It’s especially difficult for vacation travelers to understand this concept. And in fact, tour operators and charter flights seldom overbook because the “no show” rate is so low. Most airlines have stopped overbooking Business and First Class, as this really annoys their best customers when it happens.
A portion of airfares have flexibility to change and cancel with little or no penalty. These are purchased by business travelers that need the flexibility to change their plans, or by consumers when the lowest fares are sold out.
On routes with heavy business travel (cheap flights from Toronto to Ottawa or Montreal for example), and in fact for most routes in Canada and the USA, there are a portion of travelers that simply do not show up for their flights. They don’t show up, because there really isn’t a penalty for not showing up. And because their ticket can be applied to another flight, or refunded altogether, the airline can lose revenue on these seats.
Airlines were innovators in sophisticated revenue management systems, often called “yield management,” which used statistical models to estimate the “no show factor” of a certain flight. They could predict with fairly good accuracy, how many travelers would not show up on the 5pm Friday flight from Chicago to Toronto, and how many would show up earlier wanting to go home for the weekend after business was done. But “fairly good accuracy” is far from perfect, and as a result there are still empty seats and situations where more people show up for the flight than there are seats.
An un-nerving place to be, especially if you have no assigned seats, no boarding pass, and suddenly the gate agent hands you a boarding pass that says GATE and STAND BY. You will not be bumped from your flight (other than for a medical reason for another passenger) if you have confirmed seat numbers and a boarding pass in advance.
Some airfares are very cheap and they do not come with advance seat selection. This is a risk you take if you purchase the lowest of the low fares, and for the vast majority of the times, it is not an issue. If you have confirmed seat numbers, you should check in online with the airline as soon as you can and print them, or arrive early at the airport – if the flight is overbooked and you are late for checkin, the latest people will be stand by – and your seats would have been given to someone else (this typically happens within 30 minute of departure).
Oftentimes you will hear the airline looking for volunteers to give up their seats, and they will be offering either a travel credit or a free ticket with a confirmed reservation on a later flight. Since this is revenue management designed to keep their business travelers from going to the competition, it is a fair way of dealing with the scarcity of seats. Trouble is, if you don’t have seats assigned and a boarding pass, you aren’t on that list!
Overbooking is a controversial practice that various governments are looking at in “passengers bills of rights.” But stopping the practice would either limit flexibility for business travelers, or increase the overall cost of airfare, and as a result, the practice continues.