United plans a new way to handle overbooked flights

By Bloomberg News, July 13 2017
United plans a new way to handle overbooked flights

If you’ve bought a seat on a flight that’s overbooked, carriers will soon have the means to resell your spot for a higher price. But don't freak out yet: there’s an upside for passengers, too.

This week, United Airlines  is quietly unveiling a new technology platform that it will use to manage the problem of oversold flights – and, in the same breath, turn them into a profit opportunity.

With the help of its new Flex-Schedule Program, the airline is piloting a way to buck the trend of involuntary bumping – the term for kicking passengers off oversold flights – without necessarily offering four-figure payouts to passengers at the gate, or curbing their practice of overselling inventory.

(The airline suffered a publicity black eye earlier this year when police dragged a man off an overbooked plane, and has since promised to offer high-price rewards to fliers who agree to change flights at the last minute.)

Instead, it’ll simply offer buyouts earlier – up to five days in advance. The upside for United? The chance to resell your ticket at a wider profit margin.

How it will work

In partnership with Volantio, a third-party aviation technology startup based in Atlanta, United will soon begin sending e-mail newsletters with subject lines such as "Are You Flexible with Your Travels to Los Angeles?"

Inside, travelers will have the option to sign up for potential rewards – so long as they’re willing to budge a little on their flight itineraries.

Only those who book on United.com and opt in to receive marketing messages will be eligible for the sign-up offer – and signing up doesn’t guarantee that you’ll be asked to change your flight. If it’s looking like your seat has turned into a hot commodity, though, you’ll be offered the chance to tweak your itinerary in exchange for a travel voucher up to $250.

And tweak is the key word: You’ll never be asked to change dates or airports, and your seat preferences will carry over, with clear indicators if you’re taking a downgrade from Economy Plus to regular-old Economy. (Downgrades will be rare, but upgrades will be even rarer.)

Accept the bid if you wish, and you’ll be rebooked within 24 hours.

It’s not about overbooking

After months of negative press – the doctor who was dragged off the plane, the infant whose $1,000 seat was inadvertently resold – United’s image has taken a nosedive.

According to Azim Barodawala, the chief executive of Volantio who created the technology and brought it to United, the Flex-Schedule Program could be an opportunity to change the narrative with the help of innovative technology, rather than cumbersome regulations.

“If you can offer a buyout to a customer in advance, everyone will be happier,” he said. “For airlines, it represents a release valve – a way to shuffle people around when you’re capacity-constrained. This benefits the customer as well, you’re creating choice for them, and that’s what gets me really excited. [Passengers] get the short stick a lot.”

But Dave Bartels, vice president for pricing and revenue management at United, doesn’t see the Flex-Schedule Program as “having a lot to do with overbooking.”

Although there will be times when the program helps to move people off an overcrowded plane – whether it was oversold, lost capacity due to an aircraft change, or had to reduce weight loads due to hot weather – he told Bloomberg that the main goal is to free up a valuable seat and offer it to someone who needs it more. “It won’t mean we’re overbooking the aircraft more because we have this tool,” he said. “But I also don’t know why it would lead to less overbooking.”

A boon for business, and business travelers

When Barodawala first brought his idea to United, he used a metaphor involving three egg cartons, each lined up along their short sides. He filled them with a mixture of red- and green-dyed eggs: bargain shoppers and deep-pocketed business travelers.

“What would you say,” Barodawala asked, “if you could move some of these red eggs [to empty slots in a different carton], and just replace them with green eggs?”

The executives lit up at the idea. As the board spitballed over how much this could represent to their bottom line each year, exorbitant numbers were thrown around: eight figures? Nine?

“It’s too premature to put a number to it,” Bartels said, when asked about what this program could mean for the company’s financials. But he’ll be looking to evaluate that by August, when the pilot program is set to end.

Whatever the number, the program is a rare win for both company and customer. It’s a way for airlines to create revenue without relying on ancillary fees – an annoying tactic that has dominated the aviation business in recent years. And for business travelers who often book at the last minute, it’ll open up inventory on sought-after routes.

If there’s a way to entice fliers to rebook prematurely on oversold or problematic flights, gate agents and customer service staff stand to see their stress levels go down, too. And leisure travelers – who can now accept vouchers from home, without rushing to the airport and clearing security first – come up winners, as well.

The only folks complaining? The guy who’s currently holding out for the maximum $1,350 payout for involuntary bumping at the gate. (Holdouts like him might still cash in, said Bartels, but he’s not counting on too many of them.)

Know your odds

Will your seat be worth more than you paid for it? You’ll only find out if you opt into United’s new program.Source: United Airlines
Here’s how United will think about making offers.

“Let’s say the 5 o’clock flight from Chicago to Boston normally sells 12 seats in the three days before it departs,” Bartels said, hypothetically. “If I see that that flight is full a week ahead, I’ll be pretty confident that I can resell any seats that I open up based on my seasonalized historical patterns.”

So he’ll reach out by email to a handful of opted-in passengers – the pilot program will target a limited group of MileagePlus members – offering them seats on the less-desirable 3pm or 8pm departures. (Again, hypothetical.)

Bartels indicates that leisure travelers will be the likely swappers on major business routes.

“That’s where we’re more likely to have an alternate option that’s appealing to someone,” he said. And they’re also the routes that executives are likely to need last-minute, no matter the price.

More airlines coming soon

Several other airlines will sign on with Volantio in the coming months: Australia-based Tiger Airways will come online in August, followed by Alaska Air in September and Qantas by October.

Until now, Delta has been the greatest innovator in this space, offering the occasional auction-style bid for travelers to change flights at check-in – which is no more than 24 hours ahead of departure.

Barodawala sees potential for the technology to be even more useful to passengers as it continues to evolve. “If someone is going to New York to Los Angeles via Chicago,” he said, “and it’s the New York-to-Chicago route that’s oversold, why not offer the passenger a direct ticket from New York to Los Angeles?” You’d nix their connection, he said, and open up a highly valuable seat.

The same goes for passengers at risk of missing a connection due to disruptions: “The airline could offer your seat to someone whose priority is getting there faster, and you could take their seat on a later flight that you’ll actually make.”

He envisioned a clean swap: no fees, no empty seats, no frantic rebookings, and happy customers all around.

And airlines aren’t the end of the road for Volantio, either. “This is a new world – it’s the future of where travel is going to go,” said Barodawala.

He painted an imaginary picture of the W Hotel in Midtown East, looking to accommodate a big conference or party on a nearly sold-out weekend. “What if they could reward some guests for moving to the W Union Square and capture the business on both ends?”

United takes a more cautious stance. “It’s hard to know where it’s going to go,” said Bartels. “We want to see the volunteer rate, the percentage of people that indicate a willingness, and then the conversion rate upon the offers being sent.”

But if it helps prevent the airline from another overbooking scandal? We’re sold.

16 Jun 2017

Total posts 5

As said, this technology won't have a major impact on overbooked flight. In fact, it could even *increase* overbooking dramas. Take the example of a highly sought-after flight with 150 seats on the plane. 160 tickets are sold a week in advance, in line with common overbooking practices, rendering the flight 'full.' Over the next week,10 tickets are repurposed from passengers happy to travel at a different time to travellers paying a premium. The chances of all 160 ticket holders showing up for the flight have now increased. If originally, the airline might have expected a number of passengers not to show up (say, 10), the airline should now expect fewer no-shows; as now more passengers have paid a *premium* to reserve a seat on this flight. My assumption is that a customer paying a premium to book a seat at last-minute has a higher chance of showing up than an original ticket-holder.

This new system might change the mathematics of airlines' overbooking game, inadvertently increasing the chances of more people showing up for a flight than the number of seats on the plane.

13 Sep 2016

Total posts 55

Interesting that Qantas is taking this up, I didn't realise overbooking was anywhere near as common here as it is in the USA. I wonder if Qantas is just going to 'experiment' with trying to move some passengers off high-demand flights if their travel plans are flexible. Wouldn't cost anything to ask a passenger and if they say 'Yes' then QF is ahead.

12 Dec 2012

Total posts 1027

Overbooking happens almost everywhere. It is an aviation industry standard.
It tends to cause problems when a route is new (and the airline systems have yet to gain enough data to calculate no show potential) or during peak travel periods.
If the yield management systems that manage the overbooking work as intended, the flight goes out full and there is no need to bump anyone because the "oversold" part of the flight didn't show up.

If you get an operational upgrade, it is almost always because the lower cabin was oversold and the higher cabin wasn't.

It would be important to note that the UA flight that kicked off the current overbooking publicity was not actually oversold. It was full. If it had been overbooked, then enough people didn't show up to merely make it full. The issue was that once everyone was checked in and boarded, they then decided that they needed some staff to deadhead.
It was not an overbook issue, it was a last minute staff travel issue.

24 Apr 2014

Total posts 271

When I checked in at CLE 2 weeks ago, the United self service terminal asked me if I wanted to postpone my flying and receive a $250 voucher. I declined.

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