Empty Seats Cost Money

• The primary reason airlines overbook flights is to prevent seat capacity on a given flight going unused. Each empty seat costs the airline a significant amount of money and from experience, the airlines can predict that a certain number of people will not honor their reservation and miss their flight. Overbooking is a way to improve the chances those potentially empty seats will be filled on takeoff.
  
  

Double Fare Potential

• When a flight is overbooked and someone does not show up, the airline has the potential to collect a double fare for one seat. If you miss your connecting flight due to a late arrival, for example, airlines will reschedule or re-route you, but if you just don't show up, depending on the type of fare you purchased, they may collect the fare for your ticket and put someone else in your seat at the same time.
  
  

Passenger Compensation

• Airlines began the practice of offering compensation to passengers who were willing to give up their seats on overbooked flights in 1979. Adopting this practice is why airlines are less worried about losing customers through overbooking; compensation costs the airline less than an empty seat and makes passengers happy. In 1982, the Department of Transportation codified the rules requiring and detailing the compensation for passengers who were involuntarily bumped from their flights due to overbookin.