Why Airlines Need Hidden City Ticketing to Be Possible but They Also Can’t Let You Take Advantage of It

Welcome back from the holidays. I’m sure you’re trying to ease back into things at work, but there’s no time for that here. Let’s dive right into an airline pricing discussion on the topic of hidden city ticketing. This practice has been in the news a lot lately thanks to United and Orbitz suing Skiplagged for trying to help people take advantage. And while United has been beaten up in the press pretty much across the board (its own efforts only make the airline look worse), there is a good reason this policy exists the way that it does. With that, I’m going to try to do the impossible; defend something that is universally hated.

What is Hidden City Ticketing?
I suppose to begin this discussion, we need to make sure everyone understands just what “hidden city ticketing” means.

Hidden City Ticketing

Let’s say I need to fly one way from LA to Washington/Dulles on July 10 next year. I can take the 955a flight on United for $588.10, or I can buy a ticket to Boston (using the exact same flight to Dulles and then connecting) for only $215.60. I just don’t get on the connecting flight. That’s hidden city ticketing.

This isn’t anything new. People have used this for years to circumvent airline rules. To make it work, it requires a one way ticket where the part you don’t use is the last part of the ticket. (Once you no-show for any flight on a ticket, the rest of the flight reservations are canceled.) You also can’t check bags or they’ll go to the ticketed destination. And of course, you need to have a hub on one end or else the connecting options won’t be available.

It sounds restrictive, but there are still a ton of opportunities to take advantage of this because fares into a hub are often more expensive than fares through a hub. And that’s why most airlines prohibit the practice. Take a look at United’s contract of carriage, and you’ll find the prohibition in Rule 6, Section J, part 1.

Why Airlines Don’t Allow It
The initial premise seems strange to most people. Why would it cost me less to buy a ticket for two flights (LA to Dulles to Boston) than it would for just one (LA to Dulles)? After all, it costs the airline more to fly both flights. The reason: airlines don’t price based on cost. Airlines price based on demand (taking into account competition, of course). And the one thing people are willing to pay for more than anything is the convenience of a nonstop flight over a connection. Even though travelers are technically getting “less” (fewer flights), they’re really getting more of what they want.

The Rise of the Hub, and Why That’s Important
After deregulation in the 1970s, airlines started to realize that people not only wanted to pay for nonstop flights, but they wanted frequent nonstop flights so that they could get where they were going exactly when they needed to be there. The airlines had a problem though. They didn’t have enough demand to fill all those seats on a bunch of nonstop flights. That’s when the hub was born.

Airlines figured out that while there wasn’t enough nonstop demand in a market to justify nonstop flights all day long, there were other ways to fill those seats and make enough money to survive. By creating hubs, the airlines could provide the frequent nonstop flights that their high-paying customers needed while also creating opportunities to connect other people via those same flights. Airlines grew fast and expanded their footprints.

Connecting opportunities fell into two types. There were some small markets that didn’t have a lot of competition and behaved more like nonstop markets. Think of Morgantown, West Virginia today. I can fly United on that same flight via Dulles to Morgantown for $677.10. Some hubs have more places like that around them than others, and Dulles is not one of them. But think of a place like Charlotte. It might not have the biggest local market, but it has a bunch of small cities around it that act like nonstop markets from a pricing perspective. (US Airways serves 9 airports in North Carolina alone – I had no idea there even were that many available for commercial service.)

But the flip side involves big city connecting markets like LA to Boston. Everybody flies that route nonstop. United does it twice a day, but American flies it 5 times. Virgin America has three a day, as does JetBlue. Delta flies it twice a day. Those five airlines competing for nonstop traffic means that there will be heavy price competition. Then by the time you get to connecting options, you’re really competing almost entirely on price.

The airlines figured out that if they had an airplane with 100 seats but they could only fill 50 with high dollar nonstop or small connecting market traffic, then a flight wouldn’t work. But if the other 50 are filled with low dollar connecting traffic, then it can be profitable overall. It’s the delicate balance that makes this all work.

Hidden City Ticketing Makes It Fall Apart
When people take advantage of hidden city ticketing, it upsets the balance. The high dollar passengers now become low dollar passengers and the total revenue on that airplane drops a lot. That can push the flight into the red, leaving the airline with a few options. First, it could cancel the flight outright. Now, United isn’t going to pull out of the LA-Dulles market entirely, but it might think that its 7 daily flights should be only 6… or 5. Or it could look to use smaller airplanes because there is just too much low dollar traffic filling those big airplanes for them to be profitable.

What this means is fewer options for travelers needing to fly from LA to Dulles nonstop regardless of price and fewer seats on low dollar connecting flights for that group that wants to take a family vacation to Boston.

In the past, few people did this so it wasn’t a big problem. But now that websites are making it easier to find hidden city options, it becomes a real threat to the airline model. This isn’t an issue for low cost carriers that skim the top markets that have enough nonstop demand. It’s a big issue for the legacy carriers that are able to provide incredible schedules in many markets. Think of Delta with 9 daily flights between Louisville and Atlanta, US Airways with 9 a day between Charlotte and Wilmington, American with 8 a day between Dallas/Ft Worth and Springfield , or United with 5 a day from… Dulles to Boston. These are routes that simply wouldn’t have that frequency without this mix of traffic. And some routes might lose nonstop service entirely.

You won’t hear United explaining it this way, because it’s complicated. Instead, United is defending itself in a way that just makes people hate the airline more. United says that when people don’t show up for the Boston flight, that’s a seat the airline could have sold to someone else who wanted it. But of course, airlines overbook all the time. If more people no-show, then the airline will just start overbooking more. (This does become a problem if it’s random and not consistent, because they can’t adequately forecast and bumpings will rise, so keep that in mind.) United also says that it can delay the Boston flight because it throws off the weight and balance calculations. But those of us who have stood at the top of the jet bridge when the airline slams the door shut 10 minutes before departure know that’s bullcrap. That’s why they close the doors early.

United appears to be grasping for a message that’s easily understood, but it’s failing. Meanwhile Skiplagged looks like a hero when, if you read the lawsuit, there are some pretty shady things going on here. At least now you know why these hidden city opportunities exist. It’s also why the airlines prohibit the behavior. If this becomes widespread, then there could be consequences. But if the airlines wanted to get serious about this, they should really start chasing the people who are breaking the rules and buying these tickets. Make it publicly known. That’ll put a stop to it quickly.

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131 Responses to Why Airlines Need Hidden City Ticketing to Be Possible but They Also Can’t Let You Take Advantage of It

  1. Gary Leff says:

    Oddly, United’s prohibition on hidden city ticketing in their contract of carriage is relatively new. When Justice Scalia admitted to throwaway ticketing in 2004 he was in violation of US Airways’ contract of carriage — but had he flown United he wouldn’t have been.

    http://viewfromthewing.boardingarea.com/2004/03/18/supreme-court-justice-endorses-throwaway-ticketing/

  2. Grichard says:

    I get the idea that hidden-city antics kill off the high-dollar tickets that subsidize cheaper connecting flights. I’m not sure that I understand why the conclusion is that hidden-city antics “make it fall apart.” Seems to me that the result would be that airline pricing would regress closer to a constant “X dollars per mile flown” scheme. (Constant across different origin/destination pairs, I mean. Widespread hidden city gaming shouldn’t affect the ability of airlines to raise prices close to the date of the flight.)

    You could argue that this would be desirable or not, but I don’t see how it’s the end of the world.

    • MeanMeosh says:

      The basic premise against distance-based pricing is actually pretty simple. DFW to Detroit via Chicago is farther distance-wise than DFW to Chicago, but if I ran an airline, and have 100 business travelers ready to pay top dollar to go to Chicago vs. only 30 to go to Detroit, then why wouldn’t I charge more for a ticket to Chicago? Further, as Cranky pointed out in his post, a faster nonstop > a slower connection in the eyes of many consumers, because the convenience of a nonstop has tangible value. The problem is that the airlines haven’t done a terribly good job articulating this premise, as Andrew summarized well below.

      • Jehu says:

        >>You ask, “if I ran an airline, and have 100 business travelers ready to pay top dollar to go to Chicago vs. only 30 to go to Detroit, then why wouldn’t I charge more for a ticket to Chicago?”

        Because in a competitive environment, you’re competition would be willing to charge a price between your top dollar price and what it costs to actually transport the passenger.

        • Nick Barnard says:

          But airline seats are perishable products. Sometimes (OFTEN!) you charge below your costs just to get something for the seat.

          I’m not quite sure what the marginal costs per passenger are, but I’m guessing its below $20.

          >

      • Grichard says:

        I’m not advocating for distance-based pricing. I’m just saying that if hidden-city ticketing becomes widespread, the system will trend in that direction. And distance-based pricing would have winners and losers among consumers, but wouldn’t be an all-around disaster.

        • CF says:

          Grichard – If the system trends in that direction, then you will see demand for connecting opportunities decrease as fares rise. So airlines will have more trouble filling their seats. That’ll mean fewer seats will be in the market. Is this a disaster? I guess it depends on how you define it. But you’ll see higher fares and fewer seats out there. This, of course, relies on this becoming a huge widespread issue, as you’ve mentioned.

          • Joflyer says:

            Or you’ll see more price efficiency developing? Not for nothing but I don’t see any particular pressure for the airlines to truly innovate or find cost savings. I’m not talking about lip-service, I’m talking about truly changing business models.

            The idea that price-gouging is the business model norm in airlines is pretty shady. Imagine if gas stations operated like airlines, raising rates during the rush-hour commute or whenever the line got more than 2 cars deep.

            Airlines are somehow being insulated from market pressures that might spur real innovation (in the same way high oil prices allowed oil fracking to make a major difference in oil supply).

            • L.L. says:

              I agree that airlines need to improve their pricing, or customer segmentation: local vs. connect. No one ever reads those fine prints in the contract of carriage, but by now most people know that if they don’t fly leg one then leg two is cancelled. But if they don’t check bag, fly leg one and give up leg 2, it’s really not enforceable with the current system. The airlines could (i) raise connecting fare (not optimal by the reasons the CF mentioned), (ii) show both local and connecting fares, sell the latter, and demand a deposit being the difference (or a fix amount large enough) that will be returned after the passenger completes their connecting journey. (ii) is similar to the way rental cars companies do now when they hold $200 on your CC at check-in. I realize this might not work for round trips with the return leg being far in the future.

              Regarding Joflyer saying that airlines are price gauging and not cost conscious, I think that’s an unfair statement. Airlines operate high-risk business that is capital intensive, labor intensive selling a perishable product, in a competitive cyclical environment. Airlines therefore need to optimize their pricing and they are as cost conscious as any other business. Gas stations increase price on weekends and those along major highways are more expensive. So they do pricing based on their advantage. They just don’t need to work too hard because they don’t have flexibility to differentiate their products, which are not perishable.

            • James says:

              I wouldn’t exactly call it price gouging, the problem can still be modeled as one of cost-based pricing. The complexity is that there is a massive disparity between the fixed cost of operating a route between two points and the variable cost per passenger.

              Imagine you have only 3 cities in the network: A, B, and C with equal pairwise traffic. You could route every flight pair (AB, BC, AC) or go with a hub and spoke model (AB, BC) with B as the hub.

              If you had a pairwise model, you’d have 33% higher fixed costs in the whole network, but you could allocate them equally across each pair and the price would be the same for all routes (since we’re assuming equal traffic in this simplified model). In this case, since supply and demand are equal, the ticket prices across all city pairs is also equal.

              Let’s say that for some reason (this model is simplified), you don’t have quite enough overall demand to profitably operate all of these routes. What’s really killing you here is the fixed costs, perhaps all of your planes are flying 30% empty, and you need to get them all fuller. You need to fuller really to pay down the fixed costs (which are huge) rather than the variable costs (which are tiny in comparison). So you now go to a hub and spoke model.

              Now, you’ve got the case that although prior traffic and network availability were equal, now B gets way more flights, in excess of the previous demand for B. So you might think “hey, more flights to B means that supply goes up and with demand at previous levels, prices should go down!”. But wait, demand across the network pairs is still the same, supply has actually dropped (we did this to fly fuller).

              Remember that in the pairwise case, prices across each city pair were equal, yet the high fixed costs forced me to go from point-to-point to hub-and spoke. Yet we know that true demand is equal, and we’ve scheduled our flights to also serve equal demand across the 3 cities, so what should our prices be now?

              If overall network supply is the same, and overall network demand is the same, then they would still be the same as in the point-to-point model, same ticket prices for each city pair.

              But wait! That means AC is the same price as AB and BC, even though now AC = AB+BC! I’m flying further, but paying the same amount, how is that logical?!

              It’s logical because the big cost is not so much in the passenger mile flown, but in the fixed cost of operating the route at all. The aircraft maintenance and fuel used is pretty much the same regardless of whether you are on the plane or not. If the plane flies, the costs are there in full.

              Then add in that the demand between A, B, and C may be difference, and that perhaps in the past B was slightly higher (thus we built a hub there), but in the last 30 years traffic has changed and now there is way more AC demand than AB demand. I can’t easily move my hub, so what am I going to do?

              The question here is that becuase I have my hub in B, do I price as if B customers are special, or do I still try to serve the whole network the best I can. Over time, given that traffic patterns change quickly yet hubs can’t really move, the choice of B as a hub is essentially random – less and less correlated with actual demand patterns over time.

              This is where CF’s point about non-stop flights that optimize for the whole network’s convenience versus becoming hub-focused and making everyone go through a hub makes a difference. Do we want the pricing designed to optimized for the whole network or designed to meet the topology of hubs?

              From a convenience point of view, I would prefer being optimized for the network (I want to go to where I want to go). If I were a purely price conscious consumer (I’ll go wherever it’s cheap to go), then I would perhaps be more interested in prices that are city-pair optimized. And we can see this difference in the way that large flag carriers are organized and priced compared to budget carriers.

              A frequent business traveler really depends on the power of the network and pricing to ensure that he/she can get to wherever and whenever the job requires, with the only issue being the price paid. Such people really need the network and generally understand that if higher prices on some routes allow for the whole network to function, that is better than being price optimized on a route by route basis.

              An occasional leisure traveler who might only have 1 common city pair or goes wherever it’s cheap would find network optimization of no benefit and really want operations to be focused on city pairs, at least until they need to go to some city they rarely go to for a family emergency or personal crisis, and then find that there’s no way to get there…

            • Nick Barnard says:

              James, thank you for that Cogent and through description. Its one of the best I’ve seen in a long time.

          • David says:

            No, the airlines would then have to price their tickets in a fashion that is not only consistent with a market but also respects the actual cost of operation. The fact is, multistep flights cost more to operate than the same flight that flies non-stop to a final, common destination. That creates a perverse pricing because the non-stop flight would have a lower price than the connected flight and most people expect the non-stop is a premium flight. In that case, it is justifiable to charge a premium if the airline is flying both routes. However, if the airline is ONLY flying the connected route, and they try to low ball a competitor’s non-stop…that is garbage. If they want to compete with a competitors non-stop then THEY fly a non-stop. That’s how a market works. That’s competition. The other way they are just trying to use their resources alone to undermine a competitor. Not to mention that the airlines are making up the cost by gouging their own customers on other flights!

            • Nick Barnard says:

              David, I don’t know where you’ve got the idea that prices have to follow costs. There are all sorts of industries where this isn’t the case. (Computers, Fancy restaurants, telephone service, almost any premium good, etc, etc.)

              IANAL, but I do believe that liquidated damages and punitive fees do have to have some correlation to actual costs.

        • Jehu says:

          @James:

          Nice economic rationalization for the pricing that makes many of us feel like we are being taken advantage of.

          You are saying that carriers can serve more cities due to prohibiting hidden cities discount. Some of us think that is only part of it and that Airlines, when they get pricing power at a hub, use it. The evidence would be, as soon as Southwest enters a city, and there is real competition, that fares tend to drop.

          Skiplagged also finds the “prohibited” throw-away round trips.

          For extra credit, using your same model, please explain the benefits of prohibiting “throw-away” ticketing.

          Extra, extra credit: Can you come up with a pricing model that would permit travelers to take advantage of any hidden city pricing and yet have the hub and spoke system survive? That is, are these prohibitions that are in the contracts of carriage the ONLY way that a hub and spoke system can work?

    • francis says:

      Something tells me that in a more efficient and competitive world, there would be only about 100 airports in the country with regular commercial airline service. People living anywhere else would ride an airline bus for the trip to the nearest one of those airports for a nonstop flight to wherever they’re going.

      Door to door travel time probably wouldn’t change much for most people. Prices would drop and fuel efficiency would improve. Delays would go down due to fewer flights and no more having to hold planes for connecting passengers. People traveling on business to/from smaller cities would be the big loser.

  3. David says:

    The PhDs who’ve done the maths around pricing seem to have decided that because a rule exists in the conditions of carriage, that they can rely on it to be enforced when doing the maths around pricing algorithms. The problem is they forget that those conditions of carriage aren’t always easily enforceable.

    In maths speak – someone has chosen the wrong boundary conditions of their pricing equation. In financial speak, the airlines have allowed themselves to be arbitraged.

    I appreciate why demand pricing is usually a good thing, but while ticket prices are quasi-arbitrageable, hidden-city ticketing will go on. The PhDs who did the maths behind the pricing policy made a mistake in the maths, and are now getting punished for it.

  4. AW says:

    I understand the business end of the transaction, the frustration is how it plays out. Growing up in the Memphis area back in the Northwest hub days, last minute flyers would save hundreds (or sometimes thousands) of dollars by driving to Little Rock or Nashville and flying to their destination, ironically connecting through Memphis en route. Perfect legal action by any standard. So you have passengers spending more time and money in fuel to fly in such a way that also cost the airlines more to operate.

    • A says:

      AGREE COMPLETELY. Hidden city bookings actually benefit the small market airports by giving them cheaper airfare than their city actually deserves. An example is a few years ago I was looking at booking MSP-LHR nonstop and the price was something like $1500. RST-MSP-LHR was significantly less, by about $500! Same goes for FAR-MSP-LHR. The 2-3 hour car ride out to a rural airport was saving hundreds to put butts in seats on planes that weren’t full. Then again, a RST-MSP flight was probably $500 alone because you “only book that flight if you need it.” It’s asinine, the people in RST or FAR should be the ones driving to the hub at MSP, not the other way around.

      This pricing model needs to change…airlines will never win this one because it makes no common sense, case in point United. By Cranky’s own example the LAX-BOS flight should be the same price as the LAX-IAD… NOT LESS. The discount price for another leg is the problem. Another leg at the same price…ok, I can see that, but cheaper???!!! I for one applaud websites exposing this and hopefully changing the airline pricing model.

    • CF says:

      AW – Sure, but you’re paying the price for nonstop service in Memphis. Now, those people in Little Rock or Nashville still get the same fares but they connect over other hubs. Memphis fares come down as well but that’s because the only option to scores of cities will involve a connection. There’s no longer a service advantage so the market becomes more competitive. If you don’t care about nonstop flying, then you’ll be happy because fares should be lower. But if you care about convenience, then it’s not a good thing.

  5. Neil S. says:

    I’m sure I’m making this simpler than it is, but it’s hard to feel bad for the airlines. They make pricing endlessly complex – are there two seats on any flight that have paid the same fare? – and they make all benefits pro-airline and con-consumer. As a simplistic example, if I flew a 380 mile leg on United, I’d get credit for 380 BIS miles, but I’d need to use a 500-mile certificate to upgrade. (I don’t fly them anymore, no idea if this is still the case.)

    But the point is, it’s always working out against the consumer. So when Skiplagged comes along – like Uber before it – and makes this craziness transparent, do they really expect any of us to feel bad for them?

    • Shane says:

      I am not sure Uber is a good example. Uber is operating while ignoring legal requirements and is actually just as opaque than the establishment taxi system. Did you know that if you do not tip your driver above the agreed to fare you will receive a lower rating from the driver? Future drivers can and do discriminate against you and not take your call because you have a lower rating. My point is that Skiplagged is exposing a loophole that is covered by a contract and Uber is not making things transparent. They are plowing through/breaking laws and regulations in hope they can convince people to change them and then acting opaquely on the back end.

      • Neil S. says:

        Fair enough. I was trying to make a “disrupt the status quo” point, but you’re right that I chose a bad example.

      • Todd says:

        Have you actually used Uber? There is no tipping.

        • Shane says:

          There is no official tipping, but I there is documentation of drivers mentioning that you need “5 for 5” or other such suggestions ($5 for a 5 star rating as a passenger).

          • FreeMarkets says:

            I use, on average, 12 to 15 Ubers a week in cities all across the country. I’ve never had an Uber driver ask or suggest I tip, and I know for certain that I have a very high customer rating. In fact, I once tried to tip an Uber driver who drove like hell to get me to a flight I was about to miss and he refused to take it. I find that people who make these crazy comments about Uber are typically people who have no concept of how free markets (or our economy) actually work.

      • Linda Sledehammer says:

        I agree with Neil when I read the “Uber” line. Anything that is cheaper and easier to use will gain popularity. Uber is cheaper and easier to use. Skiplagged is easier to use AND saves money. IF, big IF, United wins, another 20-year-old will come up with a similar website and here we go again.

    • Carl says:

      Airlines are a for-profit business, and they can and should price their product in a profit-maximizing way and provide what customers will pay for. In most cases there is enough competition to limit what they can do. Competition comes in many forms. Driving instead of flying. Flying to a lower cost city and driving from there instead of paying a premium for a flight to an airport with limited service. Airlines with different pricing and service models like Allegiant, Spirit and Frontier. Shuttle and bus services, both for the whole trip or to augment a cheaper city. And among the airlines themselves, premiums for nonstop flights at high demand times, cheaper connecting service or bad flight times. And letting them fill incremental seats with connecting traffic at lower fares while charging a higher fare for non-stops on the whole is good for consumers, and they have the choice of paying more for the non-stop, or perhaps flying a connection to save money.

      While it appears complex, and maybe it is, it still makes economic sense. And after all, you can buy a cold refrigerated coke for $1.59 in the cooler of your grocer, and a warm six pack for $2-3. And for $7 in an NFL stadium

    • CF says:

      Neil S – I don’t think any airlines care if you feel bad for them. They can’t be bothered enough to even really explain why this is the way it is. All they want is for you to obey the rules. It would be nice if they thought travelers important enough that they actually tried to explain things more clearly and accurately.

  6. Carl says:

    I think this topic will blow over quickly enough so as to cause no lasting damage to anyone, including UA’s reputation.

    Airline dorks understand hidden city pricing, and may even occasionally remember to try it. The vast majority of people don’t understand it, won’t want to risk trying it, and it will again become a non issue. The airlines can afford to tolerate a modest volume of leakage due to hidden city ticketing. They cannot afford to have an automated service that makes it high volume. Hence the lawsuit.

    So long as hidden ticketing is kept low key, it will still be a tool in the dork’s toolchest and the airlines won’t come down too hard on anyone unless it becomes abusive. As it is the fact that any future segments are cancelled means you cannot use it other than on 1-ways or the last segment of an itinerary and cannot check bags. Inexpensive computing and storage makes it relatively more viable that airlines can track no-showing, and flag someone who does it more than a few times.

    There’s also the issue for back-to-back ticketing, although that’s far less of an issue nowadays since most routes have 1-way fares, at least domestically. Internationally it’s often cheaper to purchase a round trip than a 1-way, which could be considered a special cast of hidden city ticketing :-)

    Anyway, so long as there isn’t a commercial venture promoting this, I expect the airlines will continue to tolerate low volume use, and the general public will quickly forget.

    • djsk says:

      I think all the publicity is going to make more people try it. I can name 5 friends that had no idea this existed, but now are actively searching, seeing if it “works” for southwest, etc… No one has booked one yet but it’s amazing how fascinating people find this topic.

      • CF says:

        djsk – And this is where it gets dangerous. Those who know how this works understand the limitations and have done it for years. But those who don’t know how it works will be tempted to try it and then get into trouble when they try to check a bag, or they get caught in the act.

    • David D. says:

      @ Carl Actually, I don’t even think it’s legal. It just shows how crappy oversight is in this country when it comes to business practices. Think about credit default swaps. With something like that, how does this practice rate on some prosecutors radar?

      • Nick Barnard says:

        David, Credit default swaps are legal! They’re actually an intelligent tool when used properly, and mimic insurance on money that has been loaned. However they’re mostly used to turn gamble.

        I’m not sure what you are calling illegal, but I’m quite sure the lawyers at the airlines are quite comfortable that their pricing mechanisms and carriage contracts are legal.

  7. Andrew says:

    Cranky, I think the problem that the average consumer has with the airline saying “we could’ve sold that seat to someone who wanted it” is that in their mind, they’ve already paid for the seat. If they buy LAX-IAD-BOS, but only fly LAX-IAD, they’ve still “paid” for IAD-BOS, even if they choose not to use it. Typically when you purchase something as a consumer, it’s then up to the consumer to decide what to do with it.

    • CF says:

      Andrew – Well, this gets into alternate pricing model ideas. I’ve always loved the concert model. You buy a seat and it’s your to do what you please. But that only works if you have nonstop flights. The connecting network suffers mightily in that model. But the way it works today, you’re not really buying a seat on a certain flight. It may feel that way, but it’s really just a promise to get you from point A to point Z. Airlines look silly when they use that “we could’ve sold it to someone else” argument because people see overbooking all the time and know that it’s not the way it works.

  8. Jason Steele says:

    We can of course test United’s theory that the world will end if hidden city ticketing is permitted. Southwest has always permitted it, and I seem to recall fewer (0) bankruptcies there than at United, as well as consistent profitability. While its always tempting to create analogies to other products, the airlines or any other provider of goods and services cannot compel you to utilize the products or services you have purchased, regardless of the terms in their contract of carriage. Consumers can and will always have the choice not to fly all or part of their itinerary they purchased, for any reason. The only leverage they have is your frequent flier account.

    • CF says:

      Jason – Southwest is completely different. You have an airline that has built itself on nonstop demand in mid to large markets. Connecting traffic has grown over the years, but it’s still very different from a hub and spoke model.

  9. FlyVC10 says:

    The airlines can SUCK IT!

  10. David SF eastbay says:

    Since just about every ticket is paid with a credit card, when will the day come when the airlines just charge the passenger for the fare difference from what they paid compared to what they used if it would have been higher. That would stop the hidden city issue.

    • Jason Steele says:

      Yes, but they would have to specify those terms very clearly, otherwise it would be an unauthorized transaction. Likewise, travelers could use an alternate method of payment to circumvent this issue, such as cash or prepaid debit cards, when they intend to use a hidden city itinerary. To make this work, airlines would have to require a security deposit, like hotels and rental cars. Imagine a large hold on your card for travel months in advance, to secure against you not flying the whole trip. That wouldn’t go over too well!

      • Linda Sledehammer says:

        Exactly, and the pain and suffering that will come to all of those passengers when after a few months, the hold is still on there and never goes away.

        • Jehu says:

          I think Steel is saying that putting a large hold on everyone’s card to ensure that they don’t take a “hidden city” discount would be impractical. The hold would have to be on everyone and it could be a large amount for a long time period. Therefore, it isn’t likely to be a remedy that an airline would choose. The outcry would (rightly) be loud.

          • Nick Barnard says:

            Here’s how I expect an intelligent airline (read Delta, Alaska, perhaps the new American) to handle this issue:

            1. Track and monitor the issue. Come up with an estimated number of how much revenue this is costing them.
            2. If (1) is a large enough number, develop a mechanism (baysian-esque scoring?) to determine which customers might be intending to use hidden city booking.
            3a. Contact customers ahead of time with a friendly “Hey we’ve seen that you bought a ticket from AAA to BBB through HHH on flights 523 and 9843. If you’re intending on flying all the way to BBB, great! We’ll be happy to get you there. If you were intending to get off the plane at HHH, please note that this is against our contract of carriage, and if you board flight 523, but not 9843, we may charge you $2,000, which was the difference between the ticket you booked to BBB and the cheapest ticket from AAA to BBB on the day you booked your ticket. If you were intending not to fly to BBB, please call us within two weeks and we’ll be happy to cancel your ticket and refund your ticket fare.”

            3b. Be slightly more devious and change the customers flights so they’re no longer flying through HHH, but they’re still going to BBB. ;-)

            I’m sure they could massage that text more, but this way it its a little more customer friendly, and the airline can say we told YOU so. I’m sure there are all sorts of signals that they could look at (search history, the email being associated with a frequent flier account, but not on this itinerary, etc) The goal here would be to scare off a descent amount of people from actually following through on this, and give them some recourse against the most egregious cases. They could back this up with electronic signatures during checkin process. But this is probably too much work given the dollar figure of leakage that is involved.

            >

            • Jehu says:

              I dunno.

              Airline pricing tries to get each passenger to pay the maximum that they are willing. This is a bit bothersome.

              Suppose a restaurant charged you based not on which entre, not on portion size, but on how hungry they think you are. That would be ridiculous.

              Suppose regional rail trains worked this way. If you’re coming from a stop in “rich” suburbia, prepare to be reamed, if the airlines priced the rides.

              Notice that the lawsuit doesn’t mention (I don’t think it does) throw away round trip tickets. Yet SkipLagged will help you find these too. Reasonable people, including a Supreme Court Justice, think buying a round trip and throwing away the return should be perfectly fine. Yet according to United’s “contract of carry” provisions, it isn’t.

              I suspect United isn’t mentioned the Round-trip-throwaway because it is an even more egregious pricing “ploy” to use United’s term.

              I think United should call off the attack dogs and change their policy right away and get whatever goodwill they can.

              I suspect they are already too late to hire Zaman. I won’t be surprised if he ends up working at Google/ITA Software.

            • Nick Barnard says:

              Your restaurant analogy is flawed.

              A better example would be a restaurant that charges more for people who eat all courses of their meal at the same table.

              You could get the same items cheaper if you had your appetizers at the bar, dinner at a table, and ate desert hanging out by the hostess desk. It’d be even cheaper if you order directly from the kitchen, and take the food out to eat. Yeah, why isn’t takeout food cheaper when buying it from a restaurant? I’m not using their tables!

              This pricing model benefits rich suburbia too! They get more flights more frequently. It also benefits poor rural towns as well, as they get competitors in their market and they have choices of which airline to fly, and those airlines are competing on for passengers going to Orlando and Vegas.

              >

            • Nick Barnard says:

              Oh as for getting people to pay as much as they’re willing: Its a two way street. If people aren’t willing to pay that much the airlines lower their price.

              >

            • Carl says:

              Regional transit systems do try to gouge airport travelers. The SFO BART fare is considerably higher than a similar trip to Millbrae. The NJ Transit fare to the EWR station is far higher than the fare to Elizabeth, which is farther. In Stockholm Arlanda there is a hefty charge to use the airport train station which can be avoided by taking a bus to a nearby suburban station.

            • Adrian in NZ says:

              It’s the same in many cities around the world. Public transport fares to/from the airport have a significant price premium. Also, think about the extra fees that ta is and rental car companies charge for airport pick-up or drop-off.

    • Dale says:

      Just about every ticket is paid with credit card but NOT every ticket. Some people do still pay cash, sometimes even at the last minute. I’ve done that more than once.

    • yyz says:

      The problem with charging a customer for not getting on their connecting flight is how do you prove it was not simply a missed flight. Suppose I get off my flight and have an hour to kill till my connection. I grab a quick bite to eat and then hit the restroom where I end up staying longer than I expected and on top of then I go to the wrong gate area. Once I figure out my flight has left without me I decide it’s easier to just rent a car to finish the trip.

      Should I then be charged extra for missing my plane on top of what I spent on the rental car?

      • Nick Barnard says:

        IMHO, if you miss a flight for whatever reason, you’d check in at an airline desk or if that is closed, you’d call the airline.

        The expectation here would be that you’d be expected to be reaccomadated on a reasonable flight. So basically you’d have to be at the airport after your flight had left.

      • CF says:

        yyz – Seems pretty simple to me. If you bought a ticket to one place and
        then you conveniently miss your flight but then decide not to take a later
        one, then it’s pretty clearly on you. Of course, if you miss a connection
        because the airline is late and decide to drive, then that’s on the
        airline. And they will let you do that, refunding the prorated value of
        the segment you don’t fly.

  11. Trent880 says:

    UA’s knack for being tone deaf and making things worse is really going to shine here, when the reality is all hubbing airlines–I’m surprised DL isn’t front and center here as well–depend on preventing hidden city ticketing, and that it actually benefits far more people than it ‘hurts’. That itself would make a pretty cogent argument in support of certain barriers that allow airlines to match supply and demand, and you might even get some traction with the public. Or you can go the UA route and talk about safety…

    • UA is probably the only one with enough bean counters up top to sue..

      What really surprises me is that Orbitz and United haven’t gone after technological means.. Skiplagged sends customers to us to buy hidden city tickets, so when a customer comes to us via Skiplagged we’re just going to send them to our home page, no ticket search..

      • Jehu says:

        Actually, Orbitz tried, as detailed in the legal Complaint (available here http://skift.com/2015/01/02/the-real-story-behind-orbitz-and-united-suing-the-hidden-cities-startup-guy/ ).

        It’s kind of comical, because the kid used what they characterized as an antiquated technique to defeat Orbitz’s attempt to catch a URL redirection. For the techies – he used a meta tag to cause the page to refresh to the Orbitz web site.

        The kid also punked Orbitz by agreeing to a request not to link to Orbitz, and putting up an error message that indicated he had complied. But, only the folks with an Orbitz internet address (IP address) saw the error. It continued to work fine for the rest of the world.

        United and Orbitz are definitely angry.

        • Nick Barnard says:

          I actually should read the legal complaint.. I got it a few days after it was filed via PACER..

          That being said, I think Orbitz and the airline’s best solution here is self-help.

          If they wanted to they could require that all requests be signed with a private key by the referrer then being able to deny linking to sites that don’t abide by their T&Cs. This means people can still search manually, but it’d push sites like Skiplagged out, since they couldn’t access the data or link to a specific flight.

        • Oliver says:

          punked? I think it is plain stupidity or naïveté to think that you can fool Orbitz or United by showing an error for their IPs only.

          • Jehu says:

            He did fool Orbitz and they admitted it in the Complaint.

            We’ll see whether it is legal to link to another site or not and whether if not, the limitation is due to a prior contractual agreement.

  12. planelawyer says:

    So don’t do it, “for the good of the industry and the flying public?” Really?? That’s the best you’ve got?!?!? On the few times I’ve done it, competitive fares drove the pricing craziness. The airline flies over its hub to compete with the same flight flown nonstop by a competitor (flights OUT of another airline’s hub, for example) or simple price competition (Spirit can cause this). I agree with the comment about “maths”. There are assumptions built into the existing ridiculous model and some have found the key to unlock it. In the end, if a route isn’t profitable, then maybe it shouldn’t be flown? Or maybe the legacies can just tack on another ancillary fee. How’s that fuel surcharge going now that fuel costs have plummeted?

  13. professorsabena (@professorsabena) says:

    Simply put the law of unintended consequences applies here.
    IE this is the result of trying to do something and then something else happens.

    Normally I would side with the airlines as having the right to impose the rules on whatever product they like. But given the REALLY arcane nature of airline pricing – putting in rules that are essentially unenforceable makes a bit of a nonsense of the whole thing.

    As a former travel agent we used to use hidden city and point beyond all the time. It worked far better for International travel than domestic. All those ticket to Bucharest!!!

    I love watching anomalies. They occur ALL the time. The ability of the airlines to police their own product is legendary in its ineffectiveness. Some fare rules in Europe are specifically illegal under European law. Doesn’t stop the airlines from charging them. I have screen captures of some wonderful ones.

    We really should just accept this exists and move on. The amount of money spent tracking down the small amount that it will cost the airlines vs the bad will is a price I am not sure that our friends at UAL really want to pay. I still dont quite understand why Orbitz joined the battle. Orbitz does not have a great track record in lawsuits.

    Anyway – Happy New (Challenge) Year

    • Jehu says:

      As to why Orbitz joined — good question. I suspect United compelled them. Plus, Orbitz was started by a consortium of airlines. The airlines probably still have quite a bit of say in what Orbitz does.

    • CF says:

      professor – I don’t think anyone is really all that concerned about the low level of usage that occurs today. This lawsuit is out there because if it becomes easier for people to take advantage of the process, then it has the potential to be a real problem. So it’s more about looking forward to potential problems than looking back, I think.

      As for Orbitz, my guess is that United decided to get rough with Orbitz. If they think Orbitz is enabling this, then it could in theory open up liability I’d think. So Orbitz wants to be very clear to avoid further legal action down the line. That’s my read at least.

      • Joflyer says:

        Reading the complaint, your assessment makes sense. Orbitz’s claim that Skiplagged is breaking the law by merely linking to their website booking system is insane. Hundreds of websites link to Orbitz without permission. I thought this issue was settled long ago – you can’t stop people linking to your website – that’s the whole point of the Internet.

    • David says:

      Yea, anomalies happen all the time when people are running “schemes”. You’re going to have a hard time convincing anyone they “cost” the airlines money when they paid for the ticket. It’s their seat whether they are in it or not. The airline got it’s money. The fact that the airline could make money on an empty seat (and hence “lost” money), is irrelevant since that seat was already paid for. It was and is not theirs to sell. Good luck convincing that jury.

      Now if this was about stocks, the SEC would be all over this scheme, but it’s the airlines, so really their business practices are not scrutinized to the same level.

      And I suppose the airlines could write it into their contracts, just like they could require you to stand up and do the chicken song like at Hooter’s. Doesn’t make it legal though. You know the saying “you’re not breaking the law until your caught”. Well, until someone sues, the airlines will put whatever they want in their contracts to manipulate pricing against the market, including an arbitration clause. And so the world keeps turning…..

      • Nick Barnard says:

        Oy! David, the SEC allows investment banks and other parties to participate in schemes that are much crazier than any airline pricing mechanism.

        Wall Street is basically a casino where wealthy traders are allowed to see the cards before everyone else.

  14. southbay flier says:

    I’m just waiting for the day that someone uses one of these tickets with a roller board and the plane runs out of room forcing the passenger to check their bag to their final destination at the gate. This person will become screwed if they need to get their bag elsewhere.

    • Nick Barnard says:

      Do all airlines check the bags through to the destination?

      When I was on Alaska last it seemed that if your final destination was fulfilled by the flight with full overhead bins they’d check the bag through to baggage claim there.. Otherwise you had to pick the bag up at the gate.

      >

      • Oliver says:

        United at least gate-checks bags to the final destination. This’s different from the courtesy cart outside regional jets that have such tiny bins that many carry-one don’t fit. Those end up on another cart next to the plane upon arrival… Or sometimes in the jetway.

      • LT_DT says:

        On a recent Delta round trip with a connection through Atlanta, I was forced to check my carry-on at the gate on both ends because I was in group 2 and there was no hope of getting it in an overhead. They checked it all the way through to my destination. I didn’t even think to ask if I could get it back in Atlanta to try my luck carrying on for the second flight.

        On a more recent United Express flight, on a larger regional jet (ERJ-170), there was no “green-tagging” at the gate but bags that were brought on-board after the overheads had filled up were green-tagged for pick-up in the jetway at the conclusion of the flight in Houston. So I guess that it depends on the airline and the aircraft.

  15. Jehu says:

    >Article says, “Meanwhile Skiplagged looks like a hero when, if you read the lawsuit, there are some pretty shady things going on here.”

    I read the lawsuit here
    http://skift.com/2015/01/02/the-real-story-behind-orbitz-and-united-suing-the-hidden-cities-startup-guy/

    and don’t think SkipLagged is doing anything shady. I don’t think anyone would confuse SkippLagged with United or Orbitz, and if that’s the real problem, all SkipLagged would need is a page that say, “Please click “ok” to be transferred to another website that is not affilated with SkipLagged to book”.

    I also read the Orbitz contract that SkipLagged signed and I don’t think Orbitz can get them on confidentiality since there is an exception for publicly available information. I believe that any coder worth his salt could work out Orbitz’s URL parameters with just publicly available information.

    So, would you please elaborate on what specific things you think they are doing that are “shady”?

    • Jehu says:

      p.s. I applaud Crankyflier for its ethics page.

    • CF says:

      Jehu – You don’t think the lying is shady? This is a guy who acts like he’s working with the companies but then goes behind their backs to do the exact opposite.

      With United, he was told to pull down their flights so he just puts “censored” over the airline so people can still see what it is. Then he leaves the booking link up so the impact is slim.

      He also tells Orbitz that he pulled them down when in fact all he did was block Orbitz from seeing results so that they couldn’t tell he was actually letting everyone else still do it.

      That’s shady.

      • Jehu says:

        I see what you mean by shady. I thought we were talking illegal.

        I ignored what United and Orbitz say they told him and what the Complaint says he told them in deciding.

        Here’s why.
        1. I don’t think what SkipLagged does in searching for flights (round-trip throw-aways, hidden-city) is illegal. He’s not selling the ticket. He’s not using the ticket.
        2. I don’t think that linking to another site is illegal. Most of the internet and google would be illegal.
        3. I don’t think that he tried to confuse trademarks. If that’s a problem, it could easily be remedied by putting up a message before tranferring to another site.
        4. I don’t think United’s beef is REALLY with any of these issues. There issue is the one that is difficult to explain — if SkipLagged exists, it might kill United’s business model.
        5. I can see a scenario where he heard “You can’t identify this flight as United’s, we ‘own’ that.” and he said, “ok, I won’t”. True to his word, he removed that info, but added the pop-up. I think that’s a bit funny, actually.
        6. On the linking to Orbitz and the error message, I’d say he punked them. But, I don’t think it is a crime to link to another site.
        7. He undoubtedly felt pressure to say “yes” when talking with high power lawyers from United and Orbitz.

        I think the important question is, is it legal to have a site that returns search results that violate a carriers “contract for carriage”? Even if SkipLagged gets pushed out of business, others may pop up that don’t make whatever trademark and linking mistakes are alleged. There will be pressure on United to change their policy.

        • CF says:

          I’ll let the courts decide what’s legal and what’s not, but in general I
          don’t think it should be illegal to show results that may violate a
          contract of carriage. What the airlines should do is crack down on people
          who book hidden city tickets. You get those people and then those people
          probably have a better case to go after Skiplagged in court. My guess is
          Skiplagged is hardly giving all the proper warnings about what this can
          mean, so if someone is harmed, then they might be able to go after
          Skiplagged. Problem solved for the airlines.

  16. Felix says:

    “Southwest has always permitted it”
    While there are no cases I know of recently, Southwest no longer states anywhere in it contract of carriage or its customer commitment statement that hidden city ticketing is allowed.

    • Jehu says:

      If Southwest doesn’t prohibit it in their Contract of Carriage then it is not prohibited!

    • Grichard says:

      Does Southwest’s pricing structure even give the opportunity for hidden-city ticketing?

      • CF says:

        Grichard – There are some opportunities out there for sure. The problem is you have to be connecting (so none of the same plane deals). But there probably aren’t as many opportunities on Southwest as there are on others. They likely looked at it, figured the impact was slim, and decided they’d just leave it out of the contract of carriage.

        • Tatum says:

          Southwest basically says “more power to you” if you find a hidden city ticket, and just make sure you don’t check a bag. Like others have said, it is quite a bit harder finding a connecting city that you want, though.

        • Dale says:

          Or perhaps a one stop same plane flight say from City A stopping in City B and continuing to City C where the passenger gets a ticket for City C and gets off at City B, carry on bags only, no checked bags.

  17. VectorsToTheILS says:

    What hasn’t been said in this discussion is that legacy hub-and-spoke airlines use their pricing power at their hubs to subsidize the cost of service to the less-traveled “spoke” cities.

    If the airlines abandoned the price model where non-stops to hubs were more expensive than a ticket through a hub, there would be no need to have Rule 6, Section J, Part 1 in United’s terms of carriage as rational, money-motivated individuals would have no motivation to purchase such a ticket.

    Here’s a real-life example: A certain carrier operates a hub at Chicago Midway Airport. If you want to fly from LAX to Midway, you have no monetary incentive to purchase a ticket from LAX to Cleveland rather than the non-stop from LAX to Midway because the more flights you travel on, the more this carrier charges. Instead, you buy only what you truly need (the ticket from LAX to Midway) and you don’t throw their passenger demand model out of whack. The airline is happy; customers are happy.

    Go figure.

    • Nick Barnard says:

      Yeah, but that airline often requires that you fly on milk runs across the country.

      >

  18. Meat Head says:

    Let say I ran a gym. The week after New Years, I would run the United Special. If you go the the gym at least 52 days during the year, it will cost you $200 for the year. Should you go less than 52 times for the year, it would cost you $1,200 for the year. Since I know that a lot of people that don’t go to the gym make unrealistic new years promises, I bet as a gym owner I would come out pretty good. I would also bet that a court would strike this down on the basis of deceptive pricing or unfair trade practices, but then again I wouldn’t have the lobbyists that United has.

  19. Jeffery says:

    While airlines certainly dont like this, its not passengers they are targeting, its a website that offers an easy way to create a flight that goes against the legally enforceable contract of carriage. Its not worth the time to go after individual passengers who rarely or occasionally drop legs, but it would be worthwhile to prevent a 3rd party for making access to purchasing these tickets.

  20. Jehu says:

    Hidden City discounts are getting lots of attention but SkipLagged also finds cases where it is cheaper to buy a round trip ticket and throw away the return than it is to buy a one-way ticket.

    These round-trip throwaways are also prohibited by United’s contracts of carriage.

    I suspect United isn’t highlighting these because, while the traveling public might, might buy the arguments for hidden tickets, its is extremely hard to see how a round trip throw-away is a problem.

    In my opinion, once people see how over-reaching these contracts of carriage are, they will have even less sympathy for United.

    Can we look forward to an article, “Why Airlines need Round-Trip Throwaways to be Possible But Can’t Let You Take Advantage of It”? Thoughts?

    • CF says:

      Jehu – Well the throwaway returns are really a product of airlines trying
      to figure out how to lower fares. When fares were deregulated, the
      airlines wanted to keep as much of that revenue that they already had but
      they needed to find ways to fill additional seats with lower fares. So
      they put fences up that would prevent the business travelers buying full
      fares from going lower. That’s why we have things like roundtrip
      requirements, advance purchase, and minimum stay rules. I always thought
      the roundtrip requirement was the weakest of the rest. Plenty of business
      travelers fly roundtrip.

  21. Stacey says:

    I really enjoyed reading this and the comments were great too! You have a really engaged audience Cranky!

  22. Thrasherj says:

    Something that comes to mind in today’s complicated need to secure airports. Doesn’t this “hidden city” travel enable a would be terrorist to check a bag to the final destination and then get off the flight safely in another city before the mayhem happens?

    I originally thought that this might be a great idea but now I wonder. It sounds like the travelers who do not take advantage of this will be paying for the ones who do.

    • VectorsToTheILS says:

      Technically, the flight to the hidden city could not depart the gate with the non-boarded passenger’s bag on board. Because the airline knows who boarded the flight and whether or not that person checked bag, they are obligated to locate that person’s bag and remove it from the plane if was already loaded.

      • Jehu says:

        Anyone know if they actually do attempt to remove the AWOL passengers baggage?

        Of course, for hidden city discounters, they don’t have any lugguage checked anyway and the airline should be able to pull that up in the computer easily.

        • Nick Barnard says:

          AFAIK airlines no longer do bag matching.

          They used to right after September 11th’ before bomb scanning machines were required for luggage. (Some airports didn’t have room for it, so airports like Dayton International had to put it in the checkin lobby.. It was classy.

          Airlines don’t want to do bag matching because it delays departures.

        • CF says:

          I believe Nick is right that positive matching is no longer required.
          That’s because every bag goes through screening now (unlike right after Sep
          11).

    • Jehu says:

      >>Thraherj said, ” Doesn’t this “hidden city” travel enable a would be terrorist to check a bag to the final destination and then get off the flight safely in another city before the mayhem happens?”

      No. This is not possible. United’s Contract of Carry clearly prohibits the would-be terrorist from doing any such thing. :-)

  23. 75 Guy says:

    Most of the small follow on cities served by Hidden Ticket Pricing are supported by the Department of Transportation’s Essential Air Service program. http://www.dot.gov/policy/aviation-policy/small-community-rural-air-service/essential-air-service This is essentially a per passenger subsidy paid to the airline on a montly basis out of your tax dollars to keep the airlines flying to cities that don’t financially make sense. Congress authorizes it to keep their consituants happy, but we pay for it. So when a hidden ticket price is bought and the hub to small city segment is not used, the airline misses out not on the money the passenger spent, but the revenue from the US Government. The airline would never get that revenue from the passenger as they already sold the ticket at a reduced price counting on the subsidy. But they do loose the per passenger subsidy at the end of the month when they report the load. If you want to end the hiddent ticket process, end the subsidy. The airlines will never tell you this, they would rather blame the public.

    • Jehu says:

      Wow! 75 Guy, that is the best comment I have seen on this subject!

      VERY interesting.

      • Jehu says:

        On second thought, I don’t think most hidden cities on United routes are EAS subsidized ones.

        The subsidized cities are really tiny.

        But the info you provided is interesting nonetheless.

    • Jehu says:

      The small city subsidy doesn’t explain another “ploy” prohibited by United’s Contract of Carriage.

      Aside from greed, is there any explanation for prohibiting round trip throw-away tickets?

    • CF says:

      75Guy – The airlines will never tell you this, because it’s not true.
      Airlines bid for EAS subsidies and they are granted for a fixed annual rate
      assuming the flights are operated as promised. There is nothing in there
      about passenger counts at all. (If you scroll down in the link you sent,
      you’ll see the invoicing procedure explains how each month the airlines
      submit the number of flights operated, not the number of passengers
      carriers.)

  24. goldenage mainlinesurvivor brat says:

    The hub was not born after or as a result of deregulation. Hubs existed long before 1977.

    The key outcome of 1977 was “freedom” from regulation. The CAB previously restricted and regulated airfares and routes. Airlines were suddenly allowed to operate at a loss whenever they so chose. Airlines also gained the freedom to lie at will to their customers, without any fear of retribution. Human behavior plus Management greed resulted in a slippery slope that over the next 15 years did away with Braniff, Pan Am, TWA and Eastern. The gems, like Western and Continental, were consumed. All of the regionals were cannibalized. But the greed and the lies continued unabated, even as competition disappeared.

    However the operational state of the industry was still “normal” in eyes of even the most expert consumer. The legacies retained cannibalized regional hubs in Nashville, Pittsburgh, Memphis, St. Louis, Cincinnati, and also maintained higher frequencies between non-hub cities. And on occasion, did so profitably.

    But then Southwest came on the scene. Long before achieving 1000 flights per day (LUV currently operates more than 3000 per day) the mainline legacies encountered a competitor with CASM that was 30% less than theirs, and as Southwest added city pairs, the legacies were forced to discriminate against certain customers based on geographical location, in order to retain market share, resulting in the insanity we have today where they sell 80% of their product below their cost in order to “compete”.

    The hub did not create HCT. Southwest did.

    • Jehu says:

      Fascinating history, GoldenAge Mainline Survivor Brat!

      Based on that, if I were Southwest, I’d think about funding sites like SkipLagged.com.

      Acronyms for folks like me that had to decode them:

      CAB = Civil Aeronautics Board
      CASM = Cost per Available Seat Mile
      HCT = Hidden City Ticketing

      Any one know when Hidden City Ticketing Prohibitions first appeared in airline (especially United’s) Contract of Carriage? If post Southwest, that would be interesting.

    • Nick Barnard says:

      Oh I think thats giving Southwest far too much credit.

      Sure, this all happened while Southwest was growing, but the 1980s and 1990s were a rollercoaster for the airline business. Lots of things changed.

      Southwest really wasn’t a force to be reckoned with in parts of the country until the later 1990s.

  25. goldenage mainlinesurvivor brat says:

    Nick,

    You don’t know me, and an anonymous voice on the internet is only that. All I can say is, I watched it happen “from the inside”. I’ve been watching the whole thing very closely, since 1972. The inverse distortion of spacetime and geography in airline pricing models was a direct result of LUV’s massive CASM advantage when the legacies began to lose “share” to LUV on certain city pairs circa 1988.

    • Nick Barnard says:

      What you’ve said contradicts much more recognizable published histories. From what I recall in those histories these fare rules started around the early 1980s as a result of attempting to put the “charter leisure flight” passengers and the business passengers on the same plane. Yes, Southwest was around, and AA, a major innovator in this area, was aware of them. but they were hardly the huge operation they are today. There were many other low fare operations that also forced airlines to adopt these pricing strategies. Air Florida, People Express, Valujet to name a few..

  26. Samuel Augustus Jennings says:

    A train ticket from NYP to WAS cost a whole lot more than the fare from NYP to MIA.

    • Jehu says:

      Are you sure? I’m seeing on Amtrak:

      New York Penn to Washington DC is $86
      New York Penn to Miami is $144

      But, if so, we’ll need SkipLagged for Amtrak!

      • Nick Barnard says:

        Was. As in historically that was the case.

        Sent from my computer that moonlights as a phone. Please forgive any misspellings or terseness.

        >

  27. Retired from Something says:

    I confess! I do it. In your example, the cost difference is roughly 3.5x. For the hidden city link that I use, (not revealed!!) it is a bit over 4x. For me, that is THREE extra trips for the cost of one, to visit the people that I want to see. Without this option, I could not afford to go. I guess my routing is also fortunate; I live near a major hub from which THREE legacy carriers serve my route. If/when I get ‘busted,’ I change carriers. Do I feel guilty or plan to change my ways? Hell No! The legacy carriers have been screwing me (and their own employees) for more decades than I have left and I finally have a way to get from A to B at a reasonable cost. One way tickets and no checked bags, especially with fees attached and not an issue for me. Heavens, using this option to visit city B frequently makes it reasonable to stash a modest suitcase of essentials in city B, needing to tote only a very small carry-on. In short, To Hell With Them!

  28. David says:

    @CF:

    “Hidden City Ticketing” is a lie; just a devious misrepresentation of what is really happening: “Hidden Premium Ticketing”.

    In order to believe in your logic (which you agree is “impossible”), you have to believe that airlines have the right to repossess property you bought from them, and without reimbursing you, resell it for additional money on top of the money they took from you

    In other words, using your example, if I bought a ticket from LA to Boston, then I own that seat on that flight, including all connections. Whether or not I’m in that seat is irrelevant; I already purchased that seat. If I get off at Dulles, it should make no difference to the airline; again, whether or not they could profit from an empty seat is irrelevant because it is “my” empty seat; I bought and paid for it. It makes no difference whether I’m sitting in it, it’s empty, or I decided to fly my stuffed Teddy Bear.

    If you want to look at the “other side”, if the airline sells my empty seat, they are selling my property. Whether or not they “could have” profited from that seat is irrelevant; they already sold the seat to me. It was never theirs to sell. Therefore, it is impossible for them to “lose” money because they were never entitled to make the money in the first place.

    Airlines are just like oil companies: they love the market when the price is high and they benefit from it; but when goes against them they do everything they can to manipulate the price outside of the market. It should be illegal and it is in the stock market. But that’s about money and obvious; there’s really nobody overseeing how airlines market their products, at least not to the same degree.

    In the end, it is simply arbitrage. As long as the arbitrage is legally accomplished, it should be illegal to manipulate the market to neutralize the arbitrage. It is, after all, a mechanism that increases market efficiency: first it provides profit incentive for those who are willing to employ the arbitrage, and second, it forces those in the market to become more efficient (and honest) in their pricing.

    I understand that if you base your price on distance, you would get perverse pricing; a one stop flight to a final destination city would cost more than a non-stop to the same destination for the same airline. However, look at the cost; in fact, it probably DOES cost more for the 1 stop flight than the nonstop. If you price your one stop against a competitors nonstop then you are almost certainly pricing under cost. The TRUE solution would be to fly another nonstop to that destination if you want to compete. Because in price matching the nonstop you are truly NOT competing in a market; you are just shifting the cost to someone else while trying to undermine a competitors market. That is manipulation of the market and really just an anti-competitive practice.

    • Nick Barnard says:

      If airlines did price by cost, like they did back in the CAB days airline fares would be quite expensive.

      Airline fares like many products rely on collective pooling of a companies cost divided potentially unequally and billed to a large number of consumers. Many products follow this: Credit Cards, Insurance of all kinds, “Free Checking”, restaurant pricing. There are many industries with high fixed costs that offer discounts to certain customers to better cover revenues.

    • wizbang_fl says:

      They airlines are taking cost into consideration but for example LAX CLT MCO for $250 but LAX CLT for $480 is often because MCO is providing some form of tax incentive for the airline to deliver x number of passengers within y period of time. So the airline makes their money and the traveler going to MCO gets a cheaper fare. BUT, if the traveler books to MCO but stops travel at CLT then the airline didn’t deliver the passenger so the traveler isn’t counted in the MCO eligibility numbers for the tax break. If it happens too much then the airline loses the tax break and the route is a loss. It is also why airlines are now going after people who throw away part of the ticket. Thanks to airline systems sharing traveler data if they see you booked on 2 airlines from the same city on the same date, don’t be surprised if you get a notice you flight was cancelled as the itinerary is “unflyable” on the morning of travel, or they just bill you for the correct fare difference + penalty. As the hidden ticket practice is a violation of the “airline tariff’s” also called “contract of carriage”. Prior to deregulation there was no such thing as hidden city ticketing, so there was no issue as all the fares were set.

  29. Joflyer says:

    @Nick. To respond to you (and an earlier commenter). Your point is excellent and I think it sums up why passengers (of more modest means) find the airline ticketing system so distasteful.

    I’m limiting my remarks to economy seats.

    We view flights as commodities, there are certain costs for every step of the way and we expect to pay our fair share.

    What happens, instead, is that the airline has turned the ticketing process into a street-game of three-card monte. They price tickets on the idea “how much can we squeeze from the customer?” and not, how do we generate a profit on each seat? It perverts the system. It means I’ve been on planes that have dozens of empty seats because the airline would rather fly empty than lower the price of that ticket.

    That doesn’t make sense to regular passengers who think, “Uh, wouldn’t they rather make $100 on that seat than fly empty?”

    You cited the Insurance Industry, Restaurants and others where a similar situation plays out — except one *critical* detail – all of those industries offer *different* products for those price differences. Restaurants don’t raise the price of steak because the 3 customers before you ordered steak and demand has gone up and then lower it the next hour because orders dropped off. Even with Insurance, you know what factors are going to effect your rates and you know that the rate will be consistent whether you call tomorrow or next week.

    A better industry example: Used Car Salesmen. They’re going to milk you for every penny they can – they just use computers instead of smiles and smooth talk.

    • Nick Barnard says:

      Well airlines would love to make $100 on that seat, but only if they can sell it quite a bit farther in advance. This is the way they try to filter out people who will pay more.

      If you’ve got to travel in the next two weeks, you’re going to pay more, because they’ve been not selling that seat for the past 300 days, because they’ve carefully kept the prices high enough to keep some of those seats open for you.

      But to restaurants. They often ofter the same product at different prices at different times. Happy Hour? There resturants that do promotions on certain days of the week. (When I was a kid Ground Round used to basically make kids meals free because they paid a penny per pound of their their weight. (e.g. Your child is 84 pounds, you pay $0.84 for their meal. A Northwest chain has free pie with your meal on Wednesday, discounting the pie.) In all these cases the resturant is trying to attract people to specific nights by offering lower prices.)

      But here is the crazy thing about the guy paying $800 while the person next to him only paid $200. They need each other! That guy who paid $800 wants lots of frequency, but the airline needs butts in seats to make that work. So they sell lots of those $200 tickets. But if you filled a plane with only $200 tickets, it wouldn’t make enough money to fly, so a few of those $800 tickets make the flight profitable enough for the whole thing to work out. If they tried to make each and every seat profitable, it’d cost more than those passengers who only paid $200 could afford.

  30. Tree guy says:

    Here is the bit that is still puzzling me. On the example above, somebody in the airlines pricing section is happy to take a seat on LA to Dulles out of circulation for less than 200 bucks as part of the connecting flight offering. So why not offer some fares, albeit with heavy restrictions, on that flight for that price point. If its a small number and a heavily restricted fare say no check in luggage no changes without heavy extra charge, it won’t effect the high price point business customers.

    • CF says:

      Tree guy – It wouldn’t impact the high dollar business traveler if there
      are heavy restrictions, but it would still provide opportunities for the
      leisure traveler to buy down. There are plenty of people paying, say, $500
      for that ticket who would be able to buy the $200 ticket even with heavy
      restrictions. So that’s the rationale that’s used.

  31. Andy says:

    I just re-read this article, and a couple of thoughts occurred to me:

    1. It seems to me that the only surefire way for airlines to put a stop to hidden city ticketing would be to somehow restrict passengers from leaving any airport that isn’t the final destination on their respective itineraries – perhaps, with collaboration with airports, they could consider issuing passengers reaching their final destination an “airport exit pass.” While this may sound like a wild idea, I can think of at least a couple of subway systems that do that (you purchase a ticket for A –> B –> C; the ticket will only “unlock” the turnstile in station C but not station B).

    2. I am wondering if you have access to airport passenger volume data that disaggregates in-transit passengers from those arriving at their final destinations. Just off the top of my head, I can’t imagine hidden city ticketing to have *that* much of an impact on airlines’ bottom line. From a pragmatic standpoint, you can really only pull off hidden city ticketing if your intended destination is a hub airport – and there are only a handful of them in the US.

    • CF says:

      Andy – Good thoughts here.
      1) That would certainly be one way to do it, though I think airports and
      airlines would hesitate to bother. That leads to number 2…
      2) I don’t have any data on that, but I think you’re right. Now to be
      fair, you have hubs in the biggest cities in the US so the number of people
      coming from anywhere and going to those hubs is tremendous. But there
      can’t be that many people who actually take advantage of this. That’s why
      I think United is standing up to this now. It sees how it could become a
      problem if the internet enables people to take advantage of this easily.

    • Jehu says:

      Andy,
      The subway exit check is an interesting idea.

      I think it might be easier for airlines to do this economically. That is, when you buy a ticket that has an intermediate city, the charged price is the larger of the A to B and A to B to C fare. Then, if you go to C, you get a rebate bringing the price back down.

      On point two, I think that hidden city tickets could destroy the major airlines pricing model. This is why United is going after a 22 (23 now?) year old kid. As an aside, I think what they kids site does is legal. The only catch is that in his particular case, he might have signed a contract with Orbitz that could get him in trouble. In my opinion, if it is a question of law, he has a very good chance of winning, but, if it is a question of money (to pay lawyers), United has the advantage.

      Put another way, if (when?) another site doing the same think springs up, if the person doesn’t sign a contract with Orbitz, United will have a very difficult time killing the site. I think they want to try to score a win now and make people think that the web site is not legal.

      All that said, this case brings out in the open many things that United and the majors would just rather not have be common knowledge. Sure, many around the business know about hidden cities, etc. already. But, now, say United has to do a turnstile exit check, or a rebate for an A-B-C ticket? United might have to do that, but it won’t play well with the public.

      Who wins here? I think Southwest and the other point-to-point players do.

      • Nick Barnard says:

        Jehu,

        I’d be amazed if airlines tried the charge for A to B, then rebate if you go onto C.. People already think airline pricing is complicated enough, that would be even more complicated.

        IMHO, the best way forward here is for Orbitz, United, et al to properly deploy technological means to limit who is allowed to link. (Sure anyone could link, but it is within the realm of possibility to sign any outgoing link so you can hold your next 22 year old kid liable to the contract for their links, and you can also prevent others from doing this.)

        As I think I’ve said before, if this becomes a problem, I’d like airlines to start scoring the possibility of customers doing hidden city ticketing, and informing them in advance and offering them the ability to cancel without charge, or notifying them of what the charge will be if they don’t complete their itinerary. (There’d of course be an allowance made for exceptions, like the instance where a friend of mine got hit by one of the golf carts at IAH and was in the hospital for a few weeks (and she sued Continental.), or a flight gets canceled and you decide to rent a car and drive instead of wait around, etc.)

        The goal of notifying customers in this way is taking away the “I didn’t know” excuse.

        • Jehu says:

          Your technological solution (signing links) is interesting. It might be difficult to pull off because of the affiliates that Orbitz already has. As far as I can tell, to be an affiliate, you get some boilerplate HTML. Add that to your site and wham, you’re in business.

          If you add the signing, it’s a bit tricky to keep that whole model going.

          But, suppose that United can prevent direct links? If it is legal to run a search site, then it will still be easy to find a hidden city discount. Booking it is just a matter of punching in the search info in a booking site like Orbitz.

          United is in the unenviable position that they might have to play rough (sue, maybe) their customers to stop it. Lexmark tried to sue Static Control Components out of existence ( http://en.wikipedia.org/wiki/Lexmark_International,_Inc._v._Static_Control_Components,_Inc. ) but it didn’t work. Lexmark would have had to sue their own customers.

  32. Uhg says:

    How is it unfair to the airline to pay them exactly what they’re asking for a ticket that they are perfectly willing to sell? Anyone who defends the airline policies against this practice either don’t really understand what’s going on, or are shills for the airlines.

    It upsets the algorithms? Really? Then produce better algorithms. Run a better business. This is just another example of disruption of an old, outdated business model that is finally being exposed on a grand scale.

    This is really no different than record companies complaining years ago about iTunes permitting people to buy single songs that technically weren’t “singles”. Oh no! Now we can’t force people to buy all the crappy filler we stuff onto records. Instead they’ll only buy the songs they like at a fair price.

    In fact, it’s worse than that because what they’re really saying is that they should be allowed to sell the same seat twice and be paid for it twice. In what other business would a position like that be taken seriously by anyone? The whole argument is nonsense. It’s a blatant effort to rip people off disguised as economic theory.

    Competition and innovation are a bitch. If I’ve bought a seat on a plane and paid you exactly what you were asking for it, you have no right to complain at all if I use all of it, part of it, or none of it. You got paid for the full ticket. What I choose to do with it is my business. If you wanted to make more money off of it, then you should have charged more for it. Can’t? Because other airlines would then be cheaper? Go back and read the first sentence of this paragraph.

    They don’t like that, so they try to contract around it by including a bunch of crap in their contract terms. But that really isn’t a solution since they can’t really enforce those terms and because they could never prove any real damages even if they tried to. In fact, by not flying, I save them money on fuel and soda and peanuts. They’re making more than they otherwise would have had I actually flown. So how are they harmed, exactly? Both parties got exactly what they contracted for. They got paid for a seat, and I got a right to use a seat.

    Going to war with their customers is a terrible business strategy and will never work. All it does is publicize the very thing they wish people didn’t know about.

  33. David says:

    I suppose the airlines could stop the practice by not allowing carry-on luggage. In some ways I would like that. It would speed up the embarking and disembarking process tremendously.

  34. Mia Rahmanim says:

    Does hidden city ticketing work with European airlines? Does Air Berlin allow hidden city ticketing without the risk of flight cancellation of round trip tickets (if I miss the second leg on the way to Europe)?

  35. TK says:

    I still don’t get it. Why should I care if the dude who wanted to actually connect got outpriced by me? I mean, he’s way down on my charity list.

    On the rest of it, I get what’s going on, but then It’s not my problem how an airline is competitive in a market it doesn’t fly direct to.

    It’s economics 101. The most efficient transporter to the place that people want to go to the most, will command most of the revenue. Why should I care about anybody else making money, either going inefficiently some place, or going some place nobody wants to go to.

  36. Jehu says:

    Well, four years later and this thread came alive again.
    Probably because Luftansa suing a customer is in the news:

    https://liveandletsfly.boardingarea.com/2019/02/12/lufthansa-hidden-city-ticketing-lawsuit/

  37. wizbang_fl says:

    The reason, in most cases for the lower fare is due to tax incentives provided to airlines for delivering passengers to “their city” often the tax break isn’t in the cost of the ticket because it’s not a direct operating cost, but an indirect cost which may have been paid by the city in exchange for having x number of passengers flown to city y. As a result the airline needs to meet the x number during the period of time or else they lose the tax break. Therein is the rub, if a passenger tries to use hidden city ticketing they aren’t counted as being delivered to the destination city that qualifies the airline as a “delivered passenger” Worse it may have blocked who would have used the fare as intended because the flight could have been “sold out” by the hidden city traveler. I have seen airlines sue travelers who perform hidden city ticketing or bill their credit card for the proper fare as booking a hidden city ticket is considered a violation of the airline tariff of the fare they booked. Yes, if there is a really cheap fare that has a hidden city there will be a rule that says the entire ticket must be used in it’s entirety or the traveler will be charged the difference in fare + penalty fee if they try to violate the tariff. Yes the airline can see if you are traveling another airline from the hidden city to a different destination. In some cases they just cancel your entire itinerary on the day of intended travel as “unflyable” Thereby leaving the traveler trying to violate the tariff holding the bag when they try to checkin at the airport. OOPS.

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