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Overbooked flight refers to a situation when an airline allows for a few extra reservations for seats on a flight exceeding the airplane's carrying capacity. Airlines overbook in order to fill seats left empty by passengers who do not come in time for their flight or fail to cancel their bookings before the departure. To be bounced from a flight means being denied a seat on a plane despite having a confirmed reservation. Many airline firms use overbooking to fill empty seats so that no passenger will be left behind. Overbooking can be beneficial to airline companies and sometimes damaging in case it is misused. The benefit is that the aircraft always gets its full capacity hence less or no wastages associated with empty seats. Conversely, overbooking may sometimes come with extra costs especially due to litigations associated with inconveniences that often attract damages compensation. Moreover, an airline may lose its client base because of the frustrations that passengers who book and finally miss flights undergo. This paper explores the various impact of overbooking of flights in the Airline Industry.
Some airlines are faced with problems like high cancellation rate which result in loss of income as some plane departs with empty seats. For example, some passengers sometimes cancel their flights at critical moments when the plane is about to take off which results into empty seats. The airlines lose some cash flows because while they retain some percentage of freights, they are not equivalent to the actual income they would have received a passenger traveled. With controlled overbooking, however, Thompson, (1961) explain that this can be managed by checking on the progressive passenger loading of any particular flight. This is done by depending on subsequent cancellations to keep the number of bookings left at departure time slightly below the seating capacity of the plane. A close check on the progress of loading of passengers should be exercised too. This can be done by cross-checking a seat of an intending passenger in flight before he or she leave the agency premises.
The same case does not apply especially to the more familiar route as there is the likelihood of flight to be oversold. When a flight is overbooked, and you are denied boarding, state law requires an airline to pay you, for example, 200% of your one-way ticket price up to $650. Such state laws imply that overbooking may be exposed carriers to losses associated with returning to passengers more than they paid while booking the flights. With control approach called overbooking model, you are in a position to allow the maximum number of additional reservations based on past patterns for that flight and the reservations now taken. According to Coughlan (1999), many airlines use level control approach until a total number of reservations surpass the precise levels. The advantage of using level control approach is that it responds faster when there are prompt changes in reservations in an airline.
Revenues Maximisation Model is another method used, and it involves the calculation of the estimated number of bookings received and their past data concerning those passengers who failed to show up. The state laws that requires compensation for inconveniences related to overbooking implies that overbooking of flights is a challenge for many airlines. It, therefore, means that the more an airline overbooks, the more it is likely to incur compensation costs. The more the number of passengers shows up more than the available capacity the more the airline company will suffer a lot of money compensating passengers denied board in case the company does not have an alternative flight to cater for that. On the contrary, if the aircraft capacity is not full and we have more passenger booking, this became an advantage to the airline company as they can be boarded. Because the two situations cannot occur at the same time, the airline company can introduce or avail a higher fare class. Such an action will help them to give their customers a chance to board a plane if the one they wanted is full but at a higher fee, Coughlan (1999). By availing such a class, this will enable the company to retain their customers thus creating a competitive market for other airline companies and increasing their gross margin at the end of the year.
According to Subramanian et al., (1999), yield management (YM) is a practice where an airline company sells the same seat for different prices so as to increase income. This is also referred to as Revenue Management (RM), or we can refer to it as perishable inventory control where in this case a seat on a particular flight is of no use after a plane takes off. The time an airline company receives a request for bookings, it is their responsibility to decide how many seats to reject or accept according to their carrying capacity of their aircraft available for the flights. At times passengers may opt to cancel their trip up to the date of takeoff. This may happen as a result of customers missing a seat because of overbooking or their will due to, for example, unavoidable circumstances. If a flight is canceled, the customer is refunded an amount depending on time and class of the flight. If the passenger does not come during the date of flight, the amount refunded is different from that of cancellation. Whenever an airline company allows overbooking, they should put into consideration the corresponding penalties.
Revenue Management plays a crucial role in increasing profit for example in customer demand, some seats to be retained in the record and number of seats to be oversold, Siddappa, (2007). By use of statistical modeling approach, the passengers who remain after plane take off should be almost the zero. This model emphasizes on selling the right seat at the right time and to the right passengers for the right price. To avoid overbooking, airline companies should put restrictions on the purchase of tickets and put a 30 days advance to have a different class of services. The more you book early, the cheaper it is, and this will encourage customers to book in time avoiding rush hour thus enabling the airline company to reject requests in time to avoid disappointing the customers.
Zhang et al., (2014), explains that with good strategies, overbooking can contribute to big profits for airline companies as it can reduce waste of empty seats which is approximate fifteen percent and this can increase the profit but we should be careful as it can result in potential risk. Overbooking on its advantage side helps a lot when passengers exceed flight capacity as they can be accommodated thus preventing the airline company from denying passengers board. This also saves the company a lot of money which it could have used to compensate the denied board passengers thus prevent it from making losses and the social reputation is maintained and make a huge profit as a result. There is a need for the airline company to find a good decision maker who can find the optimal booking limit so as to maintain huge profits. This is. However, the passengers exceed flight capacity after take off as some of them will miss the flight leading to losses and the reputation of the airline company is ruined. To reduce this, the company should always ensure that the number of customers who are overbooked is less than the expected plane capacity which will take off that day. The airline can also introduce a new flight with discount fares, and a booking limit should match that flight. The new flight will take care of all overbookings as customers will be attracted by the discount given and feel appreciated more than being compensated for missing a flight. Another thing is that they will travel as they had planned thus saving them a lot of time which they could use to go in another airline company to look for available flights. This as well maintains the airline reputation and maximize their profits.
American artist Aaliyah Dana Haughton was killed in a plane crash as a result of unethical behaviors of the pilot and the airline company. After completing her video shooting in Bahamas Aaliyah and she boarded a twin-engine plane at the Marsh Harbour Airport. Virgin Records America employees accompanied her and the pilot by the name the Luis Morales III. The plane did not go far after takeoff, and it was about sixty meters from the runway and sixty to one hundred feet off the ground before it crashed. Aaliyah died when she was twenty-two years old together with other eight people who were on board, only one person survived this accident. Airlines usually have overbooked flights to ensure that plans fly as full as possible. It is facilitated at the flight operations level as passengers who are accommodated due to overbooking can be readily rescheduled on later flights, but they are not happy when they receive this communication as it delays their travel plans, Anderson and Xie (2010). This is what happen in the story of Aaliyah and her supporters as explained below.
The return flight for Aaliyah and her entourage was booked for the following day, but because the team had finished the video shooting early, they decided to go back to the United States immediately. The whole team boarded an aircraft which was smaller to accommodate all of them and failed to wait until the following day so that they can take the one which could have accommodated them. Some minutes before the aircraft took off Charter pilot Lewis Key said he heard some passengers arguing with his fellow pilot Luis Morales concerning the overloading which could not guarantee a safe flight back to the United States. Key tried his best to convince them that the plane was overloaded, but they were impatient and decided not to change their mind and were ready to take off. To make the matter worse Key core pilot, Morales agreed to take the passengers even after one of the engines had defaulted.
Initial crash reports show the primary cause of this accident was because of overloading of aircraft and engine failure. The crash was intense because of too much weight, and the impact was too much, and the plane had broken into pieces after the impact that only one person survived this accident. According to crash investigation findings, the aircraft had 705.50 Ibs over its maximum takeoff weight and had one passenger more on board, and this repositioned the center of gravity outside its ultimate limit. Secondly, the impact of the crashed aircraft indicated that Morale was not approved to fly that plane. As a matter of fact, he had obtained his FAA license falsely and may have lied about the number of hours he had flown to get the job with Blackhawk International Airways. Also, the pilot toxicology report showed cocaine and alcohol traces in his system which is unethical in the pilot profession.
Consequently, Blackhawk International Airways came under scrutiny by the FAA and was fined $ 1,500 for violating safety rule in United States airspace. They received a warning for not testing Morales for drugs and not maintaining the aircraft engine good condition. Blackhawk Company did not have a history of Morales because in August 2001 he was charged with cocaine possession and driving with a deferred license and failed to stop where there was a stop sign. Morales was fired from Golden Airlines in Florida for failing to appear at work. This is clear evidence that Morales had a bad history which the Blackhawk Company could have referred to before hiring him two days before the crash and this accident could have been avoided. What even hurt most is that Blackhawk Company claims that Morales had a certificate to fly aircraft under a single pilot, but according to Kathleen Bergen from F.A.A, the pilot (Morales) name was not in the authorization papers, (death of Aaliyah 2017)
Blackhawk Company was sued by families who lost their loved ones for putting profits over passengers. The company allowed the pilot to fly the aircraft even though he was not qualified and too off with it when it was overloaded. To make the matter even worse, even one of the engine was not working properly. This cost the company reputation and incur a lot of money which could have been avoided if they followed the correct aviation procedure. In airline industry there are several ethical behavior pilots should follow, for example, rules and regulation that FAA creates which help them in decision making. Also, they are in a position to determine what is right and wrong and consequences that follow so that no one is above the law, Hoppe (2016). When talking about above the law, we are referring to passengers, airline company and the pilot of the plane. These rules and regulations ensure that in case anything bad happens in flight, for example, an accident, those responsible for an investigation they can do it and submit a report to lawyers who will then proceed with the case. This force many airline companies to maintain a good standard and thus ensure passengers get safe flights.
In conclusion, overbooking problem is a critical method for airline companies to manage their revenue. Aviation industry attracts many customers when they introduce a new flight at a discount to cater for passengers who are left behind after plane has taken off, The customers are sure that no matter what they will travel and reach the destination on time. This is an excellent reputation for airline companies as they maintain their social status, save a lot of money which they could have used to compensate the passengers and customers are relieved the burden of paying a lot of money for a flight. Consequently, the companies make a lot of profit which enables to expand their business, pay their employees well thus motivating them. Airports with available land can develop business parks which will let them benefit from the attractiveness of air service connectivity to businesses. When airline business is expanded, it means they can accommodate as many customers (passengers) as possible thus maximizing their profit margin. Employee motivation is necessary because employees work very well to satisfy the needs of clients which make them feel appreciated and customer continue increasing now and then. Due of high-profit-margin, the airline companies will be in a position to employ more employees and give huge revenue to the government which helps to improve the economy of a country. The employees also pay taxes to the government which is a contribution towards the improvement of a country. The government in return will be in a position to give good medical services, proper infrastructure to the society which improves the living standard of the people in a particular country.
According to Cristureanu and Bobircă (2007), air transport support an important social function as it connects communities to enable them to get essential service for example education and health facilities. Airline services also give accessibility to business countries to start international relation in their endeavors of activities thus providing a vital infrastructure to support regional social and economic growth and tourism development of those countries.
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Coughlan, J. (1999). Airline overbooking in the multi-class case. Journal of the Operational Research Society, 50(11), 1098-1103.
Cristureanu, C., & Bobircă, A. (2007). Airports driving economic and tourism development. The Romanian Economic Journal, Year X, (25), 31-44.
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Zhang, C., Guo, C., & Yi, S. (2014). Airline overbooking problem with uncertain no-shows. Journal of Applied Mathematics, 2014.
Subramanian, J., Stidham Jr, S., & Lautenbacher, C. J. (1999). Airline yield management with overbooking, cancellations, and no-shows. Transportation Science, 33(2), 147-167.
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