Airline overbooking. It's misjudged, misinterpreted, and mischaracterized. Most people don't understand it–if it were a person, it'd be an odd cross between Donald Trump and Truman Capote. You're not sure you get it, you don't think you like it, but it usually makes for an interesting story and is the butt of jokes by comedians on late-night talk shows. However, overbooking is actually easily explained and understood; is the subject of a huge amount of statistical analysis; and is a bona-fide science in its own right!
Overbooking is the practice of accepting more reservations on a flight than there are seats. Most folks have two questions about overbooking: "why?" and "how?" The "why" is easy to explain–it's an airline's way of counteracting "no-shows," which are Customers who make confirmed reservations for flights and then, for whatever reason, fail to show up. Without overbooking, no-shows would cause almost all fully-booked flights to leave with empty seats. And an airline seat is a completely perishable commodity–when a seat on a flight departs the gate empty, it is lost and can't ever be used. Put another way, the potential for revenue lost due to no-shows could easily undermine Southwest's Low-Fare Leadership…and the art of overbooking helps prevents that.
That's the "why." The "how" is harder to explain, but it is way more interesting. The science surrounding overbooking combines the mathematics of probability and of detailed, historical analysis, mixes in a healthy measure of behavioralistic research, then uses all of that to predict what percentage of bookings for a given flight leg, on a given day, will fail to show up. The numbers of people that book but don't show have very definite trends that, absent a few "except for when this happens…" things thrown in just to keep things exciting, make predicting no-show rates a surprisingly exact and successful (if occasionally stressful) science.
Figuring out no-show rate exceptions--the "except for this" occurrences--can be one of the more challenging aspects of a Revenue Management Analyst's job. Some exceptions are easy to spot--holidays, for example, behave very differently than a normal week, but are usually identifiable and fairly predictable. Note that I said "fairly predictable"…some of the bigger holidays such as Christmas, New Year's, and Independence Day "float" to a different day of the week each year, and because of that they behave differently from year to year, making the job of predicting no-show rates and booking behavior, well, challenging at best!
Other little "GOTCHAS!" can only be explained through the investigative nature of an Analyst. Things like conventions, sports events, snowstorms, even the recent Customs computer outage at LAX that delayed thousands of arriving international Customers can really change no-show rates, sometimes far in advance of the flight, sometimes mere hours before departure. The only way an Analyst can identify seemingly inexplicable reasons behind odd booking and show rate behavior is through keeping close contacts with the no-show-rate trends, local Marketing Managers, fellow Southwest Airlines Employees at the Station…..and, frequently, local newspapers. Time for the Analysts to put on their "Investigative Reporter" hat to get to the bottom of the story!
While managing overbooking is just part of the job of our Warriors on the SWARM (Southwest Airlines Revenue Management) Team, it is a fascinating one that gets far too little attention–and even less appreciation. Their ability to maximize the number of filled seats while minimizing Customer inconvenience is incredible. Their effort is absolutely critical in giving the maximum number of Customers the Freedom to Fly. Keep us flying, SWARM--thank you!
Comments
Bill, thank you for clarifying what we do here in Revenue Management.
I'm sure your article gave the public a better understanding of why we overbook. This write-up was great!
Joyce Settles
Bill,
I gotta tell you, you folks in SWARM amaze me. I can't tell you how many times I've looked at the bookings at the gate and thought, "142? I better start my oversell announcements pronto!"...only to find myself closing the flight with *exactly* 137 customers and a list of volunteers I didn't need afterall.
Keep up the GREAT work!
Good morning, everyone! A few responses to some of the latest comments.
FF--great idea, in theory--but part of the appeal of our high-frequency network is that it allows Customers flexibility, which inherently is going to make no-show rates more volatile. So, we're very hesitant to penalize people for availing themselves to what is one of the most inherently attractive features of our network design!
Scott--the All-Star game in Vegas this year was an interesting study in human behavior. The SWARM did anticipate heavy bookings that day, and acted accordingly. Unfortunately, what they didn't expect was that the post-game parties would last FAR into the night. As a result, a large number of the Customers booked for the first flights out on Monday morning no-showed those flights, then showed up a few hours after their confirmed flights had left to try and get out later on a standby basis. All of those Customers, added to the already huge number of people passing through the airport that day contributed significantly to the problems we experienced.
Rebecca, it's not solely a looking backwards/projecting forwards process. The SWARM is also always looking forward at bookings, and they are usually very quick to see instances where booking patterns look odd, and they immediately start trying to figure out (1) why, and (2) what to do about it. Yes, local SWA folks are the SWARM's best eyes and ears as to what local events might be affecting bookings.
Micah, the vast, vast majority of people who do take denied boarding compensation do so on a voluntary basis--so by asking for volunteers at the gate on the day of departure, de facto we're doing what you're suggesting, without cluttering up the booking process. But interesting concept!
Thanks for the comments, folks....keep 'em coming!
Bill
Some travelers love overbooking because of the possibilty that they might gain a free trip. Others hate overbooking because they have a meeting to attend two hours after the flight is supposed to arrive. Is there a way you could add a step to your booking process asking customers if they would mind being overbooked and receiving a refund? Therefore, the business travelers who must stay on schedule will be happy and the college students who are searching for a way to earn enough money to attend a friend's wedding half-way across the nation away will be happy.
By the way, US Airways will end all flights from Pittsburgh to Chicago, Denver, Louisville, Nashville, and Norfolk/Virginia Beach in January. Think about adding flights and destinations...
This has nothing to do with this article but I could not find anywhere else to post a comment. I am really disappointed with your featured destination this week. It is New Mexico and when I pulled that up I was so excited because I am trying to get tickets from NM to see my family in Utah for a December wedding. Anyway, I went to book my flight and there are only two cities I found that start at $59. And one of them was El Paso to Albuquerque. What a waste. If you ask me it is not very featured.
I flew on Christmas day on Continental last year. I knew both of my legs were overbooked and I tried to signup to be bumped. But lo and behold the revenue management people had their stuff together and those planes flew everyone who showed up without bumping anyone.
(Why did I try to get bumped? -- Originally I thought I needed to be home on the 26th for work, but I wasn't scheduled in till the 27th or 28th, so I wanted the free flight out of it...)
Hi Bill,
So it looks like a lot of the work of these SWARM folks is prepared in retrospect, and then applied to future situations? I mean, you find out about those GOTCHAs after they happen, and then try to find if they are going to happen again?
Also, you said that local SWA-folks also give information... is this sort of a situation where when they hear of local stuff going on they let HQ-SWARM know?
Thanks for the info.. it's really very interesting.
Since this year's (Feb '07) Super Bowl is to be held near a Southwest "focus city". I hope what ended up happening on the Monday after the game doesn't happen the same way that it did the day or two after the NBA All-Star Game in Las Vegas (your busiest focus city). Can you give us some insight as to how SWARM didn't guess correctly the non-show rate then and there?
I would think SWA would develop a way to discourage or penalize chronic no shows. For instance, do not give frequent flyer credit on tickets purchased with twice recycled funds.
Bob,
Frank is essentially right on the money. Other carriers have adopted a tightly-enforced policy that if you no-show your reservation, for whatever reason, you forfeit your money. Southwest doesn't--on fares that aren't non-refundable (our walk-up Y fare, for example), even if you no-show, you can get a refund. We do that because, honestly, we understand--like Forrest Gump said, "IT HAPPENS"......whether it's a wreck on the freeway, a meeting that runs late, whatever the reason, we know that sometimes things are beyond your control--so why make you pay for it?