4 ms·

It seems like they use the higher fares to the middle destination to compensate for the higher costs per person of the less popular leg. It's all a complicated

It seems like they use the higher fares to the middle destination to compensate for the higher costs per person of the less popular leg. It's all a complicated algorithm but they have to provide reasonably reliable flights to all of the destinations that they serve in case someone gets bumped. (or they'll have to pay out huge fines to each passenger.)

apendleton 12y ago
I think this relies on the arguably-faulty assumption that ticket prices are based on airlines' costs in delivering the service. Airlines' costs probably set the floor for ticket prices most (but not all) of the time, but don't have much to do with the typical prices. This obvious when you look at the cost of holiday travel: planes don't become twice as expensive to fly because it's Christmas. What actual determines ticket price is mainly the supply and demand around trips between a pair of destinations (like with any other market). Lots of people want to move between DC and New York, and lots of them are business people who can afford to pay a lot, so the market can support a high price for this city pair. This isn't true of, say, DC and Yonkers. What's key, also, is that the layover cities (setting aside people doing the "hidden city" thing) are largely an implementation detail; if you're going from DC to Yonkers, you're comparing the flights that go through New York to flights that go through Philly directly on price (assuming about equal convenience), and you're going to pick the cheapest one. This means market forces are going to drive these prices to be similar, even if the DC->Philly market is radically different from the DC->NYC market. The consequence is weird, unintuitive situations where a flight to the intermediate city can be more expensive than one to the final destination, if market forces are such that the market can typically support a higher price for flights to that intermediate city than they can to the ultimate destination city. Hidden city travelers take advantage of the cost disparity between the markets -- it's a sort of arbitrage.
- baddox 12y ago
  In simpler terms, it's textbook price discrimination. For any given route, there are potential customers willing to pay different prices for that route. If the airline offers the maximum price to everyone they lose lots of sales. If they offer the lowest price to everyone, they lose potential revenue from all those people who would have paid more. http://en.m.wikipedia.org/wiki/Price_discrimination http://en.m.wikipedia.org/wiki/Price_discrimination

apendleton 12y ago

I think this relies on the arguably-faulty assumption that ticket prices are based on airlines' costs in delivering the service. Airlines' costs probably set the floor for ticket prices most (but not all) of the time, but don't have much to do with the typical prices. This obvious when you look at the cost of holiday travel: planes don't become twice as expensive to fly because it's Christmas. What actual determines ticket price is mainly the supply and demand around trips between a pair of destinations (like with any other market). Lots of people want to move between DC and New York, and lots of them are business people who can afford to pay a lot, so the market can support a high price for this city pair. This isn't true of, say, DC and Yonkers. What's key, also, is that the layover cities (setting aside people doing the "hidden city" thing) are largely an implementation detail; if you're going from DC to Yonkers, you're comparing the flights that go through New York to flights that go through Philly directly on price (assuming about equal convenience), and you're going to pick the cheapest one. This means market forces are going to drive these prices to be similar, even if the DC->Philly market is radically different from the DC->NYC market. The consequence is weird, unintuitive situations where a flight to the intermediate city can be more expensive than one to the final destination, if market forces are such that the market can typically support a higher price for flights to that intermediate city than they can to the ultimate destination city. Hidden city travelers take advantage of the cost disparity between the markets -- it's a sort of arbitrage.

baddox 12y ago
In simpler terms, it's textbook price discrimination. For any given route, there are potential customers willing to pay different prices for that route. If the airline offers the maximum price to everyone they lose lots of sales. If they offer the lowest price to everyone, they lose potential revenue from all those people who would have paid more. http://en.m.wikipedia.org/wiki/Price_discrimination http://en.m.wikipedia.org/wiki/Price_discrimination