An empirical analysis of the optimal overbooking policies for US major airlines

Overbooking in the airline industry has been studied intensively. However, these studies have paid little attention to the future revenue implications of rejecting (bumping) passengers. This paper seeks the optimal overbooking policies for US major airlines by considering how denied-boarding passengers would behave after they are bumped. The results imply that overbooking improves an airline's ‘current’ revenue, but it also reduces the airline's future revenues. The results also imply that, although there is a significant negative overbooking effect, no airline should decrease overbooking levels because the positive side of overbooking is so strong that it more than offsets its negative side.