As a general rule, airlines to have a contract that permits them to overbook flights and when more passengers show up than they have seats for, to bump some passengers subject to some rather elaborate protocols and compensation schemes.
This doesn't, however, end the inquiry. There are several ways that there could be fraud or other liability not arising out of a contract with a customer, even though overbooking itself might not constitute fraud.
- If the promotional materials of the airline misstate or conceal when there is a duty to disclose, the fact that a "reserved seat" has a technical meaning under their contract of carriage that does not carry its ordinary meaning, this could still be fraud. The fact that a contract provides otherwise does not necessarily preclude a fraud suit if the company misrepresents or misleads customers and prospective customers about the the contract actually says, or about the likelihood of a passenger actually getting bumped.
Note that the airline can be liable for misstatements made by its employees, that contradict its contract and overstate the customers rights, even if those statements were not actually authorized by the company. A statement made with "apparent authority" is binding.
The dollar amounts are small enough, however, that this is difficult to enforce outside of a class action lawsuit, and I suspect that there is a term in the contract of carriage that may make it difficult or impossible to pursue that remedy in the ordinary case against the airline. The contract may set a forum for suits against the airline even if the suits don't arise out of the contract itself, unless there is an anti-waiver provision in an applicable law that is not pre-empted by federal law, or the suit is brought by a federal agency.
It is also fraudulent to enter into a contract with a present intent at the time that the contract is entered into not to abide by its terms. If, as in this case, the airline doesn't just hold its customers to its contract of carriage, but actually routinely violates its contract of carriage by not following the procedures and providing the compensation called for by the contract, and knows that it will continue to do so, then the airline is not just providing a contractual remedy that is not a breach of contract, but is engaged in fraud.
There are a variety of consumer protection laws that prohibit certain kinds of practices and representations. Overbooking is not one of them. Overbooking is regulated (by laws that in all likelihood pre-empt state and local laws), but often conduct prohibited by consumer protection laws (often called "deceptive trade practices") is broader than actions that are prohibited by common law fraud doctrines and often dispense with many elements of a fraud claim (e.g. causation and proof of damages if statutory damages are claimed instead).
For example, many states make it a deceptive trade practice to advertise a good for sale at a particular price, when there aren't enough units for sale at that price to meet consumer demand, without offering rain checks for people who try to buy the good offered for sale which the seller has predictably run out of at the time of the sale.
It is not at all obvious that some of the more general deceptive trade practice laws are preempted by federal regulation of the airline industry in the same way that practices that are comprehensively regulated at the federal level, and particular to the airline industry would be preempted by federal law. In the same vein, federal law does not generally preempt ordinary contract and property law as applied to airlines.
Even if the airline fulfills the letter of its contract terms, if it exercises its discretionary rights in performing the contract in a manner that is not consistent with the mutual intent of the parties to the contract at the outset, it has violated the covenant of good faith and fair dealing, which is a different kind of breach of contract. This isn't fraud, but these abuses of discretion in the performance of the contract can be actionable.
Finally, large publicly held businesses routinely get into lawsuits with all sorts of people, public and private, and in the course of that litigation, routinely enter into settlements. In particular, settlements of class action lawsuits and settlements of lawsuits and investigations brought by government regulators, routinely contain consent decrees or other forward looking injunctive relief governing how the company will conduct its business that goes above and beyond what the applicable laws and regulations require. A violation of such a settlement term may also be actionable, although usually for breach of a settlement contract or contempt of court, rather than for fraud.