An acquaintance of mine asked a very good question the other night I thought I would explain slightly more thoroughly here. He told me of how one time he flew two flights to Denver rather than one direct flight to Denver because it was cheaper. He said he lived equidistant between Airport A and Airport B. He booked an itinerary that was cheaper but required him to make one layover. Interestingly, the layover was at the bigger airport, Airport A, coming from the first airport of Airport B. In fact, the flight he took from Airport B to Denver was a direct flight that cost more. His question was valid-if the airline was going to fly him on that same flight to Denver in the end, why would they offer it cheaper from a different airport? Consider also that the cheaper itinerary would, in theory, cost the airline more money because they are flying him on two flights instead of one to get to the same place.
Let’s say the direct flight was $400 and then 2-flight itinerary was $350. What the airline does (let’s say it was United) is they consider the minimal price for the 2-flight itinerary, let’s say $350, and they ‘set’ that price also for the direct flight. However, many people would likely choose the convenience of only having to take one flight to their destination rather than two. So, instead of charging $350 for one flight, the airline can easily charge $400 for the direct flight. It would seem that the airline is losing money by charging $350 and flying the person an additional flight, but that is coming from the point of view that the airline is barely making money off of the $400 flight. In reality, they are not losing too much off of the $350 2-flight itinerary, and they are only gaining that much more money ($50 in this case) by charging more for the direct flight.
While it obviously costs the airline more to have somebody go on two flights than one, in the airline industry, less is more for the consumer. Consumers typically want shorter itineraries, and they are usually willing to pay for that. I recently have been taking 4 flights (in theory, one itinerary) to go from Ohio to Hawaii. I was a college student, so I was totally fine with paying the least amount of money and traveling more. Frankly, most people don’t want to do that. My relatives thought a nine-hour flight from Chicago to Honolulu was bad, but I’ve had layovers of that length, so you can see how people are generally willing to pay a little bit more to have even just one less flight. In their case, flying my grandmother would have probably been difficult if it was more than two flights.
A couple other factors play into this other than the pricing based on the lower of the two ‘costs’ for the company. Pricing for each market is another factor. $350 may have simply been a more competitive price in the market of Airport B where there may be another unmentioned airport or airline competing for business. Similarly, it might be easy to sell the $400 direct itinerary in the market of Airport A even if it seemed like a ridiculous markup to most people. One other factor is if a regional airline was involved in the 2-flight itinerary, which I suspect it was. Generally, regional airlines get a flat rate for flying a flight for the paying carrier (i.e. Delta paying Skywest a flat fee of $x000) to have them take passengers on shorter trips (usually under 2 hours). So, the airline that you might be paying might be simply trying to fill a seat on a regional airline. In this case, it probably wasn’t this factor that led to a $50 price difference, but this factor combined with the markets that airlines consider may have increased its competitiveness to the point that to even sell a ticket at $350, it would involve a regional airline. I don’t personally know of any consumers who will altogether avoid regional airlines. Frankly, you’d have to live near a hub airport of a major airline and then fly direct flights to avoid regional airlines.
I am actually happy that I don’t live near a major airport like Detroit or Chicago. Flying to Japan, to avoid the direct flight (mainly the cost of flying direct) to Narita/Haneda or Nagoya/Kansai, I’d have to fly to the west coast first and then fly out to Japan. I would not want to do that, so I am sure I’d pay the extra money to take the direct flight, usually $100 in the case of going to Japan. But even if I chose the cheaper itinerary, requiring the airline to fly me on an additional flight, the most important thing to remember is that they would not do it if they would lose money. They are still making a profit on your longer trip and they are simply making more by charging you more for that direct flight. For all the problems the industry has been having, they still know how to make a buck. Fortunately, savvy consumers also still know how to save a buck.