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.
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 the 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.