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People who buy one-way tickets trigger terrorist concerns and so they must pay more for the privilege. Am I serious?

The short answer is: tariffs. That is, that's the price the carrier has published, so that's the price they are required to charge. The slightly longer answer is: because of consumer price sensitivity, the market for round-trip tickets is more competitive than the one-way market, so the carriers charge lower fares. If the one-way market had the same demand and price sensitivity, you'd see similar prices.

I think, then, that points 1 & 2 are probably correct. If the problem was lost revenue due to empty seats on the return trip, the carriers would charge the normal round-trip rate for the one-way ticket.

I am reminded that once on the Toronto subway, I asked an eminent American professor of economics a economics question, and his response was a simple "supply and demand." I am pleased to have now returned the favor. :)

Perhaps part of it is the same reason why it costs more to get a Uhaul moving out of Michigan than it does to move into Michigan. One-way flights alter the need for equipment in each location. Changing routes could be expensive. Don't know, though, just a thought.

I would add to some of the above, that a one way ticket leaves the door open for the customer to use a competing airline on the way back.

"...For example, my colleague can buy a round-trip for about $250 whereas a one-way will cost him almost $700 on the same route...."

There must be something missing. Why wouldn't any rational traveler simply always buy the round-trip ticket and not use, or scalp, subject to ID problems, the return portion?

Not having flown for decades, it would also be useful to know what the refund or exchange policy is for the return portion of the ticket after the first leg of the flight has been flown.

Regards, Don


Even though the $250 vs. $700 example is quite exaggerated, I think the difference is at least in part a consequence of competition. This is how I see it:

Most people live somewhere and therefore have to get back to the point from where they take the first flight. This is rather elementary - people don't move using commercial airlines, so they will have to go back. It is also the case that airline travel is almost never for short routes - taking the train or renting a car is often not feasible.

Thus: if a one-way ticket is the price of a return ticket the airline could obviously be shipping a customer to a location that is away from home and therefore faces a risk of supplying competitors with customers if the competitors' flight times are "better" for the traveler.

It would therefore make sense to "subsidize" return tickets in order to make sure customers don't add revenue to competitors' flights (at least not without hassle and/or some financial loss). Or, in other words, to penalize customers flying only one way because the probability of these customers buying services from a competing airline on their way back is rather great.

I don't think it has much to do with filling empty seats on flights, since there are usually multiple flights per week (or day) and therefore impossible to tell when a customer might be flying back.

Of course, to business travelers the time of departure/arrival is much more important than the cost, which means they are less likely to be loyal to an airline if the flight schedule doesn't fit their particular wants.

I don't think that the example of a $250 round-trip ticket versus a $700 one way ticket is even close to reality, it's an extreme exaggeration. Traveling as a consultant, I made the same 500 mile round-trip flight on Fridays for the past 3 months. This past Friday was the last day of the project, so I only had a one-way ticket. The one-way cost was $125 versus a round-trip cost of $219. So if I were to buy two one-way tickets the total would possibly have been $250. I am assuming that this is the disparity that is being asked about, why do two one-way tickets cost more than a round-trip ticket? If not, then the previous comment of just buying the round-trip ticket would be the more reasonable thing to do. They will fill the seat if the ticket holder doesn't make it.

Maybe its a bad assumption, but I would assume the administrative cost would be higher for two-one way tickets than one two-way ticket (an action performed twice). Ultimately, you can't separate the situation from the cost. My round-trip ticket was from Friday to Monday. If the return leg had been on Sunday, the price might have been higher due to greater demand.

I disagree with the last post that it has little to do with filling empty seats. It probably has a lot to do with putting butts in the seats, that is after all what airlines do, that is how they make money. If I buy 50 t-shirts from a manufacturer, I am more likely to get a discounted price per t-shirt as compared to only buying 1; just as an airline customer is more likely to get a discount buying in 'bulk'.

I don't have a good answer, but I do have some anecdotal prices. This week I was arranging my travel for the Econ History Meetings in New Haven. Roundtrip from Dulles was $192, while one-way was $626.50 (I may spend a day in NY afterwards).

As pointed out above, I could just buy the roundtrip and skip the return. This is very puzzling, since airlines don't penalize you for skipping the return.

Perhaps the libertarian gut reaction to look for state interference is needed? Although I have no theory in mind for that either.

I assure you Andrew, the numbers are accurate for that particular route.

Do we have any anecdotes which include all four prices, both one-way and round-trip for each direction?

Thanks, Don

Don,
I will stress again that this data is obviously not systematic, but it was a "random" observation in the sense that I was really considering these flight packages just yesterday.

Flying from Dulles (IAD) to Windsor Locks (BDL), Sept 11-14. The one-way legs are *each* priced at $626.50, while a roundtrip is $192, regardless of which city you originate in (can be verified at United.com).

Thanks for setting me straight Jeremy. Sorry Steven, I had never seen a disparity that large, but then again I don't regularly book flights. Some of the other theories I have seen around the web seem to argue that the difference is because the one-way has less restrictions and is refundable, while the round-trip ticket is not. 'Throwing away' the second half of the round-trip ticket is against Delta's carriage contract as well. Though I am sure they would never pursue it any further if you did discard the second leg because there is less cost involved in overbooking the flight.

May I ask for a clarification on what we're puzzling over? I think the issue is why demand for one-way tickets is less elastic, but I'm not sure.

Larry White and Peter Lewin are right on point 1 almost by definition. Price differences unexplained by cost differences constitutes price discrimination. Price discrimination is impossible without monopoly power. It seems pretty unambiguous, then, that we are looking at something familiar: price discrimination by suppliers enjoying monopoly power. Presumably, the monopoly power comes from the limits on airport capacity, which is not determined by market forces. Deregulation has increased competition, but it has not eliminated all monopoly power. I'm not seeing much room for puzzlement on any of those points. I take it, then, that we are wondering why the one-way demanders sometimes have really inelastic demands. Is that it?

If that's the issue, I'm pretty much scratching my head, too, although it's not a new phenomenon. The railroads used to charge more for short hauls on some routes, if I remember rightly my lessons from Bob Ekelund. I suppose travelers going on urgent matters (whether personal or business) would often need to keep their return plans open, as Larry and Peter L. said in point 2.

BTW: Shouldn't more congested and less competitive routes should show more price discrimination? I bet that description fits Dulles/New Haven.

A hypothetical story --

In order to pre-position its planes at the right places at the right times, the airlines must have advance-puchase, non-refundable tickets for ~70% of its seats. Inherently, these will largely be round-trip tickets, where the demand primarily is, and each airline must be highly competitive in this market segment. If some of these round-trip tickets are bought for one-way travel, with the second leg ticket discarded, the airline still has its full upfront revenue with the chance to sell seats a second time near departure. This means that listing high advance-purchase one-way prices doesn't really hurt the airline, and makes real, late-purchase one-way prices look better in comparison. In any case, the consumer can realize greater value from the one-way tickets if they are refundable.

Summarizing, the advance-purchase round-trip tickets prices must be fully competitive, while the advance-purchase one-way ticket need not be, as it is primarily a reference price with a possible refundable advantage. If someone pays it, so much the better.

FWIW, Don

t has nothing to do with cost or filling seats, it is simply charging what the traffic will bear.

Most one-way tickets are purchased by business travelers at the last minute and so get none of the usual discounting. The airlines know that most one-way fares are tax deductible business expenses. The one-way fares do not look so high to business travelers because they also pay more for round-trip tickets since they book close to departure and do not stay over Saturday night.

The airlines have never bothered to develop discounts for one-way vacation travelers because it is a small market. However, I would not be surprised to see one-way fares cheaper on weekends than on week days. Also, the absence of discounting on one-way fares prevents business travelers from griping so much about the cost of one-way.

The fact that most of the one-way travelers are traveling for business, and are often forced to make their reservations at the last minute by their business demands are factors, but perhaps most important, the passenger is probably not the one paying for the ticket.

Steve,

My vote is for the price discrimination answer.

I liked your own suggestion about the "double coincidence of one-way fliers" at first, but then I changed my mind. :) There are two problems with your suggested reason:

(1) People can book a round trip without coming back on the same day. I.e. even if the flight is full on the way to Tahiti, and everybody on the plane has a round trip fare, that doesn't guarantee full flights on the way back from Tahiti.

(2) If we were talking about a lower round trip fare per leg then your theory would be plausible, but that's not what we're trying to explain. People like flying with empty seats. Other things equal, an airline should love it if people want to pay $(x+1) to fly one-way, versus paying a total of $x to fly round-trip. Right? (I hope I'm not misunderstanding your price quotes.)

Professor Koppl,
The puzzle, as I understand it, is why anyone would ever purchase a one-way ticket, when you can simply throw away the second half of your round-trip. Frequent business travelers (or their booking agents) would especially know this, so I'm not sure how that solves the puzzle.

Alternatively, the puzzle is why don't airlines enforce their terms of service more closely? Throwing away the second half is a violation of the contract, but it doesn't appear that airlines ever enforce this. There are many threads about this on FlyerTalk, e.g http://www.flyertalk.com/forum/showthread.php?t=846796

Another possible explanation: airlines *do* enforce the no-throw-away policy for very frequent business travelers, resulting in high fees and/or loss of frequent flier privileges.

Or perhaps there is a difference in tax-deductible treatment of one-way tickets, as mentioned by Flash.

I just checked United on a trip I regularly take: Boise to Denver. Used the default leave date of August 21. One way, low of $196.50; roundtrip, return August 24, low of $279. Perhaps this is a NON-problem; is there any data that actually supports the contention that aone-way is more expensive than a round-trip?

This sounds alot like the urban legend that a new car drops by thousands of dollars the second one drives it off the lot.

Jeremy H. gave us an example, Allen. I bet your route, Boise to Denver, is less congested than his route, Dulles to Windsor. So I guess there are two puzzles. Why is one-way demand less elastic? and Why can the premium on one-way travel sometimes reach so high that it's cheaper to toss out half the round-trip? For the first question, the best answer on this blog seems to be the relative urgency of one-way travel. For the second, our best answer seems to be that the airlines would punish frequent flyers who regularly tossed half their round trip ticket.

I don't recall seeing any of this written up in an article and no one has posted a comment saying they found this or that paper explaining it all. Hm! Is this an opportunity for a reader of this blog? Do we know precisely where the airlines' monopoly power comes from? I said limited airport rights, which I've heard others say in the past, but is that a complete and correct explanation?

Maybe, it would be useful to list all the common ways a one way ticket could be used. It doesn't seem to me that there are too many uses other than an emergency. The price would make sense for emergencies.

The second thing that I thought about was perhaps moving to a new city. But even there, the person has other far less expensive ground alternatives that would lower the price.

Perhaps another option is extremely high end business travelers who head to a destination staying until a deal is made or a project finished and are willing to pay a high premium for the flexibility

Perhaps a good follow-on question is: Why would one-way airline tickets ever be priced higher than round-trip airline tickets? Of course, this is assuming both tickets were in the same fare category (discount non-refundable versus full-price refundable, etc.). When selling a one-way ticket, there is no economic disadvantage facing the airline that I can think that exceeds the necessary compensation for profitably suplying the same passenger with a round-trip ticket. Should he abandon the return leg, this actually saves the airline fuel in hauling less net weight when the plane "deadheads" that empty seat back to the originating point.

I believe that the relative prices can be explained by the interaction of the ticket
characteristics and the need for airlines to have relatively predictable operations.

Assume an airplane with 200 seats and a high volume route.

Assume that only two types of ticket exist, a fully refundable, fully exchangeable one-way ticket, and a non-refundable round-trip ticket. The round-trip ticket must have both segments actually flown by contract.

Assume to start that both tickets have identical per segment prices. This means that the round-trip ticket costs twice as much as the one-way ticket, given our starting assumptions.

Since the overall cost is the same for both ticket types, and the round-trip ticket has
major additional restrictions, all of the consumer demand will be for one-way tickets.

At this point, the price for one-way tickets will be set high enough to just reduce the
demand to 200 seats to fill the plane, say $200. Under our assumptions, at this point the round-trip price will be $400, but there will be no demand for round-trip tickets.

The problem here is that the plane is expected to fill with passengers that are free to
exchange or have their tickets refunded at (almost?) any time. This will be an unacceptable level of unpredictability for the airline.

To solve this problem, the airline can split its capacity. For example, it can sell 150
round-trip tickets and 50 one-way tickets to make up its 200 seat capacity. The 150
round-trip tickets provide a substantial degree of stability and predictability to the actual flight load.

Now we need to establish how the ticket prices change under the split capacity.

The round-trip tickets start at $400 for an equivalent quantity of 200 seats, but need to be reduced to, say $225, for a quantity of 150 seats to make up for their inferiority due to their heavy restrictions.

The one-way tickets need to have their price raised from $200 to, say $500, to reduce their demand by a factor of 4 from 200 seats to 50 seats. Don't pay too much attention to the actual numbers as they are quite arbitrary.

So now we have a round-trip price of $225 and a one-way price of $500, entirely due to a combination of disparate ticket characteristics and a need for airline operational stability.

Regards, Don

Why? Well, the cost to the airline of this pricing strategy might be low.

Charge -- that is, "ask" -- $500 for the one-way ticket for that ocassional customer who is on the rush. If he pays, he pays. If he balks, satisfy him by mentioning he could purchase the lower-priced roundtrip ticket, even though he doesn't "need" the return ticket. (Plus, these days, it's non-transferable so price discrimination might be more effective.)

Okay, so he might then be puzzled at the ticket counter. Let the ticket agent wave her hands... the customer's puzzlement might still be worth the attempt to originally gain the higher fare.

But here's perhaps a very relevant (and related) question at this point: Just how many of these strangely-priced tickets are sold? Perhaps very few.

I think it is a way of profiling passengers, having worked at an airline R&D division.

Who is more likely to make a series of one way hops - a travelling salesman or a traveling grandma. A traveling salesman of course. So if a person asks for a one way ticket assume it is a salesman, and he is usually willing to pay more.

I make simplifications in my arguments, but thats the gist.

It's economy of scale, isn't it?

What does economy of scale have to do with it?

I do not believe this

Why worry about it? If you only need to fly one way just buy the round trip ticket. The airline mafia are not going to show up with bats and chains and drag you to your return flight.

Actually, the example isnt too far off.

I was just looking at tickets from San Fran to Australia.

Qantas tickets for each leg of a return ticket are $834 per leg for a total of some $1668.

Qantas tickets for one way are over $1800.

I have noticed that some of the budget domestic airlines in Europe, America and Australia offer simple pricing where you purchase the legs you want and there is no discrimination against one-way or open-jaw tickets. Why this principle doesnt apply to the larger international airlines, I dont know.

I suspect it has something to do with immigration controls. No country wants travelers from elsewhere arriving without a pre-determined onward ticket. Maybe ther is some governmental pressure, then, on keeping inexpensive one way international tickets off the market.

Anybody know the legality of tossing a return trip ticket? I am moving from the US to Europe so my furniture goes by boat and I go by air. The round trip ticket is $900 whereas the oneway ticket is about $2100. This is true for every US and European carrier I have checked.
Ghost

Personally, I think the correct answer is the inelasticity of one-way ticket demand.

I have witnessed the price premium on a one-way. For example, Chicago, IL to Osaka, Japan is roughly $1,100 USD round-trip, but $3,000 USD one-way from Japan to Illinois.

While I consider the "empty seat" theory well-warranted, I think that one-way fliers typically require the travel, whereas round-trip is usually discretionary. Hence, the inelasticity of one-way demand, and the smart market capitalizes on it.

Further, on the comment of "scrapping" the return ticket, the airline will charge you a fee for the unused ticket. I know it sounds unrealistic, but if your name is not on the registry on the return trip, you will be charged for a one-way ticket + fee. This option then becomes much more expensive than bucking up for a one-way in the first place.

In my opinion, it's because nothing beats selling 1 seat two times. If they force you to buy a roundtrip that you won't use - they make more money by double booking.

But OFTEN one way fares are cheaper! Use the excellent too of www.1000travelsites.com to find the best priced one-way flights. They search pretty much every travel provider on the web in a matter of seconds, including all of the airlines that charge less one-way.

As an example, I am currently looking for a flight from New York to Paris and this is what I found. Each was searched leaving the same day.

One way:
$2,068.10

Round trip:
$575.00 (Departure $271 + Return $304.00)

Despite their reasoning, this is just ridiculous.


I am running into this same exact problem and it's infuriating. My only recourse was to pick one carrier and do a multi-city trip (BOS->LHR and then VCE->BOS), but I know that's not always an option. With all the hassle of travel these days, it's getting hard to justify flying *anywhere*.

One way tickets are also useful for lengthy world tours with several stops. There are indeed round the world tickets, but I am currently trying to buy something more complicated. I have a free flight round trip from USA to Israel from a program called Birthright Israel. I am also planning to tour India and China, and then return to the USA. My return ticket would be from China to the USA, to avoid the hassle of first flying back to Israel to take advantage of my free return flight from Israel. I am having trouble finding cheap flights along these lines.

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