Why is a nonstop from point B to C more expensive than a trip that goes A->B->C ?

[Amelia Showalter]

Alright, so I have seen this crop up a lot while I've been planning my own RTW trip, which I'll do with a series of one-way flights.  Let me illustrate with an example.  I was looking at prices for one-way flights between Lisbon and Rio de Janeiro, and the cheapest option was on Iberia with a layover in Madrid.  So Lisbon->Madrid->Rio was $864.  But then I thought, hey, I'm going to be rambling around Spain/Portugal before I fly to Rio anyway, so why not just fly out of Madrid directly?  But then when I search for Madrid->Rio, that same flight on Iberia (i.e. the second leg of the Lisbon->Madrid->Rio itinerary) is now $1530.  Can anyone explain this?  Why is the same flight dramatically cheaper when it's preceded by a hop over from Lisbon than if I was just flying from Madrid in the first place?

 

This same scenario plays out all the time as I've been looking at flights all over the world.  The A->B->C flight will be cheaper than the B->C flight alone.  I understand the basic economic arguments of different levels of supply and demand between various locations, but this seems to have crossed over into wacky territory.

[Darryl Musick]

My guess is that the airline is trying to sell you the convenience, i.e., they're willing to bet you'd pay more not to have to change planes and all the hassle that's involved in that.

[Tony Abreu]

The reason is Iberia does not have a cheap One-Way (OW) fare from MAD to RIO. The lowest OW is Fare Basis Code HLSXOWB1  with a base of $1070 (before tax) for travel departing 01JAN-30JUN.

However for LIS-RIO (which allows a stopover in MAD, which is Iberia's hub), the lowest OW fare is Fare Basis Code VLSXOWP1 with a base $586 (before tax).

Why? Because their competitor Air Europa (UX) has a OW fare base XLOWBR for $576 and I think Iberia simply wants to match it.

Why not for Madrid to Rio? Because Iberia does not have to match any fare from another Spanish Airline. However, TAP Portugal has a OW fare from Madrid - fare base VLOWTAP for $688. Iberia didn't care to match that fare in the same way TAP didn't bother to match Iberia's fare from Lisbon.

Since you are not using Round the World Fares and you are putting together separate one-way tickets, did you consider using a throw-away roundtrip ticket from MAD to RIO? I know this does not sound Kosher, but some people do it. Iberia has a MAD-RIO RT fare base POFSXBR for $467. BA has the same price for base ONCEUR.

So as you can see there is nothing wacky about PRICE (FARE) MATCHING. It happens all the time in the airline business.

 

 

[Buzzy Gordon]

Terrific answer, Tony, thanks.  Is there a particular low-fare search engine (e.g., Kayak, Vayama, FareCompare) you recommend? Do you have any tips on scoring cheap last-minute fares?

[Tony Abreu]

Buzzy,
Waiting to buy tickets till the last minute is like making a bet that the airplane is flying with a lot of empty seats and the airline is willing to sell them for a song. The fact is that nowadays passenger load factors are at a historical high and airlines are still cutting down on planned capacity. That said, buying at the last minute looks like a losing proposition.

Comparing Vayama to Kayak and Farecompare is like comparing apples to oranges. Vayama is a (click and mortar) travel agency. Kayak and Farecompare are meta search sites or lead aggregators. They do not sell airline tickets but they refer you to click through sites that do.

IMHO, Kayak is the simplest to use airfare search site. Farecompare is an excellent fare reference site since it presents fare information (from ATPCO – the company where airlines file their fares to) in a useful manner. However, I believe both sites have the same weakness:
1.) I don’t think they have ‘private, negotiated’ fares which can be cheaper than the ‘published’ fares they display,
2.) They both use a fare matrix engine that caches (not real time query) seat availability information so it is possible to get stale or erroneous price options. I believe the presumption is the vendor you click through to can re-validate the fare later. (Sounds like bait and switch?)

To give you an example of how bizarre this can be, consider my Kayak search this morning for WAS to CEB +- 3 days departing 28JUN, return 12AUG. Kayak displayed a $1998 fare from Cathay Pacific and referred Orbitz/Cheaptickets.com and cathaypacific.com (same price). When I clicked through, Orbitz charged $4905 and Cathay Pacific wanted $4456. Both wanted more than double the fare displayed by Kayak! If this isn’t bait and switch, then what is? (Note: I grabbed copies of the screen displays so I can prove this.)

I don’t mean to be too harsh to fare comparison sites since life without them would be miserable. If you force me to pick one, then I’d say Kayak since it’s really easy to use.

[Buzzy Gordon]

Tony,

Thanks again for a detailed response. Just to clarify my question, I was not asking about using last-minute purchasing as a strategy for buying a cheap ticket; I was interested to know where one can find a reasonably priced ticket if you find you have to fly somewhere in a hurry.

[Tony Abreu]

Assuming I'm traveling from or within the USA, I'd do 2 things:
1.) Use travelocity to compare fares between airlines. My observation is that travelocity actually validates seat availability before displaying flight options (I guess they are associated with SABRE GDS so they can check flight availability freely, no need to cache). IMHO travelocity has the least false positive displayed options.
2.) Go direct to airlines (including low cost carriers) I know fly the origin-destination pair I need. They may have last minute deals (aka web-only specials) too late or they don't care to post for distribution.

[Buzzy Gordon]

Thanks again.

I guess it would make sense to use those options in general as well, and not just at the last minute.

[Tony Abreu]

Buzzy,
If I had plenty of time before my planned departure date, I can opt to wait for a fare 'sale' especially during low travel season. But neither travelocity nor airline websites easily provide me with enough information to determine whether the fare I'm seeing is on sale or not. That kind of research requires a more transparent display of fares (like from a GDS) and some knowledge on how to decipher fare basis codes and seasonality. No fare shopping methodology is perfect, but I'd rather have one than not since in my case I'm buying for my large family (and the savings can be substantial).

[Chris]

Only clue I have is maybe the airline is being paid in some way by Madrid "tourist industry" to bring you, a product, in for that layover, which discounts the ticket. Dunno.

 

I've seen it before tho - friends who were in Dubai wished to visit UK, it was cheaper by far for them to buy tickets to Florida with a UK stop-over, than just fly to London. So they had a week in London and a week in Orlando, for less, overall.

[Tony Abreu]

Going back to the Amelia's original topic - why is A->B->C cheaper than B->C?

Consider the difference between Iberia and TAP Portugal below:

 

Iberia - MAD to RIO nonstop $1374.20 all-in (Fare Code: HLSXOWB1)

TAP - MAD to RIO via LIS $956.30 all-in (Fare Code: VLOWTAP)

--- compare with ---

Iberia - LIS to RIO via MAD $856.60  all-in (Fare Code:VLSXOWP1)

TAP - LIS to RIO nonstop $919.00 all-in (Fare Code: VLOWTAP)

 

Amelia's observation proves true with regards to IBERIA. Their one way fare from LIS-MAD-RIO is definitely cheaper than their MAD-RIO fare. However for TAP Portugal, the observation is quite the opposite. TAP's MAD-LIS-RIO fare is more expensive than their LIS-RIO fare.

 

So, I would suggest that it is market competition that affects price more than routing. Of course, if the price is equal then passengers would likely buy the nonstop flights first, so there may be less available seats on nonstop flights driving the effective ticket price higher.

 

Chris brings up an interesting point - can market subsidies distort airfare pricing? I know for a fact that Europe to USA fares are significantly cheaper than USA to Europe fares for the same season both for American and European airlines. I don't know if US taxpayers are subsidizing American air carriers. Do you? If so then we (US Taxpayers) are getting the short end of the stick because we are paying higher fares and are paying taxes, too.