They don't have fiascos like this because they aren't foolish enough to let them into the room before removing them. Unsurprisingly, kicking a guest out of a room/plane has a much higher risk of escalation than not letting them in.
Airlines are catering to their customers, if one didn't offer refundable their competitors would.
If one offered refundable but didn't overbook, 10% of their passengers wouldn't show up for every flight. They'd get killed by competitors who did overbook and could offer cheaper fares because that 10% is nearly pure profit.
And though they've actually made big profits the last couple years, historically airlines are one of the least profitable businesses, possibly even posting net negative profits over the entire industry lifetime. They require massive capital costs to buy expensive airplanes, and alternate profitable and unprofitable years. Warren Buffett said if he had been at Kittyhawk he would have done capitalism a favor and shot the Wright Brothers down.
That's false. They overbook because it makes them more money and for some reason people just accept it. Pretty much no other industry could get away with doing that to its customers.
Imagine the shit storm that would have unveiled if some random movie theatre sold 110% of its seats for the midnight premier of Star Wars VII and subsequently physically removed people from their seats because their employees also wanted to see the movie and they sold too many tickets.