Smart People… Maybe Not?
Posted on October 1, 2007
Filed Under Uncategorized |
I was at the airport this morning waiting for my flight and the gate agent asked for people to volunteer for a later flight. That got me to thinking about the models that airlines must have to figure out the right amount of overbooking. In other words, they know how many seats they are selling versus how many are physically available, which they then use to make assumptions about no-shows, cancellations, and missed connections.
The overbooking model works, presumably, only so long as the cost of providing certificates for free trips "anywhere in the continental U.S." don’t outweigh the revenue they generate from selling seats they don’t have. Then there is the second assumption about certificates not redeemed…
I was thinking to myself that there must be some really smart people working in airlines to figure this out… quickly followed by the question "if there are all these smart people figuring out these interesting problems, why are airlines so screwed up?".
This on top of recent news that airline frequent flier programs may be worth more than the airlines themselves. (thanks Greg for the pointer).
FL Group, an investment fund based in Iceland, said the AAdvantage frequent-flier program is worth at least $6 billion, and that a sale could produce a net gain of $4 billion for AMR.
The stock market values all of AMR at about $5.5 billion.
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About
My name is Jeff Nolan and I write Venture Chronicles. I am the VP of Product Marketing for Get Satisfaction and I write about a range of topics that interest me, including public policy, technology, entrepreneurship, finance, and global issues.
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