Why Does My Connecting Flight Cost Less Than a Nonstop? (Ask Cranky)

It’s time for another Ask Cranky question. This is one that has been asked in various forms over the years. In fact, I hope I haven’t already written about this before. But it’s a great question and it doesn’t make sense to a lot of people why this happens.

A little bit ago I was looking for a flight from Los Angeles to Hawaii on one of the random cheap flight websites. When I put in the search requirements, it came up with the cheapest flights having a layover in San Francisco. Figuring it wasn’t that far just to drive to san francisco, I picked there as my originating airport. I even chose to leave right before the layover flight would have normally taken off. The site then told me that I had to take a layover in Los Angeles to continue to Honolulu. Is this really all based on economics or just a sneaky way of the airlines getting a little bit more of your money? It’s obvious they have non stop flights from both Los Angeles and San francisco. Why the layovers? I would think it would cost more over all for fuel, and using terminals.

Michael

The first thing to keep in mind with something like this is that airlines don’t price based on costs. They price based on demand. When schedules are set at least a couple months in advance, predictions about revenues have been made and the hope is that the flight will be profitable, but airlines never know for sure. Once the schedule is set in stone, costs aren’t going to change, so it’s up to Ask Crankythe revenue management team to simply maximize the amount of revenue that gets onboard that airplane.

One thing that we know without question is that a lot of people will pay more to fly nonstop, so even if a connecting itinerary may cost an airline more to fly, the airline doesn’t care about that. It only cares about getting as much revenue as it can on each flight, and that might mean pricing connecting itineraries less than nonstop.

This one looks like it’s probably on United from the routes involved, so let’s just pretend that’s the story. Here’s what I think is happening. United thinks that it can sell a lot of seats on those flights to passengers wanting to fly nonstop. But it doesn’t expect that it’s actually going to fill up every seat with those higher fares. It could reduce prices on the nonstop to increase demand, but then it dilutes the fares that all those other people would have paid and that could result in less revenue even if it puts more people on the airplane. So it tries to find another way to fill up those seats.

There is a segment of the population that will be willing to make a connection if it means cheaper flights. Those people might be considering flying a different airline like American or Delta or not traveling at all with the current nonstop fares being charged by United. So how can United find a way to keep those passengers without diluting the existing fares? It can route them over a connection. That means those who want to pay more for the nonstop will still pay more, but United can fill up empty seats with that connecting traffic from the truly price-sensitive traveler.

In the end, United fills more seats and makes more money, even though it may seem counter-intuitive at first glance.

35 Responses to Why Does My Connecting Flight Cost Less Than a Nonstop? (Ask Cranky)

  1. Rohit Rao says:

    Before I read it, I’m going to make an educated guess that you made a mistake and the title should be “Why Does a Nonstop Flight Cost More Than a Connecting Flight”

  2. Rohit Rao says:

    Finished reading now, and I was right about the error… Connections are generally less expensive than nonstops, not more expensive…

    As for your explanation, you pretty much nailed it. A tangent that you could have gone on would be to talk about hidden city ticketing. A lot of people seem to be mentally incapable of understanding that they are stealing, not “saving the airline money.”

    Maybe I’ll write a post on the topic…

    • Cooper says:

      Fare Jumpers!!! Rest assured, astute (and in some cases vindictive) ticket agents make sure to enforce the proper fare structure with pax when confronted with this. For instance, a passenger ticketed from XXX to ZZZ thru YYY who decides to skip the first leg and check in at YYY. The next thing they know, their reservation has been cancelled since they no-showed in XXX. Then, they’re slapped with a change fee, plus the difference in fare. Puts a damper on that whole scam.

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  4. Neil S says:

    Another question: Why did my Christmas trip (LGA – DEN – PSP) cost 100 more on united.com than on continental.com, even though all four of the legs were on UA flights?

    • CF says:

      That’s likely a system glitch. Not only do they have to file duplicate fares for each airline, but they also have to make sure that the availability is the same on both systems. That can sometimes lead to a lag where prices are different on one versus the other. This will go away in March when they’re on one system.

    • Jim says:

      I have noticed this on several flights as well. My guess is that United’s frequent flyers are wealthier than Continental’s :P

    • DAB says:

      I have seen this a lot the other way (United flight # on CO metal cheaper). My theory is that the airlines are selling little on each other’s metal, and so the cheaper fare classes simply last longer for the UA # on the CO Plane and vice versa.

  5. Fred says:

    Actually, although airlines mostly care about demand when setting prices, costs can change with fuel cost. If fuel prices go up, costs go up, and flights that are longer and on less efficient aircraft cost proportionately more than others.

    This doesn’t seem to be what’s going on here and this probably doesn’t make a huge difference when airlines set prices for the immediate future though, especially if they hedge fuel costs.

    • CF says:

      In the short term window, this doesn’t matter. The goal is always to generate as much revenue as possible. If that can’t cover the costs of fuel because of a recent run-up, then the airline will end up just having to lose money. In the medium term, it can cancel flights and re-allocate aircraft away from markets that might have been profitable but no longer are with higher fuel costs.

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  7. People will never understand airline pricing since on the surface it may not make sense.

    After all these years people still can’t understand how they can fly for $200 between LA and NY but pay $400 to fly half the distance like LA-OMA (as an example).

    Airlines will use price to drive people to or away from certain flights which can depend on the market or time of day.

  8. Cranky’s above discussion of this issue is a great explanation of demand-based pricing airline pricing.

    There is little doubt that, on a monopoly or near monopoly nonstop route, the profit-maximizing strategy might be to discourage many (most?) travellers from flying. The classic example of this could be US Airways’ PHL-BOS fares. Before Southwest entered the market, US drove prices up to more than $600 roundtrip — with almost no discounts available! This essentially meant that US would carry almost zero nonstop leisure travellers on the route, since there are many good alternatives for this less-than-300-mile nonstop flight (car, train, bus. connecting flight). At the same time, of course, US happily carried connecting leisure traffic from BOS through its PHL hub — most of whom probably paid less than $600 for their entire trip, including the “expensive” PHL-BOS segment.

    When Southwest entered the PHL-BOS market, nonstop fares plummeted. BOS-PHL roundtrip fares fell to as low as $78 roundtrip. The problem was that Southwest couldn’t make money at these prices and is pulling out of the market. In all likelihood, nonstop fares will again drift back to nosebleed levels.

    Not every route is the same, however, and airlines have to be careful about how much of a premium to charge for nonstop service. Like for a transcon, how much more can you charge a leisure traveller for a nonstop? The current consensus seems to be about $100 roundtrip — and maybe you make relatively few seats available at that price to make less flexible leisure travellers pay more for the nonstop.

    Airlines also have to be sensitive to the problem of filling up flights with less lucrative connecting traffic. Like say US Airways is offering a $99 one way fare from Boston to Orlando, connecting in Philly. It may have empty seats on the BOS-PHL flight (thanks to nosebleed fares), but it might be able to fill up the the PHL-MCO flight with nonstop passengers willing to pay $149 — meaning that it loses money when it sells cheap seats to connecting BOS pax.

    It’s why airline pricing is such an elaborate chess game, which often makes little intuitive sense to anyone — perhaps even the practioners of this dark art.

    • CF says:

      On that last example of Boston to Orlando via Philly. If it thinks it can fill up seats on the Philly to Orlando leg for $149, then it’s not going to sell those $99 fares from Boston over Philly. If the airline is doing its job, it will zero out availability for those super cheap fares.

  9. Sanjeev M says:

    I guess in the same way, the example shows that United has very little cost in routing people on LAX-SFO cause they have gazillion dailies between the two.

    An empty seat is the airlines’ worst nightmare.

    • Evan says:

      Actually, worse than that, I fear that the empty planes LAX-SFO encourage UA to offer cheaper connecting fares to Hawaii than is rational. The low bookings on those flights (especially far in advance) might be partially to blame, as revenue management systems try to fill those seats with connecting passengers even if at lower overall revenue than a non-stop that doesn’t fill one of those seats.

    • CF says:

      Actually, an empty seat is not an airline’s worst nightmare. Sure, an empty seat is one you can never sell again, but that shouldn’t always be the goal. Maybe you had an empty seat, but if you had sold that at a lower fare, you would have diluted the rest of the fares on the airplane and made less revenue. A full airplane doesn’t mean that the flight makes money and a half full airplane might make money, if fares are high enough.

  10. JayB says:

    A great question and I can’t say what you said is incorrect. Airlines can find justifcation in any pricing system they want, but I ask: “How’s it all been working out for you?’

    Airlines seem to think they have us all figured out…”All you want is the cheapest price.” Like we can figure out any other bases for our purchase decisions?

    Help us out. Simplify and market. We seem to be able to work with other industry pricing sysytems, but when it comes to the airlines, we’re mystified. We feel everything about airline pricing is manipulation.

    And Cranky, what a great post yesterday you had on the FAA pilot fatigue final rule. It took FAA 314 pages, with lots of legalistic/regulatory stuff (like, what was I expecting?), but I kept reading.

    But, it didn’t allay my fears that things aren’t really going to change as long as we have so many “operated bys” doing the work under somebody else’s name, and good oversight is simply not possible. Are these new rules really going to do the trick in the world the airlines seem to be operating more and more? Shouldn’t the travelling public expect that if a carrier has the certificate to operate something, it has to “really” operate it, not contract it out, as under the Continental/Colgan situation, and so, so many other carriers do today? [I offer no proof of blame on anyone but rather express my concern.]

  11. robby says:

    Look at JetBlue…..non-stops are cheaper by far….connections are more expensive…….
    I’m just saying.

    • CF says:

      Yes, but JetBlue is a different kind of airline. JetBlue built its network on a point-to-point model. It flies on routes that have enough demand in the local market and it has far less dependence upon connections as compared to a hub-and-spoke airline. So for JetBlue, it wants to fill up with local traffic and it usually can, but if people want to connect, they’ll have to pay more to make it worth JetBlue’s while to not take a local passenger.

      I would also hazard a guess to say that JetBlue also probably has cruder tools that it’s using for revenue management so it might not have the same ability to handle connections as well as other airlines. That is just a guess, because I don’t know details for sure.

      • robby says:

        Your point well taken….why would I want to change planes at JFK to go to the west coast from Florida ? (other than I am an airplane geek wanting more air time and some time at JFK planespotting…) JB isn’t going to make it cheaper to do so…..:(

  12. Connecting flights cost the travellers more because the extra segment and airport facility charges add to the fliers’ costs but don’t show up in the quoted fares.

  13. BJ says:

    Doesn’t this method of pricing create artificial demand? Using LAX-SFO as an example, you now have a whole heap of people flying the route who don’t actually want to go between the two cities. This would be OK if you’re only taking up a couple of spare seats on each flight but it can horribly wrong when flights are added on a route to match this ‘demand’. This results in flights which are not actually generating any revenue.

    United, as we all know, has not been very good at making profits in the past. Maybe they should stop undercutting their own direct flights. I don’t fly with United (or book through United.com for that matter) because they always come up with stupid routes. There are plenty of other airlines that give me the same, or better, prices on direct flights even though they could do the same thing as United.

    I guess you could almost do a thesis on this topic and it could be argued that any method has it’s merits.

    • CF says:

      It absolutely could create artificial demand, but the airlines profitability systems break down the fares enough that this shouldn’t be a real issue. For example, if someone is flying LAX to Honolulu via SFO, very little of that already low fare is allocated to the LAX-SFO segment. The majority goes on the longer SFO-Honolulu segment. So when the airline looks at profits, it’s not going to see much from that seat on that route.

      Now, if the route is profitable on its own but it has empty seats, then the extra revenue, no matter how small, is gravy.

  14. John says:

    Begging to differ a bit. The reason that connecting flights can be less has more to do with who competes on a route than demand. The legacy carriers (American, United, etc.) always price their flights based upon who they compete with. If there is an LCC (discount carrier like Southwest or Jetblue), they meet that airline’s price, but if there is not, the legacy carrier prices it much higher.

    Example: DFW to New York or Newark. AA, CO, and DL all fly nonstop…no LCCs do. Nonstop round trip 1 week advance is $1500. But Southwest and Airtran fly the route one stop for $300, so the legacy guys match that on connecting routes but don’t on nonstops.

    Moral: even if you fly a legacy carrier, always try to fly a route where they compete with a discount carrier. You’ll get a much better fare.

    Moral:

  15. This reminds me of when I live in Cincinnatti, I know folks who’d say were going to DEN, instead of taking the CVG-DEN flight they’d book DAY-CVG-DEN because it was cheaper even after driving an hour to get to Dayton’s airport. Although often on the return they’d be routed DEN-ATL-DAY.

    • Kilroy says:

      Don’t know if you’ve been to CVG recently, but it looks (and feels) like a ghost town. It looks like (not sure if true or not) that one whole terminal is essentially shut down, and CVG is a bit of a pain to get to (not very convenient to downtown, river crossings can get backed up, and a good hour away from the wealthier burbs in the north).

      Many people I work with in the Cinci metro area, especially those who live north of the I-275 loop, prefer DAY even for price-insensitive business travel. Even with construction on I-75 around Dayton, DAY tends to be a more predictable drive and much easier to get in and out of, and it’s only an extra 30 minutes or so if you’re north of 275. At least DAY has a few LCCs to keep prices low(er); fares of $450+ for CVG-Chicago and CVG-Grand Rapids (both ~300 mile drives) are the norm.

      • Dan says:

        I had a potential employer pay $1600 for a CVG-IAD r/t with 6 days notice. Ouch.

        • Kilroy says:

          Nothing like paying over $3/mile for a 500-mile trip, not terribly atypical out of CVG though. Even NYC can get over $1k+ on relatively short notice, and goes up from there.

          Yeah, CVG’s pretty insanely priced these days as a dying former hub/focus city. I can’t imagine that the fees CVG charges the airlines (really THE airline, but I digress) are much cheaper relatively speaking.

          On the bright side, at least it’s not Bentonville/Rogers/NW Arkansas. My understanding is that 80+% of the pax there are visitors working for Walmart either directly or indirectly (suppliers), and I’ve heard (can’t cite) that as a result it has the highest fares in the nation or close to it. People I know who work in that area will combine a business trip with a leisure trip, because it’s often easier and cheaper to get a routing of, say, NW Ark – Business Trip City – Leisure Trip Ciy – NW Ark rather than doing 2 R/Ts. My understanding is that often people can add in the leisure leg for free or very cheap, but even if they have to reimburse their company for the excess over a simple NW Ark – Business Trip City R/T, it’s still cheaper than paying for a Nw Ark – Leisure City R/T.

          • CF says:

            It’s true that NW Arkansas has incredibly high fares for the reasons you state, but Allegiant has rolled into Orlando, Vegas, and LA with really low fares so there’s a ray of hope. But yeah, that’s a tough place to be if you want cheap fares.

  16. Kilroy says:

    To save money and have a bit of fun, last time I went to NW Arkansas I flew in via SeaPort Air’s EAS service from Dallas Love Field to Boone County (a good 90 drive east of Bville/Rogers/U-Ark, more if you get stock behind slow drivers), via Little Rock, on a 9-seater. Absolute best experience I’ve ever had flying, from when I called the airline for more info (when’s the last time you called an airline and a real person from the US picked up on the second ring, with no voice menus or wait?) to the time I stepped into the 2000 sq ft Boone County airport. Lots of fun being able to see into the cockpit, and the pilots were great too.

    Should have written a trip report as a proposed guest post for Cranky in hindsight.

  17. A says:

    AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA

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