Aviation Competition:

Restricting Airline Ticketing Rules Unlikely to Help Consumers

GAO-01-831: Published: Jul 31, 2001. Publicly Released: Jul 31, 2001.

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Passengers on the same commercial airline flight may pay very different fares. This situation has led to dissatisfaction among some passengers who believe that airline ticketing practices are unfair. To reduce their cost of flying, some passengers have tried to use "hidden-city" and "back-to-back" ticketing. Hidden-city ticketing occurs when a passenger books a flight to one city but purposely deplanes at an intermediate city. Though never intending to make the last leg of the flight, the passenger buys the ticket because it is cheaper than a ticket to the intermediate city. Back-to-back ticketing occurs when a passenger buys two round-trip tickets that include a Saturday night stay but either uses only half the ticket coupons or uses all the coupons out of sequence. This practice results in a lower price than would be possible by purchasing round-trip tickets that did not include a Saturday night stay. Most airlines expressly forbid the use of hidden-city and back-to-back ticketing. This report reviews (1) the factors that airlines consider when setting fares; (2) the factors that create hidden-city ticketing and the pricing practices that foster back-to-back ticketing practices; (3) the potential effects on airfares and service, especially to consumers in small communities, of a legislative requirement to permit hidden-city ticketing, and; (4) the potential effect on airfares and service of legislation that would allow back-to-back ticketing. GAO found that when setting fares for each market, airlines consider the amount of competition from other airlines offering similar "products." Hidden-city opportunities may arise when a greater amount of competition exists for travel between spoke communities (i.e. destinations located "beyond" a hub airport) than on routes to and from hub communities, and where airfares in those markets reflect such competition. Back-to-back ticketing opportunities occur because airlines maximize their profits by setting higher fares for purchase by passengers who normally travel during peak times, generally during the week (business passengers), and lower fares for purchase by passengers who travel at off-peak times and stay at their destination over the weekend (leisure passengers). Passengers who would otherwise not qualify for discounted fares might be able to circumvent the airlines' Saturday night stay requirements to obtain lower fares. If legislation required airlines to permit hidden-city ticketing, airfares in some markets could increase immediately--especially in markets including smaller communities. If back-to-back ticketing were permitted, airlines would likely decrease the attractiveness of such fares to business travelers by increasing fares for tickets designed for leisure passengers, adding more restrictions to their use, and potentially reducing service in some markets.

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