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How UA tries to optimize the load / yield? Role of overbooking

How UA tries to optimize the load / yield? Role of overbooking

Old Dec 8, 19, 2:47 pm
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As the overbooking discussion seems to have gotten far away from the Skip-the-Waitlist topic, Skip the waitlist (STW) questions

Pulled 10 posts out from the StW thread to create an overbooking / maximizing yield discussion

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Last edited by WineCountryUA; Dec 9, 19 at 11:48 am Reason: new thread
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Old Dec 8, 19, 2:47 pm
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How UA tries to optimize the load / yield? Role of overbooking

Originally Posted by zombietooth View Post

I am thinking that UA is going to significantly improve cash usability in the near future by increasing attractive cash UG offers to prevent too many PlusPoints upgraders from exploiting the system.

In Kirby's dream revenue model, all seats will be sold and no non-cash UGs will be given, but "elites" will still feel valued and appreciated.
This isn't really right. If you are an airline exec, you definitely want to be close to full load with paying customers, but you don't actually want to be at full load. The reason is because IRROPS happen, and you want to be able to accommodate your customers in those circumstances.

A good way of viewing the ideal FF program from an airline exec's POV is that since you want some slack in your system, you have an opportunity to fill that slack in a way that will reward FF'ers for their loyalty and spend.

What IS true is that you don't generally want to be giving away seats that can be sold for a lot of money. Standard awards, capacity controls, impeding the usability of GPU's, exempting popular premium cabins (such as p.s. service) from upgrades, and waitlisting are all mechanisms for doing this. But the basic goal is the same: if a premium cabin seat can sell for >$1,000 (whether in the form of a paid ticket, an instant upgrade from a full fare Y, or a TOD upgrade), it should be difficult for a FF'er to snag it. On the other hand, if a seat is likely to be unsold, and a FF'er wants it, you don't mind if she takes it in one way or anther (RDM's, instruments, even a CPU sometimes) and is happy the airline gave it to her.

Just about every change in the FF program that gets discussed on this board is an attempt by UA to get the program closer to that theoretical ideal.
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Old Dec 8, 19, 3:27 pm
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Originally Posted by dilanesp View Post
This isn't really right. If you are an airline exec, you definitely want to be close to full load with paying customers, but you don't actually want to be at full load. The reason is because IRROPS happen, and you want to be able to accommodate your customers in those circumstances.

A good way of viewing the ideal FF program from an airline exec's POV is that since you want some slack in your system, you have an opportunity to fill that slack in a way that will reward FF'ers for their loyalty and spend.

What IS true is that you don't generally want to be giving away seats that can be sold for a lot of money. Standard awards, capacity controls, impeding the usability of GPU's, exempting popular premium cabins (such as p.s. service) from upgrades, and waitlisting are all mechanisms for doing this. But the basic goal is the same: if a premium cabin seat can sell for >$1,000 (whether in the form of a paid ticket, an instant upgrade from a full fare Y, or a TOD upgrade), it should be difficult for a FF'er to snag it. On the other hand, if a seat is likely to be unsold, and a FF'er wants it, you don't mind if she takes it in one way or anther (RDM's, instruments, even a CPU sometimes) and is happy the airline gave it to her.

Just about every change in the FF program that gets discussed on this board is an attempt by UA to get the program closer to that theoretical ideal.
I want to post the gif of tom cruise in Oblivion saying ".....what?" i think you are contradicting yourself. either you want slack in the system or you don't. filling up slack with passengers you do not view as revenue generating runs contrary to that. every move I have seen has been to decrease the net value of the average reward redeemed -- blunt capacity controls, fewer awards and lower value awards redeemed due to miles devaluation, etc.
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Old Dec 8, 19, 3:56 pm
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I think dilanesp's argument (which I agree with) is that this "slack" can be taken up dynamically close to departure. As the day of departure approaches, you can be increasingly sure there won't be IRROPs (and also increasingly sure you cannot sell that space last minute) and adjust appropriately by filling that space with upgrades, hence pleasing the FFs and keeping high valued customers happy.

In this model this whole STW thing seems a bit silly, but I suppose it is just another way to keep the highest valued customers happy. A lot of people talk about +Ps as though United giving them out costs them something directly, or that they want to limit the number people have. The only reason it "costs" United anything is via the extremely indirect path that increasing the number means decreasing the success rate, which means FFers will be increasingly displeased with United. The same thing is more or less true for normal MileagePlus miles as well.

Last edited by A Little Cow; Dec 8, 19 at 4:01 pm
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Old Dec 8, 19, 5:27 pm
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Originally Posted by dilanesp View Post
This isn't really right. If you are an airline exec, you definitely want to be close to full load with paying customers, but you don't actually want to be at full load. The reason is because IRROPS happen, and you want to be able to accommodate your customers in those circumstances.
This might be true systemwide, but it's emphatically not true on any given flight. Any airline will happily sell beyond full load, because that's a problem that can be solved by offering people money to go away. The liability incurred from the denied boarding vouchers is much smaller than the incremental revenue from selling an extra seat.

I suspect, if you offered an exec the chance to sell to 105% on every flight, or to sell to 99% on every flight, where they'd meet their revenue goal on a per-ASM basis in both cases, they'd take the 105%, even if it meant having to go to IDBs.

Or, to put it another way: the last couple of seats on a flight are way too valuable to keep them in reserve in case things go sideways.
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Old Dec 8, 19, 8:50 pm
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Originally Posted by jsloan View Post
I suspect, if you offered an exec the chance to sell to 105% on every flight, or to sell to 99% on every flight, where they'd meet their revenue goal on a per-ASM basis in both cases, they'd take the 105%, even if it meant having to go to IDBs.
Which is why most carriers routinely oversell their flights.
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Old Dec 8, 19, 11:50 pm
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Originally Posted by jsloan View Post
This might be true systemwide, but it's emphatically not true on any given flight. Any airline will happily sell beyond full load, because that's a problem that can be solved by offering people money to go away. The liability incurred from the denied boarding vouchers is much smaller than the incremental revenue from selling an extra seat.

I suspect, if you offered an exec the chance to sell to 105% on every flight, or to sell to 99% on every flight, where they'd meet their revenue goal on a per-ASM basis in both cases, they'd take the 105%, even if it meant having to go to IDBs.

Or, to put it another way: the last couple of seats on a flight are way too valuable to keep them in reserve in case things go sideways.
I mean, we are getting really into the weeds here, but I actually don't think that's literally true. An airline that is 105 percent sold on all flights- I don't mean simply overbooked, I mean 105 percent of the number of actual seats on all flights show up- will be in deep trouble, because it isn't simply a matter of paying compensation, that airline will simply be unable to transport many paying customers.

So you need some slack in the system. Indeed, overbooking depends on that slack- airlines can overbook because when they guess wrong, they can BOTH pay compensation AND get the overbooked passengers on other flights. Some slack is ultimately required.
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Old Dec 9, 19, 5:03 am
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Originally Posted by dilanesp View Post
An airline that is 105 percent sold on all flights- I don't mean simply overbooked, I mean 105 percent of the number of actual seats on all flights show up- will be in deep trouble

The whole purpose of overbooking is that is gets overbooked EXACTLY with the same amount of seats that UA predicts (and has decent data to back that up) passengers won't turn up for. Obviously no airline would want every passenger to turn up on an overbooked flight.
I don't blame them for overbooking either.

The goal is to fly out with every seat sold & occupied.
They don't want to pay compensation, and they don't want to fly with empty seats.

I suspect UA (and most other airlines) have a pretty good idea which flights they can overbook and to what extent, based on past experience. This will likely vary from route to route, depend on time of day and time of year, etc.
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Old Dec 9, 19, 8:21 am
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Originally Posted by dilanesp View Post
I mean, we are getting really into the weeds here, but I actually don't think that's literally true. An airline that is 105 percent sold on all flights- I don't mean simply overbooked, I mean 105 percent of the number of actual seats on all flights show up- will be in deep trouble, because it isn't simply a matter of paying compensation, that airline will simply be unable to transport many paying customers.
They would still come out way ahead, until / unless they lost customer trust, even if that means going to frequent IDB or pushing many customers over to other airlines. The difference between the cheapest and most expensive tickets on a flight, even within the same cabin, can be a factor of 10x or more.
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Old Dec 9, 19, 8:50 am
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Originally Posted by narvik View Post
I suspect UA (and most other airlines) have a pretty good idea which flights they can overbook and to what extent, based on past experience. This will likely vary from route to route, depend on time of day and time of year, etc.
Having worked in that department (and not speaking on behalf of them), I can tell you it's amazing how accurate the predictability is and how high the no-show rate is on certain markets on certain times/days!
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Old Dec 9, 19, 11:30 am
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Originally Posted by narvik View Post

The whole purpose of overbooking is that is gets overbooked EXACTLY with the same amount of seats that UA predicts (and has decent data to back that up) passengers won't turn up for. Obviously no airline would want every passenger to turn up on an overbooked flight.
I don't blame them for overbooking either.

The goal is to fly out with every seat sold & occupied.
They don't want to pay compensation, and they don't want to fly with empty seats.

I suspect UA (and most other airlines) have a pretty good idea which flights they can overbook and to what extent, based on past experience. This will likely vary from route to route, depend on time of day and time of year, etc.
It is a true statement that you want to sell every seat in an ideal world. But in the real world, there are IRROP's (weather and maintenance), there are situations where the overbooking algorithm doesn't make a correct prediction, there are deadheading employees, etc.

In the real world in which airlines operate, you want to have just a bit of slack in the system. NOT a lot of slack, but just a bit. Enough that you don't create a huge customer service problem (and shunting 5 percent of your paying customers onto other airlines would be a terrible customer service problem, even if the compensation paid is theoretically less than the value of the last seat on the plane). And in that area of slack is exactly where airlines want FF programs to operate.
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Old Dec 11, 19, 6:13 am
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Originally Posted by dilanesp View Post
It is a true statement that you want to sell every seat in an ideal world. But in the real world, there are IRROP's (weather and maintenance), there are situations where the overbooking algorithm doesn't make a correct prediction, there are deadheading employees, etc.

In the real world in which airlines operate, you want to have just a bit of slack in the system. NOT a lot of slack, but just a bit. Enough that you don't create a huge customer service problem (and shunting 5 percent of your paying customers onto other airlines would be a terrible customer service problem, even if the compensation paid is theoretically less than the value of the last seat on the plane). And in that area of slack is exactly where airlines want FF programs to operate.
I believe that I am a pretty typical UA customer. I've flow around 2.8 million bis miles with UA and another 2+ million on other carriers. I did a rough estimate that I've flown on around 2,000 flights. In 2,000 flights, I've had maybe 20 IRROPS situations. That is 1 %.

I am guessing that a 1% IRROPS risk doesn't justify holding seats empty "just in case". My bet is that UA wants to oversell every flight and leave no slack in the system.
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Old Dec 11, 19, 6:44 am
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Originally Posted by zombietooth View Post
I believe that I am a pretty typical UA customer. I've flow around 2.8 million bis miles with UA and another 2+ million on other carriers. I did a rough estimate that I've flown on around 2,000 flights. In 2,000 flights, I've had maybe 20 IRROPS situations. That is 1 %.

I am guessing that a 1% IRROPS risk doesn't justify holding seats empty "just in case". My bet is that UA wants to oversell every flight and leave no slack in the system.
If your IRROPS rate is 1%, you are not a typical UA customer. That's an extraordinarily good success rate. UA's completion rate has ranged between 98.51-99.21% since 2014, and those statistics are mainline only. UA Express numbers are considerably worse: SkyWest hasn't done better than 98.63%; ExpressJet's best year was 97.58%. Other UAL carriers are too small to show up in DOT reports, but certainly this is par for the course.

So, the average UA customer has experienced a >1% cancellation rate, and that doesn't even consider the possibility of misconnects, or delays great enough to make you want to find an alternative.

I agree with your basic premise: UA would rather oversell every flight and deal with the consequences -- but if your statistics are correct, you're definitely not typical.
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Old Dec 11, 19, 8:46 am
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I would guess the passengers booked beyond the plane's capacity are buying some pretty expensive last-minute fares and the cost to offload BE (or other) passengers likely to volunteer for $ works out to mitigate a lot of the $ risk of overbooking.
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Old Dec 11, 19, 12:21 pm
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Originally Posted by IAH-OIL-TRASH View Post
I would guess the passengers booked beyond the plane's capacity are buying some pretty expensive last-minute fares and the cost to offload BE (or other) passengers likely to volunteer for $ works out to mitigate a lot of the $ risk of overbooking.
Again, this is true but at some point it would be outweighed if UA were really shunting massive numbers of passengers off to other airlines.

One other point to make- the "overbook every flight and shunt 5 percent off to other airlines" strategy could only work if OTHER AIRLINES HAVE SLACK. In other words, if that were actually the correct business strategy, but UA's competitors followed it as well, you'd literally end up with 5 percent of the customers being unable to travel at all, not simply being shunted off to other airlines.

Again, how do you prevent this from happening? By having just a bit of slack in your system.
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