Hidden city ticketing – new controversy over an old way to cut fares

Illogical airline rules mean it can sometimes be cheaper to buy a ticket for, say, New York-London-Frankfurt than New York-London, and simply not fly the second leg of the journey. Now an airline is trying to stop a website which shows travellers how to do it. Who’s right and who’s wrong?
Written on 01.04.2015, 00:00
Hidden city ticketing – new controversy over an old way to cut fares

New Yorker Aktarer Zaman is only 22 years old  but in the US he has become a minor business celebrity. Zaman’s claim to fame is that United Airlines and the online travel agency Orbitz sued him for running a website called Skiplagged that helps travellers find cheap fares by using hidden city ticketing. He has appeared in the press and on national television news programmes, and has raised $75,000 in private donations to help fund his defence.

Ironically, hidden city ticketing is a technique that has been used for decades by travel professionals. It is based on an oddity of airline pricing that sometimes a ticket from City A to City B can cost more than a two-legged ticket from City A to City B to City C. 

HOW MUCH CAN YOU SAVE BY USING HIDDEN CITY TICKETING?
An article in The Economist on 12 January 2015 (“Airlines to public: please ignore this blog post”) included a real-life example where Atlanta-Cincinnati on Delta Air Lines cost $255 but Atlanta-Cincinnati-Dallas Fort Worth on the same carrier cost $197. In this example, a traveller could buy the cheaper ticket and fly to Cincinnati but not board the onward flight to DFW. Also cited was San Francisco-Detroit with an unspecified onward “hidden city” destination for $203 instead of $731 for a simple A to B ticket.

The Skiplagged website claims it has found fares that are up to 80 per cent cheaper. Examples it cites on its home page include Stockholm-Belgrade (save 13 per cent) and Fort Lauderdale-Zurich (save 72 per cent).

Traditionally, travel agents have used experience and deep expertise in fare construction rules to identify hidden city opportunities. Zaman has found a way to automate that process. So what’s the problem?

The case against hidden city ticketing
The lawsuit launched by United and Orbitz concerns several issues, including alleged trademark violations (Skiplagged was providing links to Orbitz to book the hidden city fares it highlighted). Orbitz and Skiplagged have now settled. United has alleged that Skiplagged also implies an affiliation with United which does not exist. But mainly United alleges Skiplagged should not be allowed to promote hidden city ticketing because airlines ban the practice.

Hidden city ticketing is not illegal but it is forbidden in  airlines’ conditions of carriage, which state that passengers agree to complete their entire journey when they buy a ticket. In recent years, carriers have employed outsourced companies – usually based in India – to check flown coupons for hidden city violations. They issue what are known as agency debit memos to collect the missing revenue from agents.

Commentators have discussed the free speech question of whether Zaman can be sued for doing little more than indicating hidden city opportunities to consumers (he doesn’t sell the tickets himself). The big question for the travel industry is: will this case settle once and for all whether airlines are entitled to prevent hidden city and other kinds of creative ticketing?

Airlines argue they need to prevent hidden city ticketing for several reasons, including:

  • Airlines usually offer tickets from A to C via B if they don’t have enough traffic to fly A to C directly. They need to offer low fares to compete against carriers that can provide a more attractive service by flying A to C directly.
  • Hidden city ticketing loses them revenue because their systems show a flight is fully booked even though some ticket purchasers have no intention of boarding that flight.
  • Departures may be delayed if the carrier decides to hold a flight for passengers it mistakenly believes are transferring from connecting flights.
  • It distorts their calculations of how much fuel is needed for the flight.
  • Ultimately, the missing or reduced revenue could lead to airlines withdrawing services to smaller cities. There is also an implication that if carriers lose significant revenue in this way, they will push up fares elsewhere.

The case for hidden city ticketing
But there are also good arguments why there is nothing wrong with this practice. Most fundamentally, the technique only exists because airline pricing strategies are economically irrational. “Airlines would not be able to do this in any other sector,” says TravelpoolEurope managing director Søren Schødt. “If you buy 12 bottles of wine at a discount, you aren’t given an extra bill if you only drink ten of them. If you take a bus, you don’t pay extra if you get off earlier.”

Another objection to airline treatment of hidden city ticketing is that it penalises travellers who do not use all the coupons on a ticket even if they had genuinely intended to use them. To take the Atlanta-Cincinnati-DFW example again, a passenger may fly to Cincinnati for a business meeting but their next meeting in Dallas is cancelled, so they decide not to fly the last leg of the trip. In such a case, the airline could still issue an ADM to the agent for a full-fare Atlanta-DFW ticket.

It doesn’t seem right either to blame customers for airlines missing out on potential revenue. After all, it is the airlines which have already taken the decision to reduce their revenue. They do that when they offer a lower fare to entice travellers to fly indirectly. What is more, airlines are trying to prevent customers acting rationally in a free market by minimising how much they pay, just as airlines do all they can in the same free market to maximise how much they charge. The Economist points out it is no coincidence Atlanta-Cincinnati is expensive because both are cities dominated by Delta, whereas DFW is the hub of competitor American Airlines. Should airlines be able to continue moving the goalposts on a football pitch which they have built and marked out themselves?

OTHER TECHNIQUES FOR FINDING LOWER FARES
IMPORTANT NOTE: As with hidden city ticketing, airlines may consider these techniques in breach of their conditions of carriage. If discovered, they could take remedial action, including:

•          Not allowing the passenger to fly

•          Stripping the passenger of frequent-flyer status

•          Collecting the rest of the money for what the airline decides is the “correct” fare by debiting the account of the travel agency which booked the ticket (agency debit memo)

Also as with hidden city ticketing, examples 1, 3 and 4 could arise not from any intention to find a lower fare but through unforeseen changes to a passenger’s travel plans. “Travellers may have a meeting cancelled or they could be ill, yet airlines may still seek to penalise them,” says Schødt. “We see that happen very often, especially where travellers do not fly the final leg on multiple-destination ticketing enquiries, yet the ‘penalty’ effectively imposed through the ADM can be huge.”

1.         Throwaway ticketing – A return fare can sometimes be lower than a one-way fare, especially in business class. So for passengers travelling in only one direction, it can be cheaper to buy a return ticket and simply not fly the inbound leg of the journey.

2.         Back-to-back ticketing – This technique is useful for fares which have minimum stay requirements, such as a Saturday night stay, especially for travellers who frequently fly the same route. The passenger buys two return tickets with opposite starting points. Minimum stay requirements have become less common in recent years, and many airlines have moved to quoting one-way fares, so back-to-back ticketing is much less widespread than it was 15 years ago.

3.         Multiple destination ticketing – Again mainly in business class, it can be cheaper to include separate trips to two different destinations on one ticket. For example, Copenhagen-Washington-Copenhagen-Munich-Copenhagen on one ticket is cheaper than Copenhagen-Washington-Copenhagen and Copenhagen-Munich-Copenhagen on two separate tickets.

4.         Flying from City B – If a traveller lives in City A and flies frequently to City B, it is sometimes cheaper to fly return tickets from City B to City A than from City A to City B. In this case, the traveller buys a one-way ticket from City A to City B and then starts flying return trips from City B to City A.

The TravelpoolEurope perspective – Unfair rules, but we must live with them ... for now
The ethical issue: Airlines are wrong to prevent travellers operating in a free market in which they  naturally choose the lowest fares they can find. If the airlines’ pricing is irrational, that is a problem for the airlines.

The legal issue: It will be very interesting to see the outcome if the Skiplagged lawsuit comes before a judge. The case is complicated because it includes other issues such as potential trademark violations. Whether it will lead to greater clarity about the legality or illegality of hidden city ticketing is hard to tell at this point.

The practical issue: Whether you think hidden city and other ticketing techniques are fair or not, the fact is airlines actively look for them and take action when discovered. Therefore, travellers should carefully assess the risks before requesting a transaction which is likely to contravene airlines’ condition of carriage.