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From a recent MarketWatch article, This airline sued a passenger for skipping his flight — why we should all take note, George Hobica claims that

“Hidden city cheaters make airfares more expensive for everyone who plays by the rules,”

"Skip-lagging" or hidden city ticketing is a technique to save money by booking a flight you have no intention of taking. For example, if you want to fly from Paris to Hong Kong it may be cheaper to buy a ticket for Paris to Beijing that has a stop-over in Hong Kong, and then simply not take the second flight from Hong Kong to Beijing.

Does the practice of skip-lagging (getting off a flight at a layover location) drive costs up for flights overall?

Oddthinking
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  • By my reading, the quoted claim doesn't state that "skip-lagging drives up costs for flights" but rather "Hidden city cheaters make airfares more expensive". I find it reasonable that an airline would charge more in some situations even if the costs are unchanged (though this might just be different understanding of the phrase "costs for flights" between us). – Kamil Drakari Feb 14 '19 at 15:38
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    The explanations I expect are "If people use hidden city techniques they get flights for less, which means the airlines have to raise prices in order to make the same profit" and "The airline could have sold the unused leg separately, which means they make less money which means they have to raise prices". – DJClayworth Feb 14 '19 at 16:32
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    @DJClayworth: "The airline could have sold the unused leg separately". But it already did. Airlines routinely oversell/overbook flights; they know which cities they are giving hidden city prices, they can predict the unused tickets (not down to which passenger, or they wouldn't sell them the discount ticket, but a statistical expectation is more than good enough for their purposes). If they didn't fill that seat, it is because of insufficient demand on that route, not because it was reserved for a passenger that got off. – Ben Voigt Feb 15 '19 at 01:01
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    True. But if they had known one less person was going to show up they could have oversold one more ticket. – DJClayworth Feb 15 '19 at 02:35
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    This seems obvious, I guess: When I do something so that I pay less to the airline, then the airline loses money... So is the question whether this happens so often that the airlines raise prices because of that lost money? – GEdgar Feb 15 '19 at 11:05
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    If anything it saves the airline money. The seat is paid for whether it's occupied or not. There is a small fuel savings in not having the weight of a passenger to haul. – BobT Feb 15 '19 at 18:52
  • @BobT In line with that, https://blog.openairlines.com/how-much-fuel-per-passenger-an-aircraft-is-consuming. –  Feb 15 '19 at 21:49
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    I'm not sure this is enough for an answer, but [this article](https://crankyflier.com/2015/01/05/why-airlines-need-hidden-city-ticketing-to-be-possible-but-they-also-cant-let-you-take-advantage-of-it/) does a decent job of explaining the cost to the airline. Essentially: Their ability to offer multiple daily flights to hubs depends on some fraction of passengers paying a premium for those non-stop flights. When lots of people "cheat" and pay the cheaper two-stop cost, their profit calculations go out-of-balance. – AShelly Feb 15 '19 at 22:18
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    @AShelly: That looks like enough to answer. Would you like to turn it into a proper answer so people can vote for it, edit it, etc.? – Oddthinking Feb 17 '19 at 09:17
  • @Oddthinking Strange: Marginal costs will not change, the weight of the passenger not hauled is a *saving* in 'costs'. Prima facie the **costs** *cannot* rise. What can happen is that the mixed calculations with loss leaders and extortionist practices of intransparent profit-drivers would change. So the Q should ask for consumer prices. Isn't that quite the difference? And alas, a hypothetical? A Q for economics? – LangLаngС Feb 17 '19 at 15:31
  • @LangLangC:. Not sure why this is addressed to me. 'Extortionist' is a value judgement. Question does ask about consumer prices. Possible would work better on economics.se, but seems on topic here. – Oddthinking Feb 17 '19 at 22:37
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    Was the answer deleted? I was about to post this comment: "More importantly, you have a flawed (or unsubstantiated) argument early on, which you rely on throughout (other than a brief mention of loss-leaders at the end): "The airline already made a profit at 657 and now wants to make her profit from 2769." We do not know that; all we know is that they *expected* to make a profit after selling *some* seats at that price. We can't tell what projections they based that on, and how allowing "hidden city" bookings to go unchallenged would disrupt those projections." – IMSoP Feb 18 '19 at 09:10
  • @GEdgar does the airline lose money? Maybe you wouldn't have booked the flight at all if you had not been able to save some money this way. – dont_shog_me_bro Feb 18 '19 at 15:37
  • @GEdgar If the airliner does something that loses money, then they are stupid. The logic you use here is completely twisted. (And please, don't take me literally, I know they are simply competing, but the idea of big companies losing money over a phenomenon that they can control at least somehow is simply bizzare.) – yo' Feb 19 '19 at 12:36
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    @yo' It's not stupid or bizarre at all. A company's aim is not to earn a fixed profit on every transaction, it's to earn a profit over all. To do that, they have to project both costs (many of which aren't fixed per seat) and revenue (which includes modelling the reaction of customers and competitors to the prices offered). Presumably, their model predicts that offering these fares will be profitable over all, but only if they can restrict them to the intended customers. – IMSoP Feb 19 '19 at 14:37

1 Answers1

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Yes, the claim is justified by economic theory.

On this site, we have a strong preference for empirically based answers.

An ideal answer to this question would be an actual experiment where they compared two airlines, identical except that one had hidden-city ticketing encouraged, and one where hidden-city ticketing was eliminated, and compare the prices.

Such an experiment is infeasible, and we are forced to fall back on theoretical hypotheticals, conducted by experts. [Economics.SE is a site where they are happier with theoretical answers - which is a strong reason for the suggestions this question would do better there.]

A 2012 paper Hidden-City Ticketing: The Cause and Impact looked at this question using mathematical models.

The models make many simplifying assumptions, but the results support both the existence of hidden-city ticketing opportunities, and that taking advantage of the opportunities will have impacts on the price.

We show that the decrease could be as much as half of the original optimal revenue, but it cannot be more if the airline takes a hub-and-spoke network. Meanwhile, as a result of airline’s reaction, the fares to the final destination of a hidden-city itinerary will rise, which eventually will hurt the passengers.

[...]

[...] although the airlines have a strong incentive to prohibit hidden-city ticketing, passengers may find it attractive since it instantly saves their money. However, in a long run, using the hidden-city ticketing may also hurt the passengers through the externalities that the behavior causes. For a hub-and-spoke flight network, if hidden-city ticketing is fully admitted in certain period and all passengers take advantage of such opportunities, the optimal fares to the spoke cities will increase in that period. The rises in those fares not only immediately hurt those who travel to the spoke cities, but also significantly reduce the profitability of airlines for serving those spoke cities which in turn may result in a reduction or suspension in service towards those cities. Therefore, our result suggests that in the long run, the use of hidden-city ticketing may also decrease travelers’ benefits, creating a lose-lose situation.

Whether you trust such results depends wholly on whether you trust that the simplifying mathematical assumptions used in the model still adequately describe the real world. However, such a result seems to be a reasonable justification to support the claim by George Hobica.

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Oddthinking
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  • Wow, good find. I assumed the only way we'd get that kind of analysis is if an airline published some of their own models. It occurs to me that even if the models are wrong, an airline using similar models might act as though they're correct, meaning prices would rise anyway. – IMSoP Feb 20 '19 at 20:05