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Overbooking

Employee
Employee
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!
36 Comments
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[...] Ted Mann wrote an interesting post today onHere’s a quick excerptMost people donÃ
New Arrival
Great post, Bill, as usual! Some people might think, "If the reservation is confirmed (as in paid for), why does Southwest care if the person doesn't show?" Could you explain this? Also, does Southwest handle overbooking and the resulting fallout differently than other airlines?
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I haven't rummaged around on the blog to see if you have an entry about travel tips for Southwest customers, but this might be a good segue to such a blog. Maybe you could do a blog series on 10 ten travel tips. You could doe them from the prespective of each phase of your business. For example, you could to a list of top 10 travel tips from customers, one from baggage handlers, gate agents and so forth. I always try to check online as soon as the 24 hour window opens up. Every time that I've done this, I have always been able to get in the A category. I don't fly much, but I usually try to fly on Southwest. In the last year, I've only failed to check in online once and get in the B section.
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I haven't figured out Southwest's pricing. It costs me $159 to fly from Baltimore to Florida and $49 to come back (same mileage each way) Yet it is $99 to California each way which is three times the distance and much more fuel. I have looked at pricing to Florida several different days and it is the same price each day to go to Ft. Lauderdale. Can someone explain this to me?
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New Arrival
Bob Hurst makes a good point. If I've paid for a seat on a plane, but I don't show up, how is the airline losing money? If anything, they've saved money. The plane doesn't carry my weight, saving on fuel, doesn't feed me peanuts, doesn't give me soda. I don't compress the foam seats, irritate my seatmates, or hassle the attendants. At a gym, they HOPE you'll never use your membership- it's free money. And a seat on a plane, paid for but unfilled, also seems like free money. Am I wrong?
Employee
Employee
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?
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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.
New Arrival
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?
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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.
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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...)
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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.
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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...
Employee
Employee
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
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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!
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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
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I know Southwest has mobile.southwest.com for check-in for those that have web enabled phones. It would be nice to check-in by sending a text message with your confirmation number for those that do not have web enabled phones then get a confirmation back saying the check-in has been received with your boarding letter/number.
New Arrival
One thing about Southwest that has always stood out for me is the ability to cancel or change a reservation anytime and there are no fees charged whatsoever. If you ever fly another airline and need to change a date or time, or cancel a flight, you are going to pay $100 fee just to do so, in addition to any fare change. Major koodos to Southwest for being the one airline to standout and not charge such fees. And I'm sure overbooking enables SWA to continue to do this financially. Of course, other airlines overbook and still charge fees, but that's why SWA is number one!
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Carl - These are a few things that have been written on the blog. http://www.blogsouthwest.com/2007/07/10/travel-tips/ http://www.blogsouthwest.com/2007/08/29/what-to-pack/ http://www.blogsouthwest.com/2007/06/06/before-you-call/ I hope you enjoy! James Malone MDW FA
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I worked as a hotel receptionist for about 33 months. Just like airlines, hotels overbook for the same reasons. The only difference is that (most of the time) our canceled reservations never paid us anything. If it was just a 6pm hold and they didn't show, we got nothing. And in some cases, an early reservation might pay more than a walk-in. It all depended on how many rooms we had available. I worked nights, and my GM told me clearly: "Don't let anyone walk out." I would definitely like to see more PIT connections. That's the closest airport to where my family lives. I am in Austin. Airfares in Austin are getting pretty outrageous. My roommate works as a ramp agent for another airline and tells me that the airport has already reached its capacity. Maybe that's the reason. It's only eight years old!
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appreciated your comments.. i am retired eastern airlines (should have gone to work for southwest) we had a program called leisure class.. the whole premise was the passenger was betting that we couldn't get him a seat...we usually won the bet.. and it was based on past load factors going back five years in some cases.. keep up the good work...you guys do a great job..
Employee
Employee
Good morning, all...more responses to comments. Laurie...on behalf of the SWARM--thanks! Steve...I'll pass those comments along to the good folks down the hall at southwest.com. Randall--THANK YOU for your business and compliments--Southwest is always walking the tightrope between providing excellent Customer Service and financial responsibility. It's a hard, hard median to hit but it's good to know you appreciate our efforts to keep both balanced! James...dude--ALWAYS nice to hear from you! Chris, I worked front desk (part-time!) for about 7 years...and in the hotel world, the equivalent of "bumping" someone is called "walking"...and I walked my share of folks. In the hotel world, the science is nowhere nearly as exact, and is much more prone to the over-exuberance of a Front Office Manager to take yet another rack-rate reservation, and hope one of those "church group" rooms doesn't show....but it's a very similar excercise, and one that's getting increasing attention in the world of Yield Management. jim, I remember "Leisure Class" (I've been in this industry 30 years next year)....and even when that fare/process was in effect, it always seemed to me like Eastern was asking people to bet on whether or not they would inconvenience them or not. Never understood how that fostered Customer loyalty. And lastly, Joycie....my pleasure! I *never* forget my roots--or my friends. :) Bill
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Thanks Bill, Your explanation seemed to come right out of the airline yield management game myself and my fellow MBA students played last night in class. After a few rounds of the game, it became blatantly obvious that overbooking is the only way to go if you are to maximize the revenue and carry the most passengers. It was especially obvious when you had high-paying individuals booking just a few days before the flight because you would make a profit even if you had to compensate someone else for taking a later flight. I appreciate the effort that Southwest makes through this blog to communicate the rationale behind some of it's business processes. Brendan
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Hello Bill, The is a question sort of related. When you change you flight reservations at least 14 days in advance even though there is no penelty does it hurt the airline? Thanks john
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Bill, I'm quite curious how Southwest's new no change fee policy is affecting overbooking. It's quite an aggressive strategy to gain the higher yield business passenger, but it must have completely rewritten your rules on overbooking. I apologize if I'm getting into company secrets you can't reveal, in which case I'd just like to offer my sympathy ;).
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Hi Courtney, SWA has never had a set change fee. You only have to pay the difference in the fare if you change your flight. For example...If you were booked on a 14 day in advance fare for 99.00 each way and 7 days before your flight was scheduled to depart you had to change it. Depending on what fares were available on that flight you would pay the difference. 14 day in advance was 99.00....change to 7 day in advance fare which is 149.00. You would pay the difference of 50.00. Bill, great explanation. Robin Sell Oklahoma City Reservation Center
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The people at SWARM do a great job. My travel schedule is usually flexible and I always look for a "Bump". I have been on the list a few times, but have yet to be on a flight where volunteers were needed. The flexibility to cancel or change a reservation anytime with no fees is one of SWA,s benefits over other carriers. Great Job! Dave
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One Question? For years passengers were allowed to use GPS on SWA. I would pass the time with my Airmap 2000. In June the policy was changed and GPS is now listed on the never allowed column in Spirit magazine. The Flight Attendant's answer "They interfere with the planes navigation equipment " is not true. I have ask several of your pilots who were surprised at the change and had no answer. What is the reason for this change? Dave
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Ok.. this is simple... stop over booking and over sch. flights or I will find some other carrier. Orange county airport is getting to out of hand. You must fire who ever is sch. these flights and get someone who knows what's going on. Fridays are hell days for me now. shape up or get out of the business. Delays should not be expected. Every friday from 6 PM on you suck. uhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh.
Employee
Employee
Guy, Although your post was a little shy on specifics, it sounds more geared to ontime performance on Fridays rather than overbooking. I took a look at our Friday operations over the past month or so and, yes, things do look like they are running late more often than they're ontime out of Orange County--and the cause looks like it's simply thta the flights are totally, completely, bum-in-every-seat full. While that's a good thing for an airline from a financial sense, it can be *very* difficult to run an ontime operation in a "full off/full on" scenario. Normally, we'd just add more flights to handle the excess demand, but Orange County is a capacity controlled airport--meaning that while we would LUV to ad more flights, we can't, because of the airport's goverment-imposed passenger cap. So, sorry if we've disaapointed recently--but we're always looking for ways to fix the schedule to make it more operable and more ontime. And please don't fire me--then I wouldn't be able to write on this blog!
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You guys are crazy. So what if there are no shows. I thought you pay for the flight before you get the ticket. Sio what if they do not show. They paid for the dam thing. My daughter passed away and my son can't get in because the airline overbooked. A good lawsuit up your asses would fix you guys. Hows that for stats. How much aggrivation have you caused. Put a $ on that!!!!!!!
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Very interesting post about overbooking. Personally, I'm glad that the airlines overbook; it increases my odds of getting a reservation on a "sold out" flight. And it's worked to my favor sometimes, such as the Thanksgiving eve a number of years ago when I volunteered to get bumped off my original flight, plus two other flights on which I was rebooked -- all in the same afternoon! (And I still got where I was going that night, with three free tickets in my pocket.) My question is, why does Southwest require standby passengers to upgrade to full fare? I would think that standbys would be to Southwest's advantage, and they should encourage the practice. For example, suppose I'm booked on the 4:00 p.m. flight, but I show up in time for the 2:00 p.m. flight. If I'm told I have to pay an extra $100 to upgrade, I'll say "forgot it!" and sit around the airport for an extra two hours. Meanwhile, there goes an empty seat on the 2:00 p.m. flight, gone forever. And the 4:00 p.m. flight might be overbooked, so someone won't get a seat. How much better would it be for me to be given the empty seat on the 2:00 p.m. flight, and then someone else can get the seat on the 4:00 p.m. flight that I vacated. Thanks for any explanation you can provide.
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Bill, about how big is the SWARM team?
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Southwest's overbooking as a calculated way to make money is exactly why I don't fly Southwest. They claim they are protectiing themselves from no-shows. But if these "no-shows" have bought tickets but don't show up -- so what. Southwest should fill those seats with stand-bys or not fill them at all. You then charge a fee to the "no-show", $75 or so, to try and use the ticket for a future flight. This is what the other carriers do and their overbooking rates are 10-20% of Southwest's. If you really need to be somewhere, like a business meeting, DO NOT FLY SOUTHWEST!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
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One more thing... Southwest's motto shoul be "WANNA GET BUMPED" instead of "WANNA GET AWAY"!!!!!
Employee
Employee
Bud, I'm not sure where you got your facts, but you're wrong. Southwest's rate of denied boarding is certainly not out of line--in fact, we're in the lower half of the industry in terms of our denied boarding rates, with a significantly lower rate than carriers like Continental, Alaska, Airtran, Delta, United, USAirways, and Northwest. Don't believe me? Check it out on the DOT's website--or click on the link below: http://airconsumer.ost.dot.gov/reports/2008/feburary/200802atcr.pdf And, of course, besides having a relatively low DB rate, we carry more Customers than any other airline in the world. With, by far, the lowest complaint ratio of any US air carrier. So I think we're probably doing pretty well, bud. Bill