In the example given in the story, the kid was flying from JAX to NYC with a connection in CLT (one of the larger AA hubs). In that case, AA probably priced the flight to NYC lower in order to compete with some rate that United or Delta was offering. A "normal" flight to CLT might be a lot more expensive - but it's artificially marked up with a hefty profit. Now American Airlines is whining because they can't squeeze profit out of every passenger because people are doing this. They claim it's against their terms of service... but screw that noise.
I think it should be illegal for them to bar skiplagging. I hope lawsuit blows up in their face and the FTC and Consumer Protection step in to bar airlines from fighting it.
Especially 1-way fares when they cost way more than half a round-trip. That triggers people into skiplagging, especially when it opens up a route to a competitor that doesn't overcharge for 1-way fares.
It's "explained" in the article. Trips from one large hub to another are in high demand, so the price is high. Trips from a large hub to a small place are in low demand, so the price is lower. The main defense is "the pricing model is complex."
But it's clear for all to see that it's nonsense. First, complexity is no defense for anything. Second, the resource utilization is strictly higher in the skiplag case: the demand on the first leg is the same, so demand can't be justification either.
If the price for a multi-leg trip can be lower, that must be because the earnings on the second part of the trip outweigh the loss on the first part. That would also mean the single leg passengers are subsidizing the remaining legs.
It's simpler than that. AA offers an inferior product for flying from Jacksonville to New York City, because they don't have the non-stop flights that their competitors do. So they have to discount their flights to be competitive.
Meanwhile AA is the only airline flying non-stop from Jacksonville to Charlotte. They offer the best product there, and charge accordingly.
Products aren't priced according to their cost to produce, they're priced according to what the market is willing to pay for.
Something they know about the destination makes them expect you to be less price-sensitive, so they charge a higher price despite lower costs. A competitor should eat their lunch when they do it, but there don’t seem to be enough.
They add a big premium onto the price of a direct flight, regardless of where to.
Check prices for flights from Paris to Martinique and to Guadeloupe. Each will cost about $1000, with a layover on Guadeloupe or Martinique, respectively. Or, you can pay $1500 for a nonstop to either one.
That $500 buys you the avoidance of 3 hours of your life switching planes at airports.
It's got nothing to do with incurred cost. Goods and services are not priced at cost + margin, they're priced at whatever the market will bear.
A->B is a higher demand ticket than A->B->C, so the market bears a higher price for that ticket. By getting off at B, the traveler has "stolen" the difference in those two prices from the airline, as the airline would have charged the skip lagger or another direct flight customer a higher price.
Ya it's an interesting economic puzzle, given the unique nature of the airline business.
I think ultimately the incentives work out to exactly where we are, airlines will simply ban travelers from their services when skiplagging is discovered.
There's no reason to offer services to travelers who pay less.
Quite a few smaller cities offer subsidies to carriers to bring traffic to their cities. Those same cities might not be happy when travelers use the subsidies to go to the big hub for cheaper and instead. It might even be contractually agreed that the carrier has to make sure they go where they're supposed to, thus the rules we see.
A few reasons, that can make direct more expensive operationally & lower demand, respectively:
1) Longer voyages use less fuel as a multi-leg because aircraft don't have to load as much to make the full flight direct. See: "intermediate stop operations". Those 15h and 18h flights are really bad for fuel efficiency, and they can't carry as much cargo. That's a reason Asia<->USA cargo flights frequently stop in Anchorage Alaska. They're also more complex for staff (can only fly so many hours at a time, need to carry relief pilot(s) after X hours)
2) Sometimes transiting a particular country is difficult, so that routing would have lower demand. Sometimes I fly from Paris-USA-Toronto, and that incurs extra headaches (visas, ESTA, luggage restrictions (e.g. food)) that many avoid.
The prices are set by the market (ie: the other players). If there is only one airline that does Charlotte direct for $500, then AA is going to price its flight at $490.
