Many airlines oversell flights, knowing that some passengers won’t show up. If all they sell is the number of seats they have on a plane, then some seats will go empty. They are missing out on revenue, and overall over time that means higher fares for everyone and lower profits.
Over the years airlines have gotten better at predicting no show rates, outside of the pandemic, and so involuntary denied boardings (“bumps” where more passengers show up than seats and airlines can’t find enough volunteers to take another flight) have fallen. The model changed somewhat during the pandemic, with changes in consumer behavior. And the elimination of change fees from most fares have further complicated matters.
When more passengers do show up than an airline has seats they will try to convince some people to take a later flight, by offering them flight credits or cash. Usually they will offer less than they are required to pay when they involuntarily bump someone (which can be up to $1,550 cash). Delta will still frequently offer more than this to avoid involuntary bumps.
This gets expensive. So airlines have taken to reaching out to passengers in advance to move them to other flights, and have tried to get them to volunteer in advance through the app at specific lower compensation amounts, trying to avoid bidding situations at the gate.
But the airline is usually the one managing this process – oversell a flight, run a marketplace to figure out at the airport who isn’t going to get on board but only once everyone has shown up.
Mexico’s VivaAerobus is working on a new StubHub-style model, as Brian Sumers explains in his Airline Observer newsletter ($$).
Soon, he said, Viva will introduce a new approach: It is launching a marketplace, with a third-party vendor, allowing passengers who book in advance to trade their tickets to last-minute high-fare passengers. Zuazua likened it to Stubhub, a resale marketplace for event and game tickets. Viva will still overbook, but Zuazua envisions turning to this this platform when Viva wants to sell more tickets at the last minute.
Rather than raise the cap and assume it can buy off 10 more customers, Viva will not open a seat on a sold-out flight until a customer paying a lower fare on the same flight accepts an offer to switch to a less-busy departure.
“What if you can get five more seats by brokering a buyer-seller interaction before they get to the airport?” Zuazua said. “Look at this like a Stubhub or a Ticketmaster model. A high-demand flight is not different from a sporting event or a concert that is sold out. You can broker between a buyer and a seller who is willing to fly on another day or at another hour.”
Airlines usually make tickets non-transferable (the person buying the ticket has to fly it) because they don’t want people undermining their price discrimination rules like advance purchase, Saturday night stays, etc. Last minute travelers might be asked to pay more than someone booking months in advance. That doesn’t work if passengers can buy months in advance and then resell their tickets at the last minute for a profit, but still less money than the airline is asking.
Instead third party vendor FairLyne helps airlines set up their own marketplaces where customers can sell their tickets and receive a voucher when a buyer for their tickets is found.
Airlines can earn revenue from ticket sales on already sold out flights, where they ordinarily wouldn’t generate any incremental funds. Effectively it lets airlines keep selling last-minute tickets even after flights are sold out. The airline gets their last minute price, while potentially returning half of the original discounted ticket cost to the passenger in the form of travel credit that they’ll use – likely with additional cash – to fly the airline again in the future.
This won’t work as well for airlines without change fees. That customer would just roll over the full credit for their ticket towards future travel. Instead it works best where tickets are completely non-refundable and non-changeable.