Skift Take

Overbooking has gotten a lot of attention in the past three weeks, but, most of the time, it's not a big deal. Airlines know passengers won't show up, so they sell a few more tickets than they have seats. What's the harm in that? Airlines might want to reduce the number of extra seats they sell, but they don't need to retire the practice.

Southwest Airlines will no longer sell more tickets than it has seats, a move it had been considering before an April 9 United Airlines incident highlighted problems with overbooking, Southwest CEO Gary Kelly said Thursday.

“We have been challenging ourselves to make the travel experience better for our customers and just make the service better for our employees to deliver,” Kelly said on Southwest’s first quarter earnings call. “That’s one of the pain points that we would like to eliminate.”

Except for JetBlue Airways, U.S. airlines tend to overbook popular flights by several passengers, and even after the United incident, most carriers likely will continue the practice. Airlines know some travelers will switch to other flights, or will not show up at all, and they’re trying to fill every seat. Often, the system works well, and, even on oversold flights, carriers have seats for everyone at the gate.

But sometimes, airlines miscalculate, and they must persuade passengers to leave. They can ask for volunteers willing to take another flight in exchange for money or travel vouchers. But the law also permits carriers to remove passengers, so long as the carrier offers compensation, capped at $1,350.

Southwest said it often oversells flights by as little as one seat. But that will stop some as soon as early May, the airline said.

“We have been thinking about it for a long time, and we think now is the right time to do it,” Kelly said.

In 2016, Southwest “involuntarily” bumped almost 15,000 passengers for various reasons, including over-sales. Its rate of about one passenger per 10,000 customers was the highest among larger U.S. carriers. Other Southwest customers voluntarily give up their seats for compensation and do not count in that rate.

Southwest CFO Tammy Romo said the decision should have a negligible effect on the airline’s earnings.

Southwest’s move won’t completely insulate passengers from bumping. Southwest will still struggle when it substitutes a smaller jet for a larger one, something that can happen at the last minute if the original plane breaks. Rather than canceling a flight, Southwest might swap a 143-seat Boeing 737-700 for a 175-seat Boeing 737-800.

But Southwest Chief Commericial officer Bob Jordan said about 80 percent of the airline’s denied boardings come from overselling flights.

“We are going to stop so the vast majority of denied boardings will go away because the vast majority of the over-bookings are going to go away,” he said.

Profitable quarter

Southwest reported a profitable first quarter, though its earnings per share fell slightly short of analyst expectations. 

It reported net income of $351 million, and an operating margin of 13.5 percent. Total operating revenues were $4.9 billion.

Southwest said one problem was higher costs, both from more expensive fuel, and from new, more labor contracts. It said its “cost inflation” should lessen later in the year.

In a report published Thursday, analyst Daniel McKenzie of Buckingham Research predicted the company will thrive later this year. He credited Southwest for pushing through a fare increase last weak to raise prices on peak summer travel.

“The overall revenue story for Southwest and the industry remains good,”McKenzie said. “Southwest is a beneficiary of the stronger for longer earnings cycle and we continue to model near-record profits this year and record profits in 2018.”


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Tags: involuntary denied boarding, overbooking, southwest airlines, united airlines

Photo credit: Southwest plans to stop overbooking its flights, as soon as May. Southwest Airlines

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