The price-cutting loophole that the airlines hate

You have likely already heard about it. You may even have tried it. It’s called skiplagging (or hidden-city ticketing), and with persistently high airfares, some travelers are taking advantage of it to reduce their travel costs.

Skiplagging takes place when a traveler buys a ticket from point A to point B, with a connection at point C. However, their intention is to deplane at point C, never boarding the connecting flight to point B. A website even exists to find the best skiplagged fares.

Why pay for an extra flight segment that you don’t plan to use? Because the cost of a ticket from point A to point B with a connection at point C is lower than a nonstop ticket from point A to point C.

For many, that makes no sense. Yet airline ticket prices are based very loosely on how far you travel, and more strongly on competition in markets between cities and the availability of direct flights. This means that skiplagging is enabled by the airlines’ hub-and-spoke system, which forces travelers to connect through hub airports on numerous trips.

The following example illustrates this point.  

Suppose you want to fly from Columbus, Ohio, (CMH) to Minneapolis (MSP), a Delta hub. The one-way direct flight on Delta may run you around $169. However, if you book a flight on Delta from Columbus to St. Louis (STL) that connects in Minneapolis, the one-way fare runs around $89. By taking the Delta flight and not reboarding the Minneapolis to St. Louis flight, you saved around $80.

The reason why Delta must price its Columbus to St. Louis flight so low is that Southwest offers low-fare nonstop flights on that route, something that travelers typically prefer. Southwest’s point-to-point system makes it less vulnerable to skiplagging.  

The legacy airlines (Delta, United and American) hate skiplagging. It takes away revenue that their pricing systems work to optimize. They claim the practice is illegal, based on their contract of carriage, though there is no explicit reference to intentionally missing a segment in an itinerary. Moreover, if the skipped segment is canceled by the airline due to mechanical problems, the traveler may even be entitled to reimbursement for that part of their itinerary, adding icing to the cake. 

Then there is the issue of air system security. If a traveler never boards their connecting flight, the flight must be reviewed to ensure that there is no checked baggage with the no-show passenger. If there were, the baggage would be removed. Of course, this is a non-issue for the skiplagger, since they cannot check any baggage given that such items cannot be claimed at the connecting airport.

Of course, there are limitations and risks with skiplagging.  

Tickets must be purchased as a one-way because if you do this on the outbound of a round-trip ticket, the airline will cancel your return. The way around this is to purchase two one-way tickets.

If the originating flight is disrupted such that the desired connecting city is no longer an option, then the skiplagged itinerary becomes useless, forcing the skiplagger to cancel their ticket for a full refund or as a credit for a future trip.

The ethics of skiplagging can be debated ad infinitum. Yet skiplagging is a byproduct of how airlines set airfares and operate their system of flights. It is the unintended consequences of yield management, the method that prices seats on airplanes based on supply, demand and competition, and the hub-and-spoke system.  

Of course, if air ticket prices were based solely on distance traveled and not competition, then skiplagging would never occur. But then airlines would have total overall lower revenue, which means whatever they would gain by eliminating skiplagging would be far overshadowed by suboptimal pricing across their entire network of flights.

So what can airlines do to discourage skiplagging?

One option is to price tickets from the point of departure to the point of arrival. If the full itinerary is not fulfilled, tickets get repriced and travelers are billed for any difference.

Airlines can also sell roundtrip tickets at less than two times the one-way fares.

A more aggressive approach would be to cancel or penalize persistent skiplagger’s membership in their frequent traveler loyalty program.

All these options require legal wrangling in what constitutes a ticket. It would also alienate some travelers if their loyalty program accounts were canceled or penalized. The bad press from such actions would be far costlier than any revenue gained from stopping skiplaggers.

In effect, how can airlines penalize travelers for not taking a flight that they paid for?

The airlines will need to accept skiplagging as an unintended consequence of their yield management system for air ticket pricing and the hub-and-spoke system for how their flights operate and are scheduled, whether they like it or not. Any actions used to stop it will be far costlier than the small amount of revenue lost from the practice.  

That means skiplagging will continue — unless the airlines find a more advantageous method to maximize their total revenue, which is highly unlikely any time soon.

Sheldon H. Jacobson, Ph.D., is a founder professor in computer science at the University of Illinois Urbana-Champaign. A data scientist, he applies his expertise in data-driven risk-based decision-making to evaluate and inform public policy.