Why do airlines sell too many tickets? - Nina Klietsch
TED-Ed・2 minutes read
Businesses and institutions like airlines overbook to maximize profits by selling more than capacity, using statistical calculations to predict no-show rates and determine optimal extra ticket sales for revenue. The ethical implications of overbooking are debated due to selling the same resource to multiple customers, blurring the line between practicality and potentially unethical practices.
Insights
- Airlines strategically overbook flights based on statistical models to maximize profit by predicting no-show rates and selling extra tickets, highlighting a balance between financial gain and ethical concerns.
- The debate surrounding overbooking centers on the ethical implications of selling the same resource to multiple customers, blurring the line between practicality and ethical business practices, sparking discussions on the morality of such strategies despite their profitability.
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Recent questions
What is overbooking?
Selling more than full capacity for profit.
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Summary
00:00
Maximizing Profits Through Overbooking: Ethical Dilemma
- Overbooking is a common practice in businesses and institutions to maximize profits by selling more than their full capacity, with airlines being a prime example, bumping around 50,000 passengers off flights annually based on statistical calculations.
- Airlines use years of data to predict no-show rates, employing binomial distribution to determine the likelihood of different scenarios and revenue outcomes, with the goal of finding the optimal number of extra tickets to sell for maximum profit.
- Despite the financial benefits, the ethics of overbooking are debated, as it involves selling the same resource to multiple customers and raises questions about the line between practicality and unethical practices based on the certainty of no-shows.
