Airlines and the internetPhantom flights

The economics of air ticketing can produce some peculiarities

THERE are few better ways to draw attention to something than trying to have information about it taken down from the internet. Techdirt, a blog, dubbed this the “Streisand effect”, for Barbra Streisand, a singer whose efforts to get a picture of her home removed encouraged 420,000 people to view it. If Orbitz, an online travel agent, and United Airlines continue their lawsuit against a college graduate whose website helps flyers find cheap fares, the phenomenon may need to be renamed.

Skiplagged, founded by 22-year-old Aktarer Zaman, hunts for “hidden-city tickets”, cheap fares that result from a quirk in the economics of airlines’ hub-and-spoke system, in which passengers often have to take connecting flights via a carrier’s hub airports. In America’s aviation market, competition is brutal. Since the costs of operating flights are mostly fixed (plane, fuel and crew), airlines must try to fill every seat, at whatever price the market will bear. However, this sometimes leads them to charge less for both legs of a connecting itinerary than for the first leg alone.

To understand how this peculiar situation can come about, suppose you wanted to get from Atlanta to Cincinnati on February 6th. Delta is the only airline that flies direct between these cities, and this week the lowest one-way fare it was offering for that date was $251. However, Delta was also offering flights from Atlanta to Dallas with a stop in Cincinnati for just $197. Why? Because two other airlines also fly direct from Atlanta to Dallas, so price competition on that route is especially fierce. However, there is little to stop those wanting to go from Atlanta to Cincinnati from reserving an Atlanta-Cincinnati-Dallas trip for $197 and simply ending their journey at the “hidden city” in the middle of their booking, saving $54.

Tools that expose price discrepancies usually improve price competition, which in general is good for overall economic well-being. But hidden-city ticketing is economically harmful. The first leg of the itinerary simply transfers wealth from the airline to the passenger; but the second leg creates a “deadweight loss”: an empty seat that hurts both the airline (which loses the revenue it could have got by selling the seat separately) and other passengers (who might want to buy the seat but cannot). If everyone did this, airlines would surely have to raise prices on connecting itineraries, leaving consumers worse off.

The hidden-city caper should not be confused with another ruse, “fuel-dumping”—in which travellers add extra flights to their itineraries that they do not intend to take, to trick reservation systems into forgetting to add fuel surcharges. Like that tactic, hidden-city ticketing still exists only because it is rarely used. It is inconvenient to make use of it: passengers cannot check in any luggage, since this would be put onto the second flight that they will not be taking. It is sometimes necessary for them to buy separate one-way fares, since if they fail to turn up for any part of a round-trip itinerary, the rest will be cancelled. Airlines can also void the frequent-flyer miles of travellers who use the ruse.

Furthermore, until recently the trick was little-known. Skiplagged changed this by making hidden-city fares easy to find. It is unclear if the legal case United and Orbitz are bringing against Skiplagged would prosper if they persevere with it. And anyway, passengers can do the trick for themselves using Google’s air-fare tool, Matrix. Pursuing the lawsuit will only encourage more people to give it a try.

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