Overbooking

Overbooking is a term used to describe the sale of access to a service which exceeds the capacity of the service.

Telecommunications

In the telecommunications industry, overbooking -- such as in the frame relay world -- means that a telephone company has sold access to too many customers which basically flood the telephone company's lines, resulting in an inability for some customers to use what they purchased.

Nevertheless this only happens when all users try to use the service at the same time and since nearly half of the users will not use the service at the same moment this almost never happens. The client benefit is also that the cost of subscriptions are lower. Reservation of capacity on networks is fairly expensive.

Transportation and hotels

An airline, rail, or shipping company can book more customers onto a vehicle than can actually be accommodated by an aircraft, train, or cruise ship. This allows them to have a (nearly) full vehicle on most runs, even if some customers miss the trip or don't show up (tickets are often rebookable afterwards). Business travellers often cancel at the last minute, when their meetings take more time than planned. If everyone shows up, at least in the case of airlines, the overbooking will cause an oversale. Airlines may ask for volunteers to give away their seats, and/or refuse boarding to certain passengers, in exchange for a compensation that may include an additional free ticket or an upgrading in a later flight. They can do this and still make more money than if they booked only to the plane's capacity and had it take off with empty seats. Some airlines, like JetBlue Airways, do not overbook as a policy that provides incentive and avoids customer disappointment. They have mostly tourists and their tickets are not refundable afterwards, so their passengers show up. A few airline frequent flyer programs actually allow a customer the privilege of flying an already overbooked flight; another customer will be asked to leave. Often only Economy class is overbooked while higher classes are not, allowing the airline to upgrade some passengers to otherwise unused seats.

In the EU, European Commission Regulation 261/2004 sets out compensation requirements for airlines that deny boarding to passengers due to overbooking. RecentlyFact|date=August 2007 Air Deccan, the Indian low cost airline was allegedWho|date=August 2007 to overbook. They were known to cheat passengers by tagging the confirmed tickets as no show for compensating the additional seats. The passengers that arrive last, either on time or even a minute late, become the target. [ [http://www.ibnlive.com/news/air-deccan-taking-people-for-ride/36505-3.html Air Deccan taking people for ride] ]

Hotel chains also practice the overbooking and apply basically the same procedures of the airlines.Fact|date=August 2007

In the transportation arena a company can add additional air flights, add more cars or consists to a train, move to a larger ship or add ships or containers to a cargo transport. In the telecommunications industry a common carrier may be able to solve an overbooking problem by adding bandwidth -- either by adding lines to an existing system, reconfiguring existing lines, upgrading existing lines to a higher speed line or greater number of time-multiplexed lines, or some other scheme to add bandwidth.

References