Overselling Flights - why is it tolerated ?
Nov 4, 2019, 3:05 am
#16
Join Date: Nov 2006
Programs: Seniors Bus Pass
Posts: 5,528
If you sleep in or are delayed getting to the airport by traffic the results are the same for those two passengers. "Tolerated" by the airline because they charge accordingly for the flexibility.
Nov 4, 2019, 3:11 am
#17
Join Date: Nov 2006
Programs: Seniors Bus Pass
Posts: 5,528
When on a fully flex itinerary last year I had landed at LHR and boarded my next flight to DUS. Just as I sat down my phone rang to cancel the reason for the trip. I therefore offloaded myself - which then cancelled the rest of the ticket. I then bought a single back home. With 5 mins thought I should have just gone to DUS, stayed overnight and then returned. it would have been cheaper and I would have got the TPs and avios!
That is the sort of decisions that can affect no-shows. I missed 3 out of 4 legs, and then bought another at an hours notice.
That is the sort of decisions that can affect no-shows. I missed 3 out of 4 legs, and then bought another at an hours notice.
Nov 4, 2019, 3:11 am
#18
Join Date: Nov 2004
Programs: BA GGL, LH FTL
Posts: 3,577
I guess your line of argument is that costs and price points are pretty much unconnected. But look it from the other perspective. Imagine a world where BA would never sell a seat twice, and therefore about a quarter or a third of seats went out empty. I doubt you would be trying to maintain that fares would not rise quite sharply in that scenario? Moreover for the seats typically sold twice over, the first sale covers net margin, your second sale is boosting your gross margin. In other words they sell a percentage of cheap seats knowing some won't make it. For very price sensitive customers this is a real lifeline - so long as they don't change their minds.
I disagree with the idea that lower costs will lead to lower fares. The assumption that BA is some sort of social entity that shares a lower cost base with it's passengers is wrong - the only people benefiting from lower costs are the shareholders (again, not complaining, I own IAG shares).
True, in the long run cost and fares are related (cost forms the long term lower end a fare can go to, low cost and high fares will attract a competitor who will drive prices down), but there is simply no direct and immediate connection between the two. That becomes pretty obvious if one looks at the current fare structures: Two people sitting next to each other on a BA plane can pay vastly different prices for essentially the same product.
Nov 4, 2019, 3:24 am
#19
Join Date: May 2014
Posts: 7,213
Just for clarity, I don't argue against over booking. I think it is immensely sensible, especially from an environmental perspective, as it reduces the number of empty seats.
I disagree with the idea that lower costs will lead to lower fares. The assumption that BA is some sort of social entity that shares a lower cost base with it's passengers is wrong - the only people benefiting from lower costs are the shareholders (again, not complaining, I own IAG shares).
True, in the long run cost and fares are related (cost forms the long term lower end a fare can go to, low cost and high fares will attract a competitor who will drive prices down), but there is simply no direct and immediate connection between the two. That becomes pretty obvious if one looks at the current fare structures: Two people sitting next to each other on a BA plane can pay vastly different prices for essentially the same product.
I disagree with the idea that lower costs will lead to lower fares. The assumption that BA is some sort of social entity that shares a lower cost base with it's passengers is wrong - the only people benefiting from lower costs are the shareholders (again, not complaining, I own IAG shares).
True, in the long run cost and fares are related (cost forms the long term lower end a fare can go to, low cost and high fares will attract a competitor who will drive prices down), but there is simply no direct and immediate connection between the two. That becomes pretty obvious if one looks at the current fare structures: Two people sitting next to each other on a BA plane can pay vastly different prices for essentially the same product.
Think about it: let's assume that, tomorrow, the new government bans overbooking. BA can do two things: take the hit on the chin, or transfer the costs to the passengers. At the end of the day, as you rightly said, BA is not a social entity; BA wants to have the same amount of money coming from its asset (measure it as RASK, revenue per square meters, revenue per flight, whatever).
Let's put in a slightly unrealistic scenario, but one that I think makes sense. If they made Ł1 per passenger on a flight with 100 passenger and 5% overbooking, they'll want to still get Ł105 from that flight in the no-overbooking-cos-the-government-said-so scenario. Which means that, going forward, they'll split the extra Ł5 amongst all the other passengers, so that they all end up paying Ł1.05 (of course this scenario assumes that everyone pays the same and every seat is occupied). In a sense, no overbooking = higher fares.
Nov 4, 2019, 3:34 am
#20
Join Date: Apr 2008
Programs: Confirmed
Posts: 1,091
When you have a fully flexible ticket there is no cost loss. When you have a fully inflexible ticket it is total loss.
If you sleep in or are delayed getting to the airport by traffic the results are the same for those two passengers. "Tolerated" by the airline because they charge accordingly for the flexibility.
If you sleep in or are delayed getting to the airport by traffic the results are the same for those two passengers. "Tolerated" by the airline because they charge accordingly for the flexibility.
Nov 4, 2019, 4:22 am
#21
Join Date: Nov 2004
Programs: BA GGL, LH FTL
Posts: 3,577
Let's put in a slightly unrealistic scenario, but one that I think makes sense. If they made Ł1 per passenger on a flight with 100 passenger and 5% overbooking, they'll want to still get Ł105 from that flight in the no-overbooking-cos-the-government-said-so scenario. Which means that, going forward, they'll split the extra Ł5 amongst all the other passengers, so that they all end up paying Ł1.05 (of course this scenario assumes that everyone pays the same and every seat is occupied). In a sense, no overbooking = higher fares.
In your hypothetical scenario of BA increasing prices by 5% - imagine Ryanair keeping their prices at the old level. BA would end up with empty planes and FR would need to add additional planes. FR could even increase by 4% and make even more money through higher prices from more passengers.
I know it is very counter intuitive, but cost is only one of many considerations in defining a price. It's only real importance is that long term you shouldn't sell for less than (variable) cost.
Nov 4, 2019, 4:42 am
#23
Join Date: Apr 2008
Programs: Confirmed
Posts: 1,091
BA have a pretty decent understanding of their market, so they will already charge the maximum they can get away with. They would be giving money away if they weren't. If they increase prices on top of that, demand will reduce (either through people flying with a cheaper competitor or because they stay home).
In your hypothetical scenario of BA increasing prices by 5% - imagine Ryanair keeping their prices at the old level. BA would end up with empty planes and FR would need to add additional planes. FR could even increase by 4% and make even more money through higher prices from more passengers.
I know it is very counter intuitive, but cost is only one of many considerations in defining a price. It's only real importance is that long term you shouldn't sell for less than (variable) cost.
In your hypothetical scenario of BA increasing prices by 5% - imagine Ryanair keeping their prices at the old level. BA would end up with empty planes and FR would need to add additional planes. FR could even increase by 4% and make even more money through higher prices from more passengers.
I know it is very counter intuitive, but cost is only one of many considerations in defining a price. It's only real importance is that long term you shouldn't sell for less than (variable) cost.
Nov 4, 2019, 4:51 am
#24
Join Date: Jan 2017
Location: PHX, ICN
Programs: OZ Diamond Plus, Marriott Gold
Posts: 502
Just for clarity, I don't argue against over booking. I think it is immensely sensible, especially from an environmental perspective, as it reduces the number of empty seats.
I disagree with the idea that lower costs will lead to lower fares. The assumption that BA is some sort of social entity that shares a lower cost base with it's passengers is wrong - the only people benefiting from lower costs are the shareholders (again, not complaining, I own IAG shares).
True, in the long run cost and fares are related (cost forms the long term lower end a fare can go to, low cost and high fares will attract a competitor who will drive prices down), but there is simply no direct and immediate connection between the two. That becomes pretty obvious if one looks at the current fare structures: Two people sitting next to each other on a BA plane can pay vastly different prices for essentially the same product.
I disagree with the idea that lower costs will lead to lower fares. The assumption that BA is some sort of social entity that shares a lower cost base with it's passengers is wrong - the only people benefiting from lower costs are the shareholders (again, not complaining, I own IAG shares).
True, in the long run cost and fares are related (cost forms the long term lower end a fare can go to, low cost and high fares will attract a competitor who will drive prices down), but there is simply no direct and immediate connection between the two. That becomes pretty obvious if one looks at the current fare structures: Two people sitting next to each other on a BA plane can pay vastly different prices for essentially the same product.
Lower costs allow competition with lower cost competitors. It's not necessarily "we've got lower costs, so Mr. Customer we'll give you a discount". It's "we've got lower costs, so we can make a profit while competing against Ryanair, Delta, and others. If our costs are too high, we can't have competitive prices."
That long run is the point. As is the different price points for the same seats. Different customers will buy seats at different times; the closer to fully occupied (or departure) the plane is, the scarcer that seat is, allowing for price insensitive customers to buy. That's of course removing other reasons.
Competition is what drives price structure far more than kindness to customers.
Nov 4, 2019, 5:34 am
#25
Join Date: May 2014
Posts: 7,213
BA have a pretty decent understanding of their market, so they will already charge the maximum they can get away with. They would be giving money away if they weren't. If they increase prices on top of that, demand will reduce (either through people flying with a cheaper competitor or because they stay home).
In your hypothetical scenario of BA increasing prices by 5% - imagine Ryanair keeping their prices at the old level. BA would end up with empty planes and FR would need to add additional planes. FR could even increase by 4% and make even more money through higher prices from more passengers.
I know it is very counter intuitive, but cost is only one of many considerations in defining a price. It's only real importance is that long term you shouldn't sell for less than (variable) cost.
In your hypothetical scenario of BA increasing prices by 5% - imagine Ryanair keeping their prices at the old level. BA would end up with empty planes and FR would need to add additional planes. FR could even increase by 4% and make even more money through higher prices from more passengers.
I know it is very counter intuitive, but cost is only one of many considerations in defining a price. It's only real importance is that long term you shouldn't sell for less than (variable) cost.
Nov 4, 2019, 5:54 am
#26
FlyerTalk Evangelist
Join Date: Feb 2000
Location: London, UK and Southern France
Posts: 18,362
It could because they have a lower proportion of no shows than traditional flag carriers, partly because of different passenger profiles and partly, as far as FR is concerned at least, different ticketing policies (no refundable fares on FR).
Nov 4, 2019, 6:11 am
#28
Join Date: Sep 2001
Location: UK. BAEC AAdvantage
Programs: Mucci Des Oeufs Brouilles et des Canards
Posts: 3,671
Just dropped the wife off for flight BA294 from ORD to LHR - luckily she was traveling with our kids, I say luckily because the check in agent told us that while we were ok for seats she was expecting a rough ride tonight from some of the other passengers as BA had “heavily” oversold every class of service, even First, and that they had the same experience with yesterday’s flight as well. Something to do with half-term in the UK bumping up demand according to her. Sure enough a guy at the next agent along started raising his voice as we completed check-in when he got the news that he was one of those affected and also found out that there are no more seats on any other flights tonight.
I know this is not just BA, and I know it has gone on for decades now - but how is it ok for the airlines to do this to people just so they can ensure max capacity ?
I know this is not just BA, and I know it has gone on for decades now - but how is it ok for the airlines to do this to people just so they can ensure max capacity ?
Can I ask, for my "research", did your family check in online when it opened 24hrs before? I'm curious to know if anyone who :
a) checks in online
b) has paid for a seat (exit or other)
c) ordered a special meal
d) requested special assistance
has been denied boarding? I was on an easyJet flight to the Greek Isles over the summer and the person next to me told me 4 of his group were denied boarding as the flight was oversold and they hadn't checked in online. (To top it off, his luggage didn't make it on board either!!)
In the pre-check in online days I had a friend nearly denied boarding on a KLM flight as he was at the end of the queue. Similarly in Tokyo on JAL my partner and I were held up at check in by someone who was being argumentative in front of us. By the time we got to check in, we were the last to reach the desk. The agent said the flight was very full and she was trying to see if she could get us some good seats. She did, they were in business class. Pre flat bed days, but still fun.
Last edited by dddc; Nov 4, 2019 at 7:05 am Reason: clarify point
Nov 4, 2019, 6:27 am
#29
FlyerTalk Evangelist
Join Date: May 2000
Location: TPA for now. Hopefully LIS for retirement
Posts: 13,680
Nov 4, 2019, 8:37 am
#30
Join Date: Jan 2009
Location: BKK
Posts: 6,741
That may be the marketing line, but it is decidedly not true. It only reduces the cost for BA. But BA charge as much as they can get away with, which is mostly driven by what other airlines charge and how much passengers are willing to pay.
While cost is the long term lower end of the price point, every airline will try to go above that as much as it can.
While cost is the long term lower end of the price point, every airline will try to go above that as much as it can.
While BA is not altruistically trying to “keep fares low” per se, they do indeed need to offer competitive fares to some passengers in order to fill the plane and optimize revenue. Of course, they will charge premium passengers on direct, high demand routings as much as they determine they can get away with under market conditions.
Airline pricing is very complicated, and there are many people at BA and all other airlines whose sole jobs are to figure out optimal ticket prices.