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.
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.
