I am going to claim that the airlines backing this and the investors of the startup have not studied Ultimatum Games:
One of the most debated results in experimental
economics comes from studies of the so-called
“ultimatum” game. In this game, one player (the
“proposer”) goes first and offers a split of a pie
of given size. The second player chooses whether to
accept or reject. If the second player rejects, both
get noting. If he accepts, they split the pie as was
proposed. The ultimatum game has a unique subgame
perfect equilibrium where the proposer gets
(essentially) the whole pie. It also has many other
Nash equilibria, where the proposer offers a more
generous split, fearing an aggressive offer will be
The experimental results are in stark contrast to
the backward induction solution.
> offer compensation equal to the reservation price of the customer
It's a little more complex than this. It's highly feasible to offer compensation higher than than the original purchase price of the ticket while inducing passengers to move to a different flight, meaning they're effectively being "paid to fly".
In many cases, customers are actually not on their preferred flight in the first place, but merely the one that was cost-optimal at time of purchase.
Changes in market demand in the intervening 3-6 months can easily mean that many passengers on an aircraft can be compensated above their original purchase value to move to their preferred flight.
The above case is an idealised version, but the equilibria is complex and difficult to intuit without experimentation (which is primarily what we're working on).
More news as it happens :)
Sameless self-promotion (I'm cofounder/CTO): We're also hiring (https://angel.co/volantio/jobs / https://www.workatastartup.com/directory/270)
I was offered a first class seat on a direct flight + $600 to switch, which I happily accepted. In truth, I would’ve been happy with just any seat on that direct flight.
And, the goal of the Volantio is to collect data on you so that the airline never over-compensates you. That is, all the benefits from the rebooking transaction accrues to the airline.
Imagine every time you went to buy a coffee, the coffee shop charged you exactly how much you value the next cup of coffee.
> In many cases, customers are actually not on their preferred flight in the first place, but merely the one that was cost-optimal at time of purchase.
The original purchase is no longer relevant. The airline and the passenger are now in a new game. In this new game, the passenger has a reservation price. Your goal is to estimate that accurately to transfer all surplus from rebooking to the airline and to another passenger.
The passenger is not harmed by this per se. They are indifferent between taking this flight vs taking the compensation and flying on another.
However, in the real world, people don't really like being driven to their reservation prices in your quest to assign all surplus from this new transaction to the airline and a third party.
This is not a new idea. Priceline comes to mind.
You could have chosen to work on a decent auction application for this purpose. Instead, you choose to collect data that is unnecessary to solving the actual "overbooking problem", but has the benefit not leaving any surplus from the rebooking transaction to the passenger.
PS: Just as a side note, I tend to be very understanding when things go wrong when I fly: http://www.flyertalk.com/the-tarmac/the-2013-tarmac-awards.h...
Ultimately, operating a rebooking system near the Nash equilibrium is great for everyone. People who really need to get from A to B on time have a higher chance of doing so, people who are flexible can trade that flexibility for compensation, and the airlines can operate at higher capacity and sell more high-dollar last-minute seats.
Passengers will probably also guess that offers are being extended to others on the same flight, and they may feel they need to accept the offer ASAP if they don't want to lose it. Psychologically, limited time offers are powerful. (Maybe powerful enough for passengers to let themselves off the hook on greed punishment, if that is the underlying factor in the Ultimatum Game.)
Or maybe we can just say that Nash equilibrium doesn't apply here? A Nash equilibrium requires all players to know all other players' decisions/strategies, and in this game the passenger does know the airline's decision and their own decision, but they are in competition with other passengers whose decisions they don't know.
If we look back 20+ years, we built up very strong rituals around scheduling because we couldn't make the system work any other way. But in-person plans have become much more dynamic as we become better connected. Air travel is still very much in the old world there: we book far in advance, slotting ourselves into fixed-schedule, fixed-capacity options, even though we are often much more flexible.
For example, every August I go back for a big camping trip with extended family. I could fly from a few different airports into a few different cities over a few days. Since working remotely for a day or two isn't a problem, the return's even more flexible. Why do I have to buy a specific down-to-the-minute ticket now if I want a good price?
I'd be happy to commit now, and then let the airlines (or airlines negotiating automatically with my booking agent) work out exactly when I'm going. They could use much more data to maximize efficiency, giving us lower total prices.
It may be worth mentioning that airlines are perhaps less-evil than is apparent from the outside. Most of their baffling behaviour is (IMHO) largely due to lack of capabilities rather than malevolence.
Ultimately, they're given a large multi-dimensional optimisation problem in a marketplace with extreme illiquidity (eg: traditionally, seats can't be resold effectively once purchased).
The complexity is, frankly, staggering - the seminal paper on the topic is probably this: http://www.demarcken.org/carl/papers/ITA-software-travel-com...
We are taking the (very small) initial steps in alleviating some of the issues by introducing increased liquidity into the market, but the ultimate goal is helping shift the industry into a more dynamic place (perhaps as described by the parent comment).
Personally, I find this common observation off base. Most airlines have pushed the legacy TPF layer into a sort of nosql data store. Both Sabre and Amadeus have been able to pull the business logic out of TPF.
Any sort of lagging technical progress seems more related to either thin margins, or the complexity you point out.
There's certainly room for innovation and improvement. I just hate the framing of the problem being tied to "old systems". It is mostly not true. Varies per airline, and res system, of course.
Case in point: Regardless of whether Sabre/Amadeus have replaced their legacy layer with some sort of nosql, I can absolutely guarantee you that many of their primary APIs are literally screen-scraping terminal sessions and returning the screen as XML.
True, but TPF is scalable enough that it doesn't matter. The API is responsive, flexible, and handles the traffic. The ugliness isn't limiting new functionality, etc.
We spend very little time talking about the cruft at the bottom. The business complexity is more important.
Things like fare classes, discount codes, availability, fare basis codes, reaccommodation, and so forth. If it were all written in rust or Go + microservices it wouldn't be any more straightforward.
Your product seems to confirm that. You aren't reducing that screen scraping any. But you're adding value.
So then what is the motivation to change this now? This seems like simple economics to me.
Our theories of place and travel are slowly changing due to new technical capability. Some of the lag is due to old theories embedded in old technology. But I think a lot of it is embedded in habit, custom, protocol, and business model. And in plain old not knowing. I expect we'll thrash around for decades before a new consensus emerges.
I spend more time fighting "this is how we've always done it" than I spend fighting legacy systems.
Sorry what is TPF here?
It's completely different from the most prevalent mainframe OS (zOs/MVS).
Think of it like nosql. High transaction rates, and high contention. Great when used for it's strengths, terrible otherwise. Close to bare metal, and hard to match for transactions/second with decades newer tech. The record sizes are closely matched to hardware I/O offload cache sizes. It's an I/O beast.
Imagine an OS built specifically to ignore things like private memory space in favor of specific dedicated drivers with intimate knowledge of specific disk and cache controllers to read and write as fast as possible, skipping the CPU whenever possible. And hardware
-aware record locking semantics.
That's not tradition, that's self imposed to make yield management work. If you could just buy a ticket at its cheapest and sell whenever you want then yield management would collapse.
Just to recap the "Dr Dao United Airlines" incident mentioned in the article - United airlines had a passenger forcibly removed from a flight for not agreeing to give up his seat for off-duty United employees.
The reason the doctor wasn't interested in giving up his seat was because he had patients to see. I think that meets most people's criteria of "malevolence."
Which legacy exactly are they "burdened" with? The airlines in US were deregulated in 1980s. The airlines look nothing like they did in the 1950s. The regulatory regime is gone, there's "power by the hour", fuel futures etc.
>"Ultimately, they're given a large multi-dimensional optimisation problem ..."
Yes and the airlines have pursued a policy of rapid consolidation which means forcing more people through
regional hubs which are in no way optimal for their itineraries.
>"We are taking the (very small) initial steps in alleviating some of the issues by introducing increased liquidity into the market ..."
That is a bunch of double speak. Fixing the problem of overbooking is done by airlines practicing some basic discipline - "stop selling what you don't have." If you are selling seats on an A320 with 180 seats then don't sell 200 seats. In what other industry is selling something you don't to sell done as a matter of course?
The problem of overbooking is fixed by not actually overbooking. You are simply enabling airlines to continue this unethical practice of overbooking in a manner that's more profitable to them. I fail to see the innovation.
Don't project your morals onto the rest of us. As a frequent flyer who likes to travel I love this practice. It means lower prices overall and it gives me the opportunity to fly for free somewhere else later if I volunteer out. With the switch to real cash compensation on some airlines, I can even make money if I don't feel like using it to fly.
I have flown over 2 million miles in my lifetime and I have never seen someone forced to give up their seat. The airlines always enticed people to volunteer out with (sometimes significant) compensation.
United behaving like assholes with their forced removal is indicative of their behavior, not the practice of overbooking.
I'm fine with increasing required payouts for forced removals to deal with piss poor airlines that don't conduct an auction until volunteers are found, but banning the practice outright is throwing the baby out with the bathwater due to ignorance of the practice.
I'm not projecting "my" morals onto anybody. Intentionally overbooking and knowing full well that you are going to bring inconvenience and stress to people is just plain fucked up. That's not really a grey area. If you bought a ticket to a movie and then were asked to leave the theater before the movie started in order to make room for someone else who bought a ticket you would be livid. The same is true for any other "ticketed" event.
>"I have flown over 2 million miles in my lifetime and I have never seen someone forced to give up their seat."
Here you can read all about it:
And that is not the first time either. Just because you haven't seen it doesn't mean it doesn't happen.
Movie theatres can do this because the $12 loss of missing a movie is annoying, but not life-changing, and the social contract is that event tickets are not changeable.
I would wager that the fallout of tens of thousands of people per day being told they have to re-buy a ticket if they miss their flight would have much greater negative fall-out than the much smaller number who get involuntarily bumped.
In the US all three big carriers - American, United and Delta all charge $200 to change non-refundable tickets.. Any you pay the fare difference if any on top of that. So there's already a hedge in place.
Additionally, that $200 fee comes nowhere near covering the lost revenue if you change flights a day in advance of departure and that seat isn’t re-sold.
I hope you can see that a last-minute change (even with a nominal fee) means the plane takes off without a paying butt in that seat.
I get that you value the "but we had a deal" criterion for fairness above the other things people value in this situation. Which is fine! You do you. And I agree that forcible removal is a bad idea that we should ban.
But booking so that the airplane will probably be full and paying people to wait a bit when statistics make it overfull is something that the great majority of the public is fine with. Flexible people like it quite a bit.
No its common decency and etiquette. These aren't "mine" they are social norms.
>"I get that you value the "but we had a deal" criterion for fairness above the other things people value in this situation"
Sure everybody is "fine" with this as long as its just chatter on HN. It's all optimization problems and capturing true market value etc. But I'm willing to bet that when you yourself are on the receiving end of an involuntary bump by an Airline your first thought is most certainly not "I'm fine with this."
I think its safe to say that there isn't a "significant fraction" of people who don't show up for their flights.
A brief look for stats doesn't turn up hard data, but TechCrunch has it at ~5%:
Someone who worked in ticketing for two airlines says it's 2% for flights to hubs, and 5-8% for flights from hubs, because of missed connections:
According to IATA, a good year for airline industry profits is circa 5%:
So even if we take the lowest fraction, 2%, filling those seats represents 40% of the profit margin. That sounds pretty significant to me.
First, passengers who buy refundable seats frequently cancel last minute to take a later flight. The airline can somewhat estimate how many cancellations any given flight will have and overbook by some amount less than that. This happens all of the time (nearly every close to full flight you are on will have had this happen) and you don't even know about it. You just benefit from it in the reduced fare due to the increased margin this provides.
Second, even if more people show up than projected, this doesn't bring "inconvenience or stress" to anyone in the vast majority of cases because they begin an auction to give up seats. The people who volunteer out come out ahead winning an auction they willfully participated in by selecting their own price. Delta will bid up to $10,000 to get people to release their seats. That's more than a month's salary for most people in the US just to take a later flight. Nobody feels like they got screwed in the volunteer situation, because they volunteered in exchange for the money/flight voucher.
>Here you can read all about it:
Cool, you sent an article echoing what I already said about bad actors like United's regional carrier who don't define the norm. That case is not what happens in the vast majority of overbooking situations.
You ignored what I said to make what point? You are intentionally confusing forced removal with the standard case for overbooking where people volunteer out and come ahead.
>I'm not projecting "my" morals onto anybody.
These are your moral issues which seem to be driven by ignorance of how overbooking works in 99%+ of the cases. I suspect you have flown very little or have never paid attention at the gate. Please don't armchair referee an industry practice you don't understand that benefits both consumers and the airlines in all but pathological cases.
For a movie, it might be only $50. For a flight, it could range from $1000 on up, but it's a pretty rare flight that I wouldn't give up my seat for $15,000 and rebooking. I suspect it's even more rare that no one on a flight would take $15K plus rebook.
Predictably, the policy has made it much more profitable to outright cancel flights at the first sign of trouble. Add to that the consolidation that occurred since then, we are left with:
> Four carriers with over 80% of domestic capacity:
> - Three large, hub-oriented, global legacy carriers (American, United, Delta)
> - One large, point-to-point oriented ‘low cost’ carrier (Southwest)
> Six much smaller carriers, each with less than 5% of the market
> - Three smaller, primarily hub-oriented carriers (Alaska, jetBlue, Hawaiian)
> - Three much smaller point-to-point travel merchandisers, heavily reliant on ancillary fees, so-called ‘ultra low cost carriers’ or ‘ULCCs’ (Spirit, Frontier, Allegiant)
The main legacy are the huge health care and retirement obligations. Baumol (1982) discussed the airline industry as an example of a contestable market. Free entry & exit no longer applies.
The OPs comment was that the airlines were burdened by legacy from the 1950s. Mr Schumer's legislation is quite recent. Additionally the legislation "Passenger Bill of Rights" is quite reasonable - let your customers off the plane after 3 hours of delay. It's pretty easy to avoid that penalty. It's also worth pointing out that legislation was in response to unreasonable practices by the airlines in the first place. I'm not sure why it is even relevant here.
>"The main legacy are the huge health care and retirement obligations"
How is this relevant to discussion about the practice of intentionally overbooking?
"We found that for every minute of tarmac time being
saved there is, on average, a three-minute increase in
the total passenger delay," said Vikrant Vaze, an
assistant professor at Dartmouth's Thayer School of
Engineering who co-authored the study.
Adopted in 2010, the Transportation Department rule
requires that passengers be allowed to deplane within
three hours of boarding or landing for domestic
flights. Airlines are subject to fines of up to $27,500
per passenger for violations.
Hoping to avoid fines, airlines have been quicker to
pull the plug on flights, Vaze said. That forces
passengers to scramble to find another flight to reach
their destination, something that has become
increasingly difficult as industry consolidation
reduces the number of available seats on planes.
Flights that are not canceled have to start lining up
anew after letting passengers deplane and then reboard,
adding to the ultimate delay.
"Most of these extra delays are being felt by those
exact same passengers," Vaze said. "It's just that
they're not on the tarmac."
I had my flight on Air New Zealand cancelled after four hours in the air, forcing us to turn back due to a mechanical problem. After three hours on the ground, they gave up. I ended up with a night's stay in Auckland, a free breakfast, a new flight to LA first thing in the morning and double points. I'll probably be an Air NZ customer for life as a result.
Even United can sometimes rise to the occasion. They cancelled our flight to San Francisco because of SFO's typical shenanigans with fog and not allowing small commuter jets in. We got rebooked the next day, though all they had were economy class seats. We said fine, at least we're on our way. We got upgraded at the gate and we didn't even ask for it.
If a company wants to make customer service a top priority, they can do it.
This is what currently happens with tickets to music and sporting events, and you end up with actual attendees spending more money than they'd otherwise have to pay, while random predatory third parties pocket the difference.
I met someone a couple years ago who admitted to me that she was essentially a professional ticket scalper, buying up tickets to shows she knew would become popular and would be able to make a profit on. She was careful to purchase in a way that was unlikely to get flagged by Ticketmaster's (and other's) systems to detect this sort of thing, and always stayed under ticket maximums and avoid shows where transferring tickets is harder to do. She was actually supporting her entire lifestyle doing this, without having another job. I found it pretty gross. I don't want to see this happening with airline tickets as well.
I can certainly understand and support some kind of monetary penalty for breaking out of a reservation, but it seems like airlines err too far on the side of making you think twice before canceling or changing your plans after the initial 24h window is up, and penalizing you heavily if you end up doing so.
Call me a skeptic as much as you want, but the "non-identifiable data", must somehow end up being identifiable, or at least the passenger will be personally tagged as "type A", "type B", Type C", etc. in order to propose him/her the "best deal".
The downside is that, if airlines are unable to resell unused seats, more flights will fly partially empty, reducing overall efficiency of the industry. But if they offer standby "tickets" at steep discounts (instead of making every ticket a probabilistic standby seat), that problem would solve itself.
But I doubt any of this will change, anyone who buys a cheap ticket isn’t buying a “seat” they are buying a chance at a seat. The alternative as you say is lower efficiency and higher prices for everyone.
The incident where a passenger was dragged off shouldn’t be possible regardless of system since the bounced passenger should never be boarded.
Most of the time, by a large margin, all of the passengers who show up for a flight get on it. That's the premise for overbooking, for any given flight, some number of passengers don't show up (including for reasons like missed connections, which the airline still have to fix).
Sometimes, though rarely in the grand scheme of things, too many passengers do show up, and bumping is necessary. In the vast majority of those cases, someone volunteers for compensation.
It's also important to keep in mind that the Dr Dao incident wasn't caused by overbooking, at least not as commonly understood. The airline urgently needed to reposition a crew to allow another flight to operate, and decided that this need trumped the passengers.
Based on personal experience, I doubt this is true. Ask yourself how many times have you done this? I've flown hundreds of times, but have only missed a handful of flights. So the collision rate should be very close to the actual overbooking rate.
I haven't been able to find any figures on the actual rate of overbooking. But I did see a statement that 11% of bumps are involuntary. And the overall rate for involuntary denial is 0.09% according to this article, for instance: https://www.ft.com/content/e4cb5744-1e9d-11e7-a454-ab0442897....
That suggests that the overall rate of overbooking collisions is around 0.9%, which is close to my overbooking estimate of 1%. Even if I'm off by an order of magnitude, the impact on fares would be no more than 10%.
Eliminating the fraud exemption for airlines wouldn't necessarily mean removing seats; as I pointed out, the seats could be filled with discounted standbys.
Lots of other businesses sell seats without overbooking, I hardly think it's an unsolvable problem. Airlines got a fraud exemption because they could, not because it was the only solution to the problem.
You are talking about load factor and its not so much an issue any more. See:
I imagine as someone else also pointed out that this venture being discussed here will ultimately used to oversell even more.
Rare other times, I'd probably want >$5-10k to change my flight (missing a speaking slot at a conference or a customer meeting or something when booked close).
Being able to surface customer preferences like this seems valuable. I've had Alaska/Virgin call to offer compensation to change (or cancel) flights before, either due to overbooking or downgauging, and I've had international flights change and offer free rebook/cancel as a result, but nothing has really been technically efficient or easy to use yet.
Does anyone here have insight into the 'buy vs. build' decision that any of these airlines went through in adopting this company's services?
Adding on an additional technology provider is nothing out of the ordinary.
Also, I would imagine that a third party system would help by discovering arbitrage opportunities across carriers - when you have to bump passengers, you could offload them to another carrier with more availability.
flailing your arms on a street corner hoping that some vacant taxi will notice you is both silly and inefficient. at any one time there are tons of people needing taxis and tons of empty taxis burning fuel unable to find fares. if there was an app that allowed you to tap a button and have taxi arrive to pick you up, it's likely Uber would not be where it is today.
They wouldn't be able to charge the rock-bottom prices Uber and Lyft do in order to gain market share, of course. But with Uber (and to a much smaller extent Lyft) suffering some backlash wrt their business practices and tendency to increase traffic congestion, such an app might have a chance at pulling at least some market share back toward traditional taxis.
If I could order a taxi using an Uber/Lyft-like experience, and get decent wait times, I wouldn't mind spending more in order to support a local alternative, if that local alternative was actually showing signs that it wanted to innovate and adopt a customer-first attitude.
 Yes, I know Uber had UberTAXI for a while, but in practice the wait times were huge and most of the times I checked the option, it said there were no taxis available at all. Obviously Uber had little incentive to make the taxi part of their service attractive, and plenty of incentive to make it unattractive, so I don't really blame the taxi services themselves for this deficiency.
A passenger not showing up is pure profit as Ryanair even gets to pocket the taxes, which are only payable on actually flying passengers (you can claim them back, but there's a substantial handling fee IIRC).
Presumably the reason why US airlines overbook is to maximize yield since almost always some passengers don't show up. Any reason why non-US airlines don't do the same? I suspect it has to do with ticket regulations but would like to learn more.
I opted to switch in exchange for $300, but the plane was an older 737, down from a 787.
The certificate they give you is valid for a year.
There's no objective measure of the feeling of "getting a good deal". It's entirely subjective and depends on what the customer values, as well as how much information the customer has about similar transactions. Obviously if the customer later gains new information that suggests they could have gotten a much better deal, that's a negative, but part of figuring out that optimum deal point is figuring out the likelihood of that, as well.
The rebooking-because-cancelled, thats a huge problem anywhere. So, I suspect the JV partners are looking to benefits for unexpected surge loads and overflow from late/dropped flights in a tight jet schedule.
There's also the factor of the uniquely dense and complex nature of the US domestic network. More flights with more connections make for more uncertainty in the system, to which overbooking is an answer.
Contrariwise, the UK is the only economy I have used trains in, which routinely has major commuter train cancellations. The commonality here is a lack of capital investment and oversight
uniquely dense and complex nature of the US domestic network. More flights with more connections make for more uncertainty in the system, to which overbooking is an answer Yes. this I think is true. the US has far more dense flights, and has chosen overbooking as an answer but in no sense is it the answer to this problem: It's the one we've got. The regulator could have directed other approaches, but the cost consequences on airlines (who routinely seem to use chapter-11 methods to walk away from historical debt) would have been pretty bad. This answer maximises profit for airlines, at the expense of flyer convenience.
Hopefully this will pave the way for technological disruption in the airline business.
It's also not a trivial issue given the slim margins and complexity. Consider connecting flights, different fare types (refundable or not, advance purchase, etc). Also, differing aircraft types, how many seats they have, and which crews are qualified to fly them. Oh, and weather.
If you think the root cause is "airline IT is incompetent", you're probably off base. Google paid $700M for a crazy talented company (stuffed full of PhD genius level talent) that did a good job of solving shopping, but failed commercially at solving booking.
Airlines and OTA companies could be 10x more innovative with the tech they have now. TPF and other old tech is NOT the barrier.
But because there's no real market for airplane tickets--the airlines basically forbid secondary transactions--we're forced into a world of centralized planning, and by an entity that's fairly incompetent at that.
This entire thing would be solved if plane tickets could be bought and sold in some sort of marketplace. The airlines could even take a cut of every transaction!
It's baffling to me that the overbooking problem is solved at the airport, minutes before take-off.
Imagine instead a world where you could buy and sell plane tickets.
- On purchase, I could set a reserve price for which I'd be willing to sell my plane ticket, and have the price go up as the time of flight got near.
- Late to the airport--perhaps I could trade tickets with someone on a later flight that wants to leave sooner?
- I have a flexible lifestyle. Standing order for tickets to the beach|family|wherever at a low price, as long as I have 5 hour warning before flight time. Gonna miss your flight? I'll buy it.
Let the airlines take a cut of every secondary transaction and let app developers & market makers figure out the use-cases.
Think about how excess seats usually come about: a passenger doesn't show up because of some unforeseen circumstance which occurs last minute. By the time that passenger decides they can't make the flight, it might be too late to generate sufficient demand for that ticket. Potential buyers of that ticket have to be packed and ready to go. And where do we find those people? At the airport.
The population of people who are super flexible in both destination and time is probably not sizable enough to generate enough volume in a secondary market.