Multi-City Flights vs. One-Way Flights

If you’re planning a trip that includes multiple cities, it may seem like the best thing to do is book a multi-city airfare. These airfares give you a flight to each destination all within one booking. However, we came across a recent article by The Economist that begs to differ, and we thought we’d share:

“Brett Snyder recently ran an online search for flights from Washington Reagan to Dallas-Fort Worth to San Francisco and then back to Washington. He found something strange. If he booked the three legs of the flight as separate one-ways with American Airlines, the total cost was $412.80. But if he wanted to book the whole multi-city itinerary together, American was charging $1,837.20.

It wasn’t just American. He tried another itinerary—Orlando to Minneapolis to Dallas to Orlando—with Delta. Booked in three transactions, it would cost $370.80. Booked in one fell swoop, it was $2,288.20, more than six times as much.

Mr Snyder, the author of the Cranky Flier blog, hasn’t been the only person to notice this price anomaly in recent days. Kevin Mitchell, the chairman of the Business Travel Coalition, wrote a letter to the Antitrust Division of the US Department of Justice this month, alleging that “American Airlines, Delta Air Lines and United Airlines may have recently coordinated on a complicated and comprehensive scheme to change airfare rules that have the effect of driving up the price of an airline ticket on unsuspecting consumers by as much as a factor of seven.” Mr Mitchell cited his own example: a multi-city trip starting and ending in New York that cost $898 if booked separately but $2,745 if booked together. (He didn’t specify the airline.)

What is going on here? Essentially, America’s three big legacy airlines noticed an inefficiency in their ticket pricing. But in addressing it, they ended up “trying to kill an ant using a wrecking ball,” as Mr Snyder put it.

The problem for the airlines is that competition from low-cost carriers forced them to cut prices for certain less-popular routes. But customers discovered that they could book two of these cheap flights on a multi-city itinerary—say, from Chicago to Minneapolis and from Minneapolis to Seattle—for less than the price of booking a single trip from Chicago to Seattle on the same airline. All they had to do was endure the inconvenience of a layover in Minneapolis.

The airlines didn’t want to undercut themselves. So they stopped allowing customers to buy non-refundable tickets on multi-city itineraries. Refundable tickets are far more expensive, removing the incentive for flyers to book their flights this way. American Airlines told the Associated Press that this was the reason for the change. Delta didn’t comment, but United told Mr Snyder that it just followed the other airlines’ lead, saying, “We matched the industry on domestic combinability changes.”

Problem solved? Perhaps, but the move created a much bigger problem. It effectively killed multi-city booking, to the detriment of anyone whose travel involves more than two locations. While there is a workaround—flyers can book each leg of the trip as a separate one-way—that is tedious. It can also be risky, since one flight can become unavailable as another is booked, not to mention that the airline loses any responsibility for getting the traveller to subsequent destinations if an early flight is cancelled. But it still saves money—sometimes more than $1,000, as Mr Snyder found—over booking a multi-city itinerary with refundable tickets.

So savvy individual travellers will be fine, more or less. But not everyone will. As Mr Mitchell wrote to the Justice Department:

While a knowledgeable travel agent will be cognisant of the policy change, the threshold problem is that most consumers, especially the majority who are infrequent travellers, will not be aware and will pay dearly when booking online at an airline website.

Consumer net-harm is substantial as these increases can be in the thousands of dollars for each trip and are void of countervailing benefits to consumers or competition. Moreover, when a traveller is forced to purchase the one-way segments, instead of a round-trip ticket, a modification in travel plans will trigger change fees of up to $200 per segment. Importantly, business travellers have to pay their travel management companies transaction fees on each segment as the airlines have foisted a new level of complexity and inefficiency upon the industry that must be paid for by the customer.

People who travel for business may not be as price-conscious as holidaymakers—after all, they are often not spending their own money—and so may just accept the much-higher fares when schlepping around the country. But their employers won’t. Travel budgets could get squeezed as a result.

The legacy airlines are already facing pressure to reverse their move. Robert Menendez, the top Democrat on a Senate subcommittee in charge of transportation issues, told the Los Angeles Times, “It seems to me that the nation’s big airlines are working in concert to deceive and cheat the flying public.”

Mr Menendez had his own example to cite: flights from Newark, in his home state of New Jersey, to Los Angeles, San Francisco, and back to Newark. Booked as three one-way tickets, he said, that trip would cost $592. As a multi-city itinerary, the price goes up to $1,311. Price-gouge ordinary flyers and you’ll be met with a barrage of complaints. But price-gouge a senator and you might find yourself needing to reconsider your policy.”