Why do airlines overbook flights and how overbooking works, by Osita Chidoka

During my Master’s Degree program, I was taught Transport Economics by a globally renowned Economist, Prof Kenneth Button. Button is a professor of public policy at my alma mater, George Mason University’s Schar School of Policy and Government, and a world-renowned expert on transportation policy.

Under his tutelage, I learnt the economics of transport networks, particularly the “Empty Core” problem of transport modes like airlines. Professor Button has published approximately 80 books and over 400 academic papers in the fields of transport planning and economics. His recent books include Airline Deregulation: An International Perspective (David Fulton Publishing).

As I became a lawyer, I saw a clear nexus between my academic background in transport, leadership roles in the public sector, and my current policy work, which led me to seek a specialisation in Transport law.

Recently, in Nigeria we have witnessed a series of altercations at various airports involving a Distinguished Senator, a musician and a young lady, disrupting flight operations. The issues range from disobeying lawful orders, late arrival and involuntary denied boarding.

In this brief, I will address the issue of airline overbooking and what passengers should do when denied boarding.

The “Empty Core” Problem: The Empty Seat = Lost Revenue

An airline seat is a perishable commodity. Once a flight takes off, any empty seat on that plane loses all its value – forever. The same goes for a hotel room: if it’s not

occupied tonight, the opportunity to earn income from that night is gone.

This is sometimes referred to as the “empty core” problem in economics – a situation where unsold capacity (such as seats or rooms) results in permanently lost revenue. Neither airlines nor hotels can stockpile unsold inventory for later; they have one chance to sell each seat for a given departure or each room for a given night.

An aircraft seat that flies empty not only fails to bring in revenue, but the cost of operating the flight doesn’t decrease when seats are empty. Every flight incurs significant costs that must be paid, regardless of the passenger count. So, if too many seats go unsold or unused due to no-shows, the flight’s revenue might not even cover its costs.

Air travel is a high fixed-cost business

Whether a plane is full or half-empty, many costs remain the same: fuel is burned, the flight and cabin crew must be paid, the aircraft’s lease or financing cost accrues, maintenance schedules proceed, and airport fees and services (like check-in staff, baggage handling, catering, and air traffic control charges) are incurred.

Because these costs are so high and largely fixed, airlines depend on spreading them across as many paying passengers as possible. Operating flights with low load factors (many empty seats) can quickly render a flight unprofitable. As the NCAA observes, if only half the seats are occupied, the airline’s revenue drops dramatically compared to a full flight

These costs don’t significantly decrease if fewer passengers fly. For example, the expense of flying a Boeing 737 from Lagos to Abuja doesn’t halve just because only 50% of the seats are sold.

Airlines aim to maximise seat occupancy on every flight to stay in business. They use various strategies to do this, one of which is overbooking.

Overbooking as a Rational Strategy for No-Shows

Why do no-shows happen? Passengers may miss flights for various reasons, including last-minute emergencies, changes in plans, or simply failing to make a timely connection. Some travellers holding flexible or refundable tickets may not bother to cancel in a timely manner.

Airlines have decades of data showing that a certain percentage of booked passengers won’t actually board the plane. Rather than accepting empty seats as inevitable, airlines employ the strategy of overbooking (also known as overselling): they confirm more reservations than there are seats, expecting a predictable number of people to not show up.

In fact, almost all major airlines worldwide practice some form of overbooking, managing it carefully with statistical models. British Airways disclosed that it oversold about 500,000 seats in a year (to counteract no-shows), resulting in the rebooking of approximately 24,000 passengers. While that sounds alarming, it illustrates the widespread and routine nature of overbooking in the industry.

It’s worth noting that even when overbooking occasionally results in denied boarding, the cost to airlines (in compensation, rebooking, etc.) is factored into their models. Studies show that bumping rates are very low – for example, one statistic indicates only about 0.09% of passengers end up rebooked due to overbooking. With such low odds, the economic gain from filling seats that would otherwise go empty far outweighs the cost of accommodating the few who are bumped.

In summary, overbooking is a calculated gamble that airlines take to mitigate the impact of no-shows, and it’s generally successful in this role. Overbooking isn’t a rogue practice – it is a legal and regulated practice worldwide, including in Nigeria. Regulators understand the economics behind overbooking, but they impose rules to protect consumers from its downsides.

ICAO and Global Standards: The International Civil Aviation Organisation (ICAO) has long recognised overbooking as an acceptable practice, provided airlines handle it ethically. ICAO’s guidance (e.g. Circulars/Doc 9587) and other international guidelines endorse the principle of seeking volunteers first if a flight is oversold.

Nigeria’s NCAA Consumer Protection Regulations (Part 19)

I can confirm that Nigerian law explicitly permits overbooking and outlines comprehensive consumer rights in this regard. Section 19.3.2 of the Nigerian Civil Aviation Regulations (NCAR) Part 19 – titled Consumer Protection Regulations – says an airline “may overbook a scheduled flight in contemplation of the possibility of some passengers not showing up”. In other words, Nigerian law itself acknowledges the economic rationale: passengers sometimes fail to show up, allowing airlines to sell a few extra tickets.

However, the law also tightly governs what airlines must do when a flight is overbooked. Key provisions include:

Minimise Involuntary Denied Boarding

Under Section 19.4.1, airlines must ensure that as few passengers as possible are denied boarding against their will. They are required to first call for volunteers to give up their seats before denying boarding to anyone who isn’t willing. Only if there aren’t enough volunteers can the airline invoke a pre-established boarding priority to decide whom to bump. This priority often considers factors such as fare class, check-in time, and frequent flyer status, but the law emphasises that volunteers should be sought first and foremost.

Right to Compensation (Section 19.8)

If you are involuntarily denied boarding (i.e., bumped due to overbooking without being offered an alternative), you are legally entitled to compensation. The NCAA regulations specify the minimum compensation amounts. For example, Section 19.8.1 mandates at least 25% of your ticket price as compensation for flights within Nigeria (and 30% for international flights). This compensation is essentially cash or equivalent; per Section 19.8.3, it can be paid by electronic transfer, cheque, or even travel vouchers if you agree.

Right to Re-routing or Refund (Section 19.9)

In addition to monetary compensation, Section 19.9 provides bumped passengers with the choice of a refund or alternative transportation. Specifically, if you’re denied boarding, the airline must offer you either a full refund of your ticket or re-routing to your final destination on another flight (at the earliest opportunity or a later date if you prefer, subject to availability). If you choose a refund for a partly used ticket (say you were connecting and got stuck at a layover), the airline must also pay for a return flight to your point of origin if needed. Essentially, you won’t be left stranded. You get your money back or a new flight.

Right to Care (Section 19.10)

Importantly, while you wait for that next flight, you have the right to care from the airline. Section 19.10 requires the airline to provide certain amenities to make the wait more tolerable, all at no additional charge. This includes refreshments and meals (the extent depending on the wait time), telephone calls/SMS, or emails so you can inform family or make arrangements, and, if needed due to an overnight delay, hotel accommodation and transportation to the hotel. These obligations ensure that passengers inconvenienced by overbooking are taken care of while they await rebooking.

Upgrading/Downgrading Rules (Section 19.11)

Sometimes, to accommodate passengers, airlines might offer a higher- or lower-class seat than the one booked. The law covers this, too. If they upgrade you to a higher class, they can’t charge you extra for it (that’s a small silver lining). However, if they downgrade you (assign you a seat in a lower class than you paid for), Section 19.11.2 states that they must reimburse the fare difference and additionally pay you 30% of the ticket price for domestic flights (50% for international flights) as compensation for the downgrade, within 30 days. This ensures airlines don’t profit from downgrading passengers; in fact, downgrades cost them extra.

In summary, Nigerian regulations (which align with global norms) permit overbooking but balance it with strong consumer protections. Overbooking is not an excuse to mistreat passengers; it’s a trade-off that is carefully managed under the law. Airlines that ignore these rules can face regulatory penalties and are liable to passengers for the prescribed compensation.

Conclusion: A Balance of Economics and Customer Rights

Airlines overbook flights as a prudent economic strategy: it helps cover high fixed costs and prevents revenue from perishable seats from being wasted. By hedging against no-shows, overbooking enables airlines to operate more efficiently, maintain more competitive fares, and reduce the number of empty seats on flights.

This practice is backed by data and supported by industry bodies – even the phrase “time-sensitive, perishable product” used by IATA underlines why an empty seat is something airlines fervently avoid.

From a passenger’s perspective, it’s important to know that overbooking is not illegal or unusual – it’s an accepted practice across the world and even specifically allowed by our local regulations. But equally important is knowing your rights in this situation.

If you ever receive the dreaded announcement at the gate that your flight is oversold, remember that you can volunteer (and negotiate benefits). If you’re selected involuntarily, the law entitles you to compensation, rerouting/refund, and care. Overbooking is a prime example of striking a balance between business efficiency and consumer protection.

I emphasise that the legal grounding is there to protect you: overbooking is permitted only on the condition that airlines follow the rules designed to respect passengers’ rights and welfare.

At the junction of transport, law, and policy—I share insights on how rules and systems shape the way we move and live.

–Chidoka, is former Minister of Aviation in Nigeria and Managing Partner Chidoka & Chidoka Legal Practitioners