Hidden-City Ticketing: The Cause and Impact

Hidden-city ticket is an interesting airline ticket pricing phenomenon. It occurs when an itinerary connecting at an intermediate city is less expensive than a ticket from the origin to the intermediate city. In such a case, passengers traveling to the intermediate city have an incentive to pretend to be traveling to the final destination, deplane at the connection point and forgo the unused portion of the ticket. Hidden-city opportunities are not uncommon nowadays. In this paper, we establish a mathematical model to shed some light on the cause of hiddencity opportunities and the impact of (the passengers’) hidden-city ticketing practices on both the airlines’ revenues and the consumer welfare. To perform our study, we adapt a flight network revenue management model. We illustrate that the hidden-city opportunity may arise when there is a large difference in the price elasticity of demand on related itineraries, therefore providing a plausible explanation for this phenomenon. To show the impact of the hiddencity ticketing practices on the airlines’ revenues, we first argue that when the passengers take advantages of such opportunities whenever available, the airlines had better to react, and the optimal reaction will no longer contain any hidden-city opportunities. However, even if the airline optimally reacts, the revenue it can achieve still decreases from the optimal revenue it could have achieved when passengers do not practice hidden-city ticketing. Moreover, under our model, the revenue decrease could be as much as half of the optimal revenue when passengers do not use hidden-city tickets, but it cannot be more if the airline’s network has a hub-and-spoke structure. From the passenger’s perspective, we show that when they practice hidden-city ticketing, the prices of certain itineraries would rise and somewhat surprisingly, their overall consumer surplus may fall. Therefore, our results indicate that the practices of hidden-city ticketing by the passengers not only hurt the airlines, but could also hurt their own welfare.