelers will find themselves on overbooked flights.

Why? Currently there is huge volatility when it comes to forward demand and pricing for airlines. With relaxed cancellation and change rules, airlines are having a much harder time estimating the no-show rates on flights. The solution for many carriers is simply to overbook more and hope for the best.

But overbooking is a classic Catch-22 for airlines. Be too conservative, and they risk spoilage, losing out on valuable revenue. Be too aggressive, and they risk upsetting guests and front-line staff who have to "clean up" the mess.

If airlines could always know with 100% certainty how many guests would "no-show" for every flight, overbooking would never be a challenge - they would simply overbook the precise number of "no-shows", and flights would never have any spoilage. But sadly we don't live in a world of perfect information, which has only been exacerbated by COVID.

Recently Volantio conducted consumer research to better understand guest attitudes towards overbooking. As the graph below illustrates, an overwhelming majority of guests surveyed believe it is unacceptable for airlines to overbook.

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However, leading carriers globally are seeing that with the use of modern technology and AI, they can significantly improve guest satisfaction while also driving up to 1% incremental revenue from increased overbooking. They are effectively turning overbooking from a historical negative to a great positive for guests.

Volantio followed up the question above by showing guests surveyed the mockup below, and asking them the following question:

"If you were to receive a notification on your Smartphone before you left for the airport, providing you with a range of compensation options and specific details on alternative flights (similar to the communication below), would you say the process is better, worse, or about the same as the overbooking handling process you've seen in the past?"

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An overwhelming number of guests stated that the experience would be "significantly better" or "better":

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What makes this specific type of communication so effective? First, rather than simply soliciting volunteers, it clearly offers alternatives that guests can choose. In our 1:1 surveys with guests for airlines using Volantio's Overbook Accelerator module (part of our RevBoost System)  this was a key benefit cited.

Second, the compensation amounts are known from the onset, rather than asking guests to participate in a reverse auction. Auctions have their benefits, but it's undeniable that they introduce significant uncertainty, something travelers do not like when they are traveling.

To profitably offer specific alternatives and concrete incentive offers, though, airlines need to use data science and machine learning. The profit optimal compensation (vouchers, points, upgrades, etc...) and alternative flights to present depends upon the specific guest-date-route-flight combination. This is not something that can be done manually or with simple business rules. Luckily, technology is enabling this today in ways like never before.

Recently Volantio deployed the first phase of such a solution for Alaska Airlines, driving over $20M+ in incremental revenue. Please see the case study here.

Airlines who do not overbook, or who overbook too conservatively, are leaving millions on the table. Technology and AI enables airlines to drive significant incremental profits through overbooking, virtually eliminating spoilage while also keeping guests and front-line staff happy.