Bumped? Blame the government

The perishable nature of an airline seat prevents the lost revenue from seats that fly empty from being recovered. The substantial amount of revenue that can potentially be lost through spoilage makes overbooking an essential part of revenue management. In fact, passenger no-shows were the first practical problem that scheduled airlines sought to address as they began to adopt revenue management techniques. All tickets were initially fully refundable and airlines needed to overbook in order to remain financially viable. Overbooking is still extremely important to an airline’s financial performance. According to Robert L. Phillips in his book “Pricing and revenue optimization,” American Airlines estimated that in 1990, they saved $225 million through overbooking.

Date: 18 November 2009 commenting on http://www.forbes.com/