Proactive Handling of Flight Overbooking: How to Reduce Negative eWOM and the Costs of Bumping Customers

Abstract

This research examines the extent to which proactivity in handling flight overbooking reduces negative electronic word-of-mouth (NeWOM) and the required costs of compensation, thus increasing firm profitability. It answers recent calls to use a multimethod approach (i.e., we include archival data, qualitative interviews, seven experiments, and a Monte Carlo simulation for a total of 10 studies) and to adapt recovery to specific contexts (i.e., airlines) and heterogeneous customers (i.e., voluntary/involuntary bumping or offloading). The preliminary studies indicate that overbooking and offloading are pervasive and that a proactive approach is both feasible and desirable. The experiments show that, compared to the default reactive approach (informing passengers at the gate), a proactive approach (informing them before they leave for the airport) substantially reduces NeWOM and the sought compensation. Further, a very reactive approach (informing them in the plane) significantly increases NeWOM and the sought compensation, especially when offloading occurs involuntarily. We also unveil the mechanism explaining the effects of proactivity on NeWOM, through the serial mediation of justice and betrayal. Finally, the results of a Monte Carlo simulation show that offering reduced compensation through a proactive approach allows more aggressive overbooking, higher capacity utilization, and increased net revenue of up to 1.3%.