This question originally appeared on Quora: Why are airlines allowed to overbook flights and then bump passengers? Answer by Michael Mathews, Regular flyer, mostly leisure. Million miler on American, MVP Gold on Alaska
Let's first be clear on overbooking versus oversold. There are almost always no shows on a flight. Not all tickets are nonrefundable, so those may be changed just minutes before a flight is schedule to depart. In addition, since so many passengers make connections, there will always be the chance of people not making it to their scheduled flight at a transfer point.
A flight is overbooked if there are more reservations than seats. A flight is oversold if there are more ticketed passengers than seats. When a flight is oversold, some passengers will be unable to receive a seat assignment when they check in. (They will get what is called in airline lingo a priority verification card to clear security.)
Airlines have been allowed to overbook and even oversell flights by the US DOT (or whatever their governing body), but when they deny someone a seat, they must provide adequate compensation to the inconvenienced passengers. They are also allowed to re-accommodate other passengers who volunteer in order to free up seats for people who have paid reservations but no seat assignments.
The airlines have decided that it is in their bests interests to risk the occasional compensation payment in return for increasing the load factors on their flights. I can't say I blame them.
When a flight is oversold, people who check in without seat assignments are placed on the standby list, the same as people who might wish to take the 5 p.m. flight instead of the 6:30 p.m. flight they originally booked and those who ran late from home or work and missed their original flight. Importantly, the people with tickets but not seats have a higher priority on the list than people with voluntary changes. If you misconnect through no fault of your own, you will also have a high priority on the standby list if the airline cannot confirm you on another flight. If you misconnect because you took too long at the bar, then that's the same as oversleeping.
As the flight processes, people may switch away from the flight. Some connections may become impossible. Some people may not have boarded within the cutoff time (10 minutes for many airlines). These kinds of changes will allow the gate agent to process names from the standby list. If they can process all the involuntary people from the list, then the flight is no longer oversold. Some of the people who were there for voluntary reasons (optional change or late to their original flight) may remain on the list and get rolled over to the next flight.
If you are involuntarily bumped from your flight, you will receive compensation. The airline will first seek volunteers willing to travel on a different itinerary for a smaller amount of compensation, but if there are not enough volunteers then involuntary compensation rules will apply. The involuntary compensation rules are significant enough that airlines try to avoid paying it, so they may raise the offer for volunteers until they have enough seats. (Conversely, if there are enough no shows even though you might have volunteered, you will get called up to board at the last minute and no compensation is due.)
Even though I have many complaints about the ways airlines run their businesses, most of the time if I have goofed up and been late to a flight (which I can count on a couple of fingers), they have worked with me to find an alternate at no charge. I've also been granted a standby seat on an earlier flight quite a few times, so overall I think I've had things go in my favor far more often than I've been left paying $200 or being told "too bad, you were late, you have to buy a new ticket."
The practice of overbooking seems to bother some people quite a bit, but there are plenty of people who love to try and work the system and get a voucher. They are quite happy to fly four hours later if they get a few hundred bucks in travel credit to use for their next trip. I've even accepted an offer of a different routing with first class confirmed all the way through rather than vouchers. In one case, my original connecting flight took a three hour delay so I got home much earlier than had I stayed on my original booking.