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Comment by analyst74 | Hacker News Reader

Forgive my ignorance, how does the sell back auction benefits the airline in an over-booking situation?

Let's say person A and B both bought a ticket for $100, and on departure day, A offers to sell the ticket back for $150 and B offers to sell the ticket for $120.

B sells his ticket and made $20 profit, A takes the plane. The airline made a total of 100-20 = 80 dollar for the seat, although it would have made 100 without the auction.

Am I getting it wrong?

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The price people pay for seats when the plane is full is usually extraordinary - 3-10x a "normal fare". Thinking on the margin, the airline would get - say $700 - for the "overbooked" ticket in your example, and profit as long as someone will volunteer to be "bumped" for <$700*

* Actually, the airline would probably profit even if they had to pay $700 to compensate the bumped person - since they're only giving out travel vouchers. Additionally, they can involuntarily deny boarding to someone for a cost lower than $700 (at least in most situations).

There is a large chance B offers to sell the ticket for less than $100 -- that is, he decides not to fly, and either forfeits his ticket or accepts a voucher for less than what he paid. That's the whole reason they overbook in the first place.

Airlines usually offer 200-300 dollars for someone to take a different flight. In this case, instead of losing 200-300 dollars because of the overbook, they lose only 120 (since that is the minimum someone has bid for the seat)

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