You've probably already heard the David vs. Goliath hidden city airfare story that's been all over the news.
Briefly, a sweet faced 22-year-old tech whiz kid in his spare time designed a website called Skiplagged that shows people how to cheat the airlines out of revenue using an insider strategy that's been around for years.
For the uninitiated, here's how it works: a nonstop fare from Los Angeles to Dallas might be over $300 one-way on a given day, but a fare on the same airline from LA to Austin with a stop in Dallas might be $150. So you buy the flight to Austin and ditch the plane in Dallas.
And before we go on, let me say that I am not an airline apologist or shill, as this article should demonstrate. And I fully support Skiplagged's First Amendment rights to publicize fare savings. However, the way Aktarer Zaman, the site's founder, designed and monetized his website leaves some murky questions (I'll explain in a minute), which may have unintended consequences for consumers.
Most airlines, United among others, have language in their contracts of carriage that forbids hidden city ticketing, also as known as point beyond ticketing, in which you agree to complete your journey when you buy a ticket. So United Airlines is suing Zaman, asking for reimbursement of lost revenue and other remedies. Orbitz, an online travel agency, has joined the suit, claiming that Skiplagged, which monetized its website through Orbitz's affiliate program, led Orbitz to sell numerous hidden city fares, causing it to breech its contract with United and that Skiplagged "expressly agreed to stop engaging in this prohibited form of booking, only to continue the conduct unabated."
First, let us explain one simple reason why airlines price fares this way. Let's say that Virgin America charges $150 to fly LA to Austin nonstop. If American doesn't fly that route nonstop, but only with a connection in Dallas, in order to offer the same low fare as Virgin America and to retain market share, American will lower its fare to the same $150 to Austin via its Dallas hub. American isn't trying to overcharge LA-Dallas passengers, it would argue; rather it's trying to compete with Virgin on the LA-Austin route by offering the same lower fare. (For a much more in-depth explanation, read Brett Snyder at Crankyflier.com).
Why airlines don't like hidden city ticketing
Airlines don't like hidden city ticketing for obvious and not so obvious reasons.
--It reduces their revenue and messes with their hub-and-spoke business model. Their position, which has merit, is that "hey, we're not gouging you on the nonstop, we're giving you a break on the connecting flight to Austin in order to compete with other airlines and you're taking advantage of us." And we charge less on connecting flights because they encourage people to use our hubs, and the hub and spoke system allows us to increase flight frequencies, giving you more scheduling options.
--It increases the number of no-shows, which either means that seats will go unsold and empty or that airlines will miscalculate how many passengers they'll need to bump.
--It can delay flights if too-widely abused as gate agents wait for people who have no intention of making the flight.
Why maybe you shouldn't like it either
Here's how this ploy can work against consumers, whether or not they actually use it.
--First and foremost, let's assume that Skiplagged achieves its goal of making hidden city fares easy to find and book and airlines ending up selling tons of them. If they lose a lot of revenue from hidden city passengers, they'll need to recover that revenue by raising fares for everyone who doesn't use hidden city fares. Airlines are not simply going to suffer for the revenue hit. You are.
--By messing with the hub-and –spoke business model hidden city fares could lead to airlines reduce service and frequencies, which could lead to higher fares for everyone, along with greater inconvenience.
--Another way that hidden city fares cause fares to rise for everyone else: If a large number of people abandon their flight at the hub airport, the airline's computers, assuming the flight is still fully booked, will be tricked into charging a "scarcity" airfare—the fewer unsold seats, the higher the fare.
--Or maybe people needing to fly that route wouldn't find any seats at all even though the flight was nearly empty, disrupting their travel plans.
--And although airlines don't always hold flights for connecting passengers, they do if there are a lot of them on a single flight. If 20 people don’t show up for a flight it could delay other passengers.
--Plus, hidden city ticketing can backfire. If your LA to New York flight via Chicago suddenly gets rerouted via Denver, you'll be stuck with a useless airfare to with no recourse.
--Not all airlines prohibit hidden city ticketing, but those that do have been known to kick passengers out of their frequent flier programs for using the tactic too often, and they've also charged agents for the higher fare when tickets have been arranged through travel agencies.
--You can't check bags on hidden city trips (your bag will be checked to final destination). And if you're thinking that you can get by with a carryon, what if the flight attendant insists there's no more room in the overhead bins and grabs your bag for gatechecking to that final destination? Kiss your airfare, or your bag, goodbye.
--And although it's probably obvious, you can't use hidden city ticketing for round-trip flights. Once you fail to show up for Dallas-Austin, your Austin-Dallas-LA return will be canceled.
A shady way of doing business?
Someone asked me recently if hidden city ticketing was "ethical." Simply put, Skiplagged has every right to publicize these fares, even if it ends up hurting consumers in the long run (American, for one, says it is unethical and also points out that it's a breach of the passenger's contract with the airline). It's not "illegal" in the sense that no one has ever gone to jail for hidden city flying and you could argue that all's fair in love and airfares.
One thing is clear: The way Skiplagged went about monetizing its website is at best shady. It dragged Orbitz, through its affiliate program, which pays a set dollar amount for every ticket referral, into a situation where Orbitz was selling airfare types that it promised United it would not sell. Then when Orbitz asked Skiplagged to stop and kicked it out of its affiliate program, Skiplagged pulled some fast ones as documented on Skift.com, hiding its actions and intentions with clever programming tricks. Now, Skiplagged is sending traffic, via deep links, to Kayak and Hipmunk, two meta-search engines that monetize by sending onward traffic to online travel agencies, including, ironically, Orbitz.
Meanwhile, although Skiplagged will probably get pro bono legal representation from some airline-hating law firm, its defense kitty has raised nearly $60,000 via GoFundMe.com—probably more money than it ever made from selling airfares.