It’s time for another episode of Ask Cranky. I’ve received this question in many different forms ever since my days doing airline pricing, so I thought now would be a good time to answer it.
Why is it cheaper for me to fly from Fairbanks, Alaska to Denver than it is to fly from Fairbanks to Seattle? What happens if we just don’t get back on the plane after the layover in Seattle?
Kim
There’s nothing worse than trying to figure out airline pricing. After 3 years on the inside, I understand it, but it still makes my head hurt. This question, however, about why two flights cost more than one or why longer flights cost more than shorter ones is pretty easy. It’s actually just economics – supply and demand.
Back in the days of regulation (prior to 1978), pricing was pretty straightforward. There was effectively a price per mile. While that may make sense from a cost perspective (sort of), it doesn’t make much sense from a revenue perspective. So after deregulation, the airlines really started to try to maximize revenue. Crazy idea, I know. Let’s look at these two market to illustrate my point.
Fairbanks to Seattle is a monopoly for
Alaska. They fly it nonstop and nobody else does. What’s more, only one other airline even offers fares on that route, and its Delta with a connection in Salt Lake that only goes a few times a week and requires serious backtracking.
So Alaska can really set the pricing in this market to be the most lucrative for them without having to worry about serious competitive threat.
Meanwhile in the Fairbanks to Denver market, it’s a very different scene. Yes, Frontier recently announced seasonal nonstop flights a few times a week, so they can charge a premium. But the competitive landscape puts serious pressure on fares. Alaska can offer several connections per day over Seattle while Delta can offer its connections over Salt Lake as well. This may not be the most competitive route in the world, but it’s certainly more competitive than the Seattle market.
Making problems even worse is the market size. Fairbanks to Seattle is a much bigger market than Denver to Fairbanks. So if Alaska lowers fares in Denver, it may be able to fill up a few seats with connections via Seattle whereas those seats might have gone empty otherwise. And that brings us to the next question – why not just buy a ticket to Denver and get off in Seattle?
If you have a one way ticket and no checked bags, then you can do that and you probably won’t get caught. It’s called hidden city ticketing, but the airlines don’t allow this. So, there’s always a chance you’ll get caught and then made to pay the difference between what you paid and the full walk up fare. (You don’t want to do that.)
If you have a checked bag, then you obviously have a problem. It will go on even if you don’t. And if it’s a roundtrip ticket, there are other problems. If you don’t show up for a single flight in your reservation, the rest of your trip is canceled. So you might be tempted to buy a ticket from Fairbanks to Denver roundtrip. The problem is that once you miss that flight to Denver, your return will be canceled as well and then you’re in trouble. I wouldn’t recommend it.
33 comments on “Why Do Two Flights Cost Less Than One? (Ask Cranky)”
Trying to work out why it costs more to fly a shorter distance will never be truely known to mankind….lol
But the airlines like to make everything they do as complicated as possible and they loose billions a year doing it.
David SFeastbay wrote:
Well on one hand it actually is more cost effective to fly longer routes. The more short hops an airplane makes in a day the more airport fees they incur as well as paying for all the employees who ground handle that plane while it’s on the ground. But obviously that’s not enough to explain the difference in fares.
This is probably simplifying it, but they essentially boil down to two reasons: supply and demand, and competition.
As for the why-two-flights-costs-less-than-one thing, I tell them it’s like buying things wholesale or bulk. The airlines want to sell and fill their seats as much as they can, so they sell them at a “wholesale” or “bulk” rate.
Then I add that prices depend on a variety of factors like market demand, competition, etc. But they all boil down to making money. (which everyone wants to do, of course…)
Not that people have to like it, anyway. :)
Cranky wrote: There’s nothing worse than trying to figure out airline pricing. After 3 years on the inside, I understand it, but it still makes my head hurt.
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Maybe that’s part of why the airline industry as a whole can’t figure out how to be consistently profitable and provide a reasonable return on invested capital.
“Hidden city ticketing not allowed by airlines” — Is that a consequence of deregulation?. I remember in the days of regulation I would pore over the International OAG to find and book a “hidden city” beyond my intended destination (but at the same price) in order to get the extra miles, which I then used to detour coming or going to explore more cities for no extra cost. I saw many parts of Europe that way.
I think hidden city ticketing was actually an effective technique back in the days of paper tickets. These days, with e-tickets, it’s way too easy for computers to track whether or not you’ve boarded a flight on your itinerary.
Fairbanks also sees Minneapolis service, in addition to Denver and Salt Lake. All of those cities offer reasonable connections to Denver but none are a good way to get to Seattle. And they’re all seasonal, when demand is higher, canceling out additional supply. I love Alaska Airlines, but the stranglehold they have on Fairbanks is terrible. The Fairbanks over Anchorage premium is consistently $250-300, regardless of season, since AS is the only reasonable way to get to Anchorage (or Seattle) and connect onward.
A related question, if you’re willing: Why is it that airlines price codeshare tickets lower than the operating carrier offers them? For example, right now you can fly Seattle to DC on a United-operated Continental-marketed ticket for $200. The same flights marketed by United are $500. The difference is Continental has filed L fares, while United only has V fares. I’m surprised United would allow this, or is it out of their control?
I am encountering three flights cheaper than one flight between RIC and BIS. I have seen the leg between MSP and BIS leg more expensive than the RIC-DTW-MSP-BIS on Delta.
Back in the days of railroads, companies would offer competitive prices between major cities (where two or more railroads provided service), but had very high prices to intermediate stops where they had a monopoly. Legislation put a stop to this with a requirement to the effect that a segment cannot be priced higher than a longer trip that fully contains that segment (I think this was in the late 1800s, can’t look it up right now). I think this was seen as a way to force competitive pricing for stops where one could not realistically expect service by more than one railroad.
As far as I understand, air pricing is done between end points regardless of the actual route flown. Is this right? If so, it would be very difficult to implement a similar requirement.
But there also seems to be little justification for such regulation, because unlike railroads, the infrastructure for air travel is open to all. If Fairbanks–Seattle is such a lucrative market, why doesn’t another carrier step in? Looks like a good route for Continental or Delta.
There’s probably no hope in this matter (hidden-city, round-trips cheaper than one-way, etc.) until every pricing analyst who knows what we’re talking about here dies off, or the entire airline industry goes bust! Take your bets which comes first!
I subscribe to that strange idea that I shouldn’t have to pay more than have to. I won’t tell you how to come up with these nutty fares, so don’t try to stop me figuring out how to use them, your idiotic, customer-unfriendly rules notwithstanding. Like if you (the airline) are stupid enough to offer me a $664 one-way transcon fare, and a $198 round-trip fare, and I meet all the purchase rules, why can’t I use the round-trip fare [I know, I know, I must hate you hard-working, dedicated airline workers, knowing that insisting on getting the lowest fare will surely cause you to lose your jobs. Oh, please!]
It’s this pricing nonsense that causes many of us to hold our noses and wish for more regulation, preferably from the FTC, not DOT, to force you, the airlines, to do what common sense dictates. Don’t ask me to pay more for something because you have this idiotic idea: that’s the way we’ve always done it! Well, stop it. Just say, (1) if we operate a route where you have to pay more for the shorter haul than the longer haul, we’ll let you pay the lower fare; and (2). we’ll never charge you more for a one-way fare than the round-trip fare, assuming the purchase requirements are the same. Is that really all that difficult?
End of rant! With luv!
Back in 2000-2001 I had a friend that flew DEN-SNA frequently on United- (all personal travel.) DEN-SNA fares were consistently $325 and higher.
However UAL fares to SNA from ABQ, MCI, STL hovered around $250, and of course connected through Denver.
He explained to me that he would purchase a paper ticket at one of the local UAL offices, (for a paper ticket fee,) and show up to “connect” at the DEN gate with the DEN-SNA ticket ready, then take the SNA-DEN flight back a few days later – leaving the 1st and 4th flight portion unused.
He was never flagged or denied boarding, or most importantly questioned about it mid-trip, I guess because paper tickets weren’t reconciled as fast. No checked bags of course, and he didn’t use any mileage account or do anything online – all paper tickets. He never once had a problem outbound or returning, and did this about 4 to 6 times for a couple years..
He said he saved hundreds of dollars by using “other” airports as starting and ending points, rather than Denver which was a UAL fortress hub at the time.
Fortunately now fares from DEN are much lower thanks to Frontier and Southwest’s increased presence. Also the local ticket offices are gone, as are paper tickets – which would make replicating the same practice impossible.
But back then it was quite the ingenious and savvy workaround… Wish I had thought of it myself!
@ David SFeastbay:
Looks like they’re “loosing” a lot!
@ Ed Casper:
Or you know, it’s because consumers want everything as cheap as possible and have no sense of costs (operating or otherwise) and feel that every step taken by airlines to raise ancillary revenue is a “slap in the face.”
Ed Casper wrote:
I tend to think it’s more an issue of lack of capacity restraint historically. Over the past couple years they’ve done quite well keeping capacity down and that will go a long way to making this industry work.
Miniliq wrote:
What you’re talking about isn’t the same thing. In your case, you’re actually flying on all the flights, so that’s allowed. Hidden city ticketing is when people buy a ticket to a further destination and get off at the connection without going on.
FBKSan wrote:
Technically, unless the airlines have antitrust immunity and can discuss fares openly, there’s no way for one airline to tell another how to price itself, but there has to be an unwritten rule about it. If that airline puts too much crap on your airplane, you’re probably going to find a way to keep it off.
I don’t know how these are managed today, but in my time in pricing, we didn’t pay a whole lot of attention to the codeshare markets since we were busy focusing on our bread and butter. It’s entirely possible that those fares were in sync but then one airline raised the fare and the other never even noticed. My guess is they’ll end up changing it eventually.
Ron wrote:
Yes, that’s correct. All pricing is done on an origin and destination basis so it has nothing to do with segments. The only tie between the two is that there are routing rules that say where you can and can’t connect.
Ron wrote:
Exactly what I was going to say when I started reading your comment. There is nothing keeping an airline from flying between Fairbanks and Seattle except for the fact that they’d probably lose a ton of money doing it.
JayB wrote:
It’s not difficult, but it very well could result in the flight going away. Let’s say you operate 50 seats on a route that has demand for 10 seats a day. There are an additional 40 passengers who would take that route and travel beyond to other cities. Assuming other airlines operate the same connecting route via other hubs, then you won’t be able to demand a fare premium so you either keep fares matched with the others or you lose out on that traffic.
Now, if you lose out on that traffic, you have 10 people that would have to pay way too much money to take your flight. They’ll probably just drive and your flight will go away because it won’t make any money. If instead, you take your connecting traffic at the cheap fares and then price the local market at the cheap fares, you still aren’t going to cover your costs so the flight will go away. It’s the magical combination of higher local fares and lower connecting fares that makes a flight work.
Keep in mind, this is only the case in markets where there is very low local traffic. If you have a lot of local traffic, then you can charge more moderate fares to a lot of people and still make money. That’s why you see a lot of low fare carriers on the big routes and not on smaller ones.
@Zach,
If airfares would make more sense to the average consumer, (Why can fares for the same economy class seat vary a factor 5 or more? Why is it cheaper to book a longer trip with a change of flights? Why are returns cheaper than one way tickets?) people would be less inclined to “game the system”. Gaming the system would be less profitable too.
If the airlines had a system with sensible fares, gaming would not lead to any profit to the consumer.
Airfares would end up going up for connecting passengers (or flights would go away becasue fares would decline to unprofitable levels) if airlines were required to price local traffic less than or equal to the price of connecting traffic, or if airlines were required to sell every ticket at a price that covers fully allocated costs.
The irony is that the consumer, on average, benefits from a supply/demand driven pricing structure that prices trips as O&Ds versus flight legs and allows many customers to fly at fares that are below-cost. You actually encourage more competiton, if say, Alaska can compete in FAI-DEN if they don’t have to also discount FAI-SEA at the same time.
Thanks for this article. I recently had this come up with a Delta TLH-MEM itinerary, where if I flew on to BNA and drove back to MEM, I would’ve saved 150 bucks. Of course, when I asked Delta, I received auto-answer drivel. This answers my question perfectly, and I have to realize that in the big picture it’s actually more profitable for Delta for me to fly to Memphis on US Airways through Charlotte. Which is what I ended up doing. Ha!
So I get off in Seattle (No checked luggage) CF says I “might get caught, and made to pay the difference”. Huh? CAUGHT? MADE? Are there airline bulls on the prowl? How does that work?
Jim wrote:
It’s all automated. There are companies that specialize in this, actually. They can scour passenger name records (PNRs) to find people breaking the rules.
CF wrote:
And why is this so? Is there some regulation mandating this, or do the airlines just choose to do it this way?
I see this can create a problem with long-distance non-hub flying. For example, LAX–PIT is only operated by United (yes, I know that’s odd; US Airways recently dropped the route and United picked it up). Now if United charges a nonstop premium, they lose the ability to compete with other carriers on the connecting traffic; if they want to compete on that, they can’t charge a premium for the nonstop flight; if they limit the number of low-fare seats on the nonstop, they can’t use the flight to compete with other carriers for passengers who would connect at LAX. What’s the way out?
So the problem with Fairbanks–Seattle is basically that the market is too small for competing nonstop service, and there’s no real competition on connecting services because there’s not much population between the two cities? The only reasonable places to connect are Anchorage and Vancouver. Now I see Alaska Airlines has competition on both SEA–ANC (from Continental) and ANC–FAI (from Era Aviation). Wouldn’t it make sense for the two airlines to partner up and try to grab some of that traffic? I guess not, because Era is actually partners with Alaska. Hmmm.
Ed Casper wrote: “Maybe that’s part of why the airline industry as a whole can’t figure out how to be consistently profitable and provide a reasonable return on invested capital.”
CF replied: “I tend to think it’s more an issue of lack of capacity restraint historically. Over the past couple years they’ve done quite well keeping capacity down and that will go a long way to making this industry work.”
Cranky, I believe you’re quite correct. My comment was meant to be a bit facetious but I also suggested that I thought airline pricing was PART of the problem. Capacity discipline is far more important.
Just look at the Philly-Boston pricing situation. All US Airway’s extremely high fares accomplished was give Southwest a huge opening. I also believe that the kind of short term thinking these fares represent ultimately damages US AIrways’ customer loyalty, at least for a while.
Southwest’s policies seem to be aimed at building customer loyalty. My stock broker won’t fly anyone but Southwest because of their policies. Outside of frequent flyer programs, legacies aren’t as customer friendly and have lost a lot of customer loyalty because their policies indicate they don’t appear to care about it. I realize airlines are fighting to survive but as part of this, I believe there has to be a balance between numbers and treating people right and earning their loyalty. After all, without passengers, an airline won’t last very long.
Ron wrote:
I think you’re talking about United pricing of the nonstop vs a connecting flight over Denver or Chicago, right? There is an easy way to routing-restrict those fares. So you can file one fare in PIT-LAX that’s valid only on connecting flights if you want.
You see the same thing for airports (though the mechanism is different). Pricing is done by city, not airport. So you file a fare from, say LAX (which is a city and airport code) to NYC (which is the city code encompassing LaGuardia and JFK), you usually want to differentiate which fares are valid for LaGuardia and which are for JFK. You can use the Flight Application rule to do that.
Ron wrote:
Well, Vancouver would be an illegal connection – you can’t stop in a foreign country when flying between two US points. So that leaves Anchorage. Era is a tight partner with Alaska so that’s not going to fly.
CF wrote: “f you have a one way ticket and no checked bags, then you can do that and you probably won’t get caught. It’s called hidden city ticketing, but the airlines don’t allow this. So, there’s always a chance you’ll get caught and then made to pay the difference between what you paid and the full walk up fare. (You don’t want to do that.)”
Actually, this varies by airline. It’s actually really interesting reading to peruse airline Contracts of Carriage.
United, for instance, does NOT prohibit throwaway ticket, though most carriers do.
They also prohibit Hidden City Ticketing ONLY when ticketing AAA-BBB-CCC and boarding at BBB. AAA-BBB and getting off is not actually prohibited such that a passenger (or their agent) could be liable for a full fare. Of course on a return ticket, failing to fly BBB-CCC would likely result in the airline cancelling the return.
CF wrote:
On recent flights where the airlines have cut capacity I’ve noticed CRJ’s with more empty seats than the 320’s flew with just a couple years ago. Ticket prices are also 2x as high today as they were a couple years back. Now, I know there is demand for that route, just at a much lower ticket price. The question is, how much more does it cost to operate a CRJ900 vs. an A319? Are they really more profitable today that the prices have effectively priced out most of the demand?
I’ve always wondered why an airline can’t change the aircraft for a route if they’ve already passed a threshold of purchased tickets that would thus make the route profitable with that larger aircraft. Then that would leave them many more “empty” seats to sell off at a lower price and maximize profits on volume.
For example, set up a route with a 50 seat aircraft. If all those seats sell for $500, bump it up to a 120 seater and sell those seats at $400. If all those sell, bump it up to a 200+ seat aircraft and sell those seats at $300. Wouldn’t that theoretically maximize profits? Yes, logistical nightmare for the aircraft, but any more complicated than the current pricing scheme?
Alternatively, if not enough seats sell for a route, cancel the flight, or downgrade the aircraft. For domestic travel I’d think this could work if you have a large and diverse fleet – Delta I’m looking at you. Do single fleet airlines like Southwest or JetBlue fire sale seats just to fill up the planes right before departure? Priceline used to work for finding that, not so much anymore, and well, there’s plenty of empty seats out there still.
A,
I would think that for your system to work, the airline would have to have the ability to cancel under-sold flights. (If you think about it, say you have a day that is just under-sold in general, and every single flight gets down-guaged one grade. When you get to the bottom, your smallest aircraft are used on routes other than the ones they were initially assigned, so what equipment would you use to fill that? Since there’s a finite limit as to the number of airframes that you can swap, your only option at that point would be to cancel a flight.)
But your system won’t work. Aircraft routing is complex — for one thing, aircraft are scheduled to end up in certain cities at certain times/nights for regular maintenance checks. Some stations can’t handle certain aircraft. Then there are crew issues — pilots can only fly so many hours in a day, so you can’t just assume you can move them for a three-hour flight to a four-hour flight and not have it affect anything. Then you have to take into account that each flight does NOT operate in a vacuum. Say you have an A319 scheduled for MSP-LAS-MSP. It’s a Sunday. There’s only 20 people booked MSP-LAS. Down grade it, right? Well, it’s Sunday… there’s a 160 people booked for LAS-MSP. What do you do? (Similar situation… you have a 777 booked ORD-IAD-FRA. There’s 100 people booked ORD-IAD, but 300 booked IAD-FRA. What do you do?)
I don’t believe for a minute that your system is any simpler than the complicated current pricing scheme.
Another issue to remember when trying the “hidden city” trick. If you decide to attempt to carry on your luggage at the gate and the plane is 1-too small for carry on luggage (in the world of rj’s that is a real possibility) or 2- too full of other peoples carry on luggage to accommodate yours and you are forced to check it at the gate it will continue to your final ticketed destination NOT the city you are using as your “hidden city”.
@Brian, I’ve never had a problem short-checking a bag when gate-checking.
A wrote:
I think Dan explained this quite well. There are a host of issues with the biggest being crew scheduling and then maintenance. The complexity behind airline operations is shocking for those who haven’t seen it themselves, and it unfortunately makes them hard to move – similar to a big ship at full speed. Now, what airlines tend to do instead if demand is really strong is add extra sections. You see that when there’s a big sporting event or in the past, large conference. That’s easier to do than start switching airplanes around.
I have another question for all of you flight experts
Why is that usually a one-way ticket from A to B costs more than a round trip flight?
So, I’m looking at Baltimore to Lubbock, Tx flights. It seems that buying a tickets on SW is $550, but getting two tickets, for Dallas first, would only be about $380!
This is a classic airfare question that can be boiled down to a simple enough answer: Supply versus demand. Nonstop routes are a gamble for airlines because they require consistent demand for travel on that exact route. This isn’t usually a problem on popular cross-country routes or for flights to major cities, but on less compelling routes?say, for example, Boston to Indianapolis?demand could be an issue. So if an airline is going to offer nonstop service on a secondary route, it needs to charge more to account for the risk.
Connecting routes solve that problem by funneling all that traffic through a hub-and-spoke system. Instead of flying a half-empty plane from Boston to Indianapolis, airlines fly a full plane to Atlanta or Chicago and send the passengers to their connecting flight, where they either join other passengers who’ve flown into Atlanta and continue to their destination or board a tiny regional jet for a short flight.
For the airlines, this is theoretically a cheaper and more reliable system because it avoids the risk of a nonstop route with unreliable demand. And instead of flying long-distance routes that necessitate larger aircraft, carriers can fly short routes and use smaller (and subsequently fuller) planes.
From a passenger perspective, though, this supply/demand theory is really a simple matter of convenience?and the airlines know it. Nonstop itineraries are shorter overall and less prone to delay or dysfunction, and larger planes tend to be more comfortable and feature better amenities, especially compared to regional jets. You’re paying for peace of mind, a better chance of arriving on time and with all your bags, and, in some cases, slightly more space .
I am flying from FL to Helsinki for my vacation, for $ 1387, a person is returning with me to FL for a prize of 2033 one way. Is there an explanation for this?
Tuula – I assume you mean that your roundtrip flight was cheaper than a one way flight? The explanation is that airlines assume that people who buy one way tickets are more likely to be higher-paying, less flexible business travelers. And because of that, they charge more for the privilege. This has largely disappeared domestically since low cost carriers have forced them to change. But internationally it still occurs regularly.