TED | Why do airlines sell too many tickets?

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Why DO airlines always overbook? How holidaymakers' travel plans are placed at the mercy of a calculated game of chance - played to make as much money as possible.

Every year around 50,000 people with valid plane tickets are bumped off flights because they've been overbooked.

For some passengers this isn't merely a minor inconvenience but something that sabotages an entire holiday.

So why do airlines adopt the practice of selling more seats than actually exist? A fascinating new video tackles the issue and reveals that it's all about using the science of probability to make as much money as possible.

An animated  video - called Why do airlines sell too many tickets? - by Nina Klietsch has unravelled the business model behind overbooking.

She explains that the reason tens of thousands are bumped off flights is all down to airlines trying to ensure that no seats are wasted, so they can optimise their profits.

https://v.qq.com/txp/iframe/player.html?vid=m03934yvkjq&width=500&height=375&auto=0

She outlines: ‘Airlines use statistics to determine exactly how many tickets to sell, too few and they’re wasting seats, sell too many and they face penalties such as the cost of other flights, hotel stays and annoyed customers.’

However, by using statistics on past experiences airlines can predict the probability of passengers showing up for particular flight routes. In their calculations, Ms Kliersch reveals, they weigh up factors such as traffic, weather, connecting flights and time.

In the video Ms Klietsch doesn't use any real-world figures, but outlines using examples the principles behind the airlines' money-making calculations.

She explains that an airline’s revenue hinges on making money from each ticket bought and losing money on each person bumped - and that getting it wrong could mean a big dent in profit margins.

Klietsch says that if an airline, for example, sold every seat on a flight with a capacity for 180 (with tickets costing $250 each) and they didn’t sell any extra tickets they’d make $45,000.

But it can bump this revenue up to $48,750 if it sells an extra 15 tickets and there were 15 no-shows.

However, assuming the cost of bumping was $800 per person, in the worst case scenario, if it sold 15 extra tickets and 15 people had to be bumped its revenue would drop to $36,750.

Ms Klietsch explains that in reality there is almost 0 per cent chance that 195 passengers would show up.

The way that airlines work out how many people will show up is through the mathematics of 'binomial distribution'.

She explains: ‘The likelihood of each scenario is found out by using binomial distribution.

‘There is almost 0 per cent chance that 195 passengers will show up, and the probability of 184 showing up is 1.11 per cent.'

To find out how many tickets to sell airlines must ‘multiply the probabilities by the revenue for each scenario and subtract this from the earnings of selling 195 tickets'.

She adds: ‘By repeating calculations for different numbers of extra tickets, airlines can find a number that will yield the highest revenue.'

Klietsch divulges that 198 tickets is the ideal number of tickets to sell in this example and 'the airline will probably make $48,774. Almost $4,000 more than without overbooking'.

When this principle is applied over hundreds of flights the airline stands to make a handsome profit, which makes all the complicated mathematics worthwhile.

But, asks Klietsch, is it ever ethical to sell one product to two people?  

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