Guest Post: Overbooking and sustainability - why airlines need a new formula

Azim Barodawala, CEO of Volantio, talks us through it's not working and how to leverage it to your benefit

According to statistics from the Airports Council International, air travel will triple over the next 20 years, growing to nearly 20 billion passengers by 2041. Against this backdrop of dramatic growth, airlines have also drawn significant attention for their contribution to climate change, given that aviation contributes 2.5% to 3.5% of total carbon emissions globally, according to NOAA.

Our industry now faces a central challenge: how to cater to passenger growth in the most efficient manner possible. Eventually, next-generation aircraft and improved engine technology like hydrogen electric aircraft will unlock step-changes in emissions reductions.  Other innovations such as sustainable aviation fuel (SAF), while receiving major investments, will take time to reach scale. According to the United States Government Accountability Office (GAO), in 2022, less than 1 out of every 1,000 liters of aviation fuel used were SAF. As an industry we cannot wait until SAF reaches maturity, or hydrogen electric aircraft become viable - our industry needs solutions today to meaningfully improve efficiency and reduce net carbon emissions per passenger flown.

To date, much of the focus has been on reducing the numerator; reducing net carbon emissions. An equally important (and often overlooked) pathway to improved efficiency is to focus on increasing the denominator, i.e. reducing the flights needed to move passengers. Airlines that can get better at lifting the percentage of seats full on every flight flown (e.g. load factor) will ultimately be able to fly more passengers on the same carbon footprint, reducing carbon emissions per passenger flown. For example, based on 2022 passenger numbers, filling 2 extra seats per every 100 seats flown globally, is the equivalent of eliminating all the flying done by Delta Air Lines according to their latest ESG report, Delta emitted 43.2 million metric tons of carbon in 2022, equivalent to the emissions of ~109 gas fired power in a year. 

Can overbooking improve efficiency?

The first question a passenger might ask about overbooking is why an airline would do it. The answer is materialisation. Airlines can’t rely on every passenger who books a ticket to actually show up. With no overbooking, airlines end up with a number of empty seats on peak flights. The number of passengers who show up compared to total tickets sold is the “materialisation rate” for a particular flight. 

For a flight to be as efficient as possible, an airline would need a materialisation rate of 100%, which would mean that every seat is filled. When every seat is filled, the emissions per passenger flown is minimised. Unfortunately, 100% materialisation rates don’t usually happen, and so airlines are left with empty seats on planes. The response from airlines is to overbook flights. In theory, an airline could track their typical materialisation rates for different flights and strategically overbook by a specific percentage to get as close to a full plane as possible. 

Why overbooking doesn’t happen more often

The problem with high materialisation is that a lot of people don’t like it. If a flight is overbooked and enough of the passengers show up, a few people are not going to fit on the plane. Airlines don’t do a great job of communicating to passengers who can’t get on a plane even though they have a reserved ticket. High materialisation without good communication puts a huge strain on front line staff who have to deal with often angry passengers, on passengers (who deal with the stress of not knowing if they are going to be on the flight or not), and on the airline brand itself.

This has resulted in some negative repercussions including regulation in different countries that penalise airlines that overbook. In Europe penalties for airlines that get the materialisation/overbooking math wrong can be over $1000 per passenger. 

How to reclaim overbooking as a sustainability lever

Materialisation rates, overbooking, and emissions per passenger are all math-based exercises, but the key to success is to focus on customer service. Airlines need to put the passenger first in order to have a chance at using overbooking as a lever for improved efficiency. No one wants to be in the “involuntarily denied boarding” bucket, and airlines must use more tactics to reduce the changes of that happening on any given flight. 

There are a number of ways to rethink the passenger’s experience, and it starts well before they get to the gate. Airlines can and should educate passengers on the value of overbooking for emissions reduction. Consumers want to make sustainable choices, and many would likely purchase flexible tickets or take an offer to switch flights knowing that they were contributing to the environment - especially if they got compensation. ATPCO found that 63% of passengers said aircraft specific sustainability practices would influence how they book. 

Airlines can also do a better job of understanding which passengers are flexible well ahead of their flights, communicate more clearly leading up to the flight and be prepared to compensate passengers at a level that reduces negative experiences. According to our Q4 passenger survey, only 18% would accept an offer at the airport, while another 74% would accept an offer if it were a day or more in advance. 

Delta has been a pioneer in this approach, and today boasts the highest number of overbooked flights with the lowest amount of “involuntary denied boardings.” With improved communication, better offers to passengers, improved compensation offers, Delta turned a process that was a major negative in the past to something routine for travelers, increasing load factors and efficiency at the same time

There is nothing magic about Delta’s approach, but it does require a commitment to improving the customer experience. Communicating earlier and better, and offering better compensation might sound like an up-front investment to some airlines, but it ultimately creates significantly improved efficiency, and for early movers, a competitive advantage.