Monday, January 17, 2011

An Economic Approach to Overbooked Flights

Earlier this month, Delta Air Lines began a new program to solicit volunteers to give up their seats on overbooked flights by asking passengers at check-in time how much money (travel vouchers) they would like to receive in exchange for being rebooked on another flight.  See Got Time? Get Rewarded, Delta Air Lines Blog, Jan. 6, 2011 (available here).  Professor Steven Horwitz, an economist at St. Lawrence University, has provided brief commentary on the program:

Delta Airlines has recently changed the way they handle overbooked flights. If your flight is overbooked, you are told of the situation when you check-in, either online or at the airport kiosk, and are asked if you are willing to give up your seat and, if so, to enter a dollar amount corresponding to what it would take to get you to give it up. Not only does this provide the gate agents earlier information about likely volunteers so they can start rebooking, it lets Delta bump folks with the lowest opportunity cost of their time, likely saving the airline money and more efficiently allocating airline seats.

See Markets in Everything: Delta Air Lines More Efficienctly Bumps Passengers, Coordination Problem, Jan. 14, 2011 (available here).

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