GAO

United States General Accounting Office

Report to Congressional Committees

July 2001 AVIATION 

COMPETITION

Restricting Airline 

Ticketing Rules 

Unlikely to Help 

Consumers

GAO-01-831

Page 1 GAO-01-831 Airline Ticketing Rules

Contents

Letter 3

Results in Brief 5

Background 9

Airlines Base Fares Primarily on Competition in Distinct Markets 14

Airlines’ Pricing Practices, Coupled With Varying Consumer Demand

and Competition, Produce Hidden-City and Back-to-Back Ticketing 

Opportunities 25

Requiring Airlines to Allow Hidden-City Ticketing Could Result in 

Higher Fares and Possibly Decreased Service, Especially to Smaller 

Communities 32

Allowing Back-to-Back Ticketing Could Result In Higher Fares for 

Leisure Passengers 42

Conclusions 44

Comments 45

Appendixes Appendix I: Scope and Methodology 48

Appendix II: Airline Inventory Management—Making Seats 

Available at Different Prices 45, 30, and 7 Days Before 

Departure and at Takeoff 54

Appendix III: Selected Bibliography 56

Appendix IV: GAO Contacts And Staff Acknowledgments 58

Related GAO Products 59

Tables Table 1: Example of Fares Available for Passengers Booking 

Tickets With a Saturday Night Stay Restriction 13

Table 2: Example of Using Back-to-Back Ticketing to Obtain 

Lower Fares on Two Trips 14

Table 3: Roundtrip Fares for Travel Between Atlanta and 

Dallas/Fort Worth 28

Table 4: Roundtrip Fares for Travel Between Pittsburgh and

Charlotte 29

Table 5: Size of Communities and Hidden-City Ticket Opportunities

in Selected Markets 40
Contents

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Table 6: Size of Communities Producing Hidden-City Opportunities

and Number of Competing Airlines Serving Those 

Communities 41

Table 7: Organizations We Contacted 48

Table 8: Routes Into Hubs and Number of Connecting Markets 

Analyzed for Each Major Carrier 51

Figures Figure 1: Markets Served by United Airlines From Its 

Chicago O’Hare Hub 10

Figure 2: Example of How a Hidden-City Ticketing Opportunity

Might Arise 12

Figure 3: Characteristics Associated With Business and Leisure 

Travelers 18

Figure 4: Characteristics of Full and Discounted Fares 20

Figure 5: Example of How Competition to a Spoke Community

May Create a Hidden-City Ticketing Opportunity 27

Figure 6: Hidden-City Ticketing Opportunities Available From

Selected Markets for Six Major U.S. Passenger Airlines 34

Figure 7: Availability of Hidden-City Ticketing Opportunities to 

Total Markets Examined 35

Abbreviations

BACK Back Aviation Solutions

DOJ Department of Justice

DOT Department of Transportation

FAA Federal Aviation Administration

O&D Origin and Destination Survey

TRB Transportation Research Board
Page 3 GAO-01-831 Airline Ticketing Rules

United States General Accounting Office

Washington, D.C. 20548 Letr

July 31, 2001

The Honorable Ernest F. Hollings

Chairman 

The Honorable John McCain

Ranking Minority Member

Committee on Commerce, 

 Science, and Transportation

United States Senate

The Honorable Don Young

Chairman

The Honorable James L. Oberstar

Ranking Democratic Member

Committee on Transportation 

 and Infrastructure

House of Representatives

Passengers on the same commercial airline flight—sometimes even those 

in adjoining seats—may pay fares that vary widely. This fact has led to 

dissatisfaction by some passengers who believe their ticket prices are too 

high and that airline ticketing practices are unfair. In an effort to reduce 

their cost of flying, some passengers have attempted to use “hidden-city”

and “back-to-back” ticketing opportunities. 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 purchases 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 discounted 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. When passengers purchase tickets, they enter into a legally 

binding contract with the carrier to receive transportation between two 

locations at specified prices and to use tickets exactly as issued.1

 Tickets 

1

This agreement is referred to as the “contract of carriage.” The terms of this contract 

between the passenger and airline are contained by reference in the ticket itself and in a 

separate document.
Page 4 GAO-01-831 Airline Ticketing Rules

contain a written reference to the terms and conditions set forth in this 

contract. The airlines view a failure to use tickets exactly as issued—such 

as by taking advantage of hidden-city and back-to-back opportunities—as a 

possible breach of contract for which the airlines can demand 

compensation. 

Members of Congress have proposed several bills that would eliminate the 

prohibition imposed by most U.S. passenger airlines against hidden-city 

and back-to-back ticketing.2

 The Wendell H. Ford Aviation Investment and 

Reform Act for the 21st Century (AIR-21) required us to study the potential 

impact of legalizing these ticketing practices.3

 As agreed with your offices, 

in response, we assessed (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 effects on airfares and service of a legislative 

requirement to permit back-to-back ticketing. 

To address these objectives, we contacted consumer advocates, travel 

agency representatives, independent industry experts (e.g., academicians, 

financial analysts, and consultants), and airline officials. We reviewed 

relevant literature about airline pricing practices, and used this and other 

data to analyze how the airlines set prices, and evaluated the viewpoints of 

officials from major U.S. passenger airlines.4

 We analyzed fare data for 

selected markets for each airline to determine whether hidden-city 

2

Several bills proposed in the previous Congress, including H.R. 700, H.R. 2200, H.R. 5347, 

and S. 2891, included language that would prohibit airlines from penalizing passengers for 

back-to-back and hidden-city ticketing. These bills had language to the effect that airlines 

would not be allowed to prohibit a person who purchases air transportation from using only 

a portion of the air transportation purchased or assess an additional fee or charge to such 

person or any ticket agent that sold the air transportation to such person. Bills in the 

current Congress, including H.R. 332, H.R. 384, H.R. 907, and H.R. 1074, contain similar 

language.

3

P.L. 106-181, Section 226.

4

The Department of Transportation (DOT) generally groups airlines based on their total 

annual operating revenues. Major airlines are those with annual operating revenues of $1 

billion or more. The six major airlines that were the focus of our study were American 

Airlines (American), Continental Airlines (Continental), Delta Air Lines (Delta), Northwest 

Airlines (Northwest), United Airlines (United), and US Airways. We also interviewed 

officials with Southwest Airlines (Southwest).
Page 5 GAO-01-831 Airline Ticketing Rules

ticketing opportunities exist. We also examined the size of communities 

where those opportunities existed. Because our fare data were not drawn 

from a statistical random sample, the results are not projectable to all 

markets. We did not conduct a similar analysis for back-to-back ticketing 

because the opportunity to use this practice exists in all markets. We 

provided a copy of our draft to industry experts for review and comment. 

Additional information on our scope and methodology can be found in 

appendix I.

Results in Brief Airlines maximize profits by setting fares based on the supply of and 

demand for travel in each market (i.e., a specific origin and destination) by 

passengers with different travel objectives. When setting fares for each 

market, a key factor that airlines consider is the amount of competition 

from other airlines offering similar “products”—scheduled air travel 

between two different points. Fares tend to be higher for travel to and 

from markets in which competition is limited, particularly those markets in 

which the origin or destination are major carriers’ hubs. Conversely, fares 

tend to be lower in markets with more competition. Airlines also set fares 

that respond to passenger demand by differentiating among travelers with 

varying requirements. In general, airlines charge higher fares for tickets 

that allow travelers to fly on short notice and retain the flexibility to change 

or cancel their trip without penalty—generally business travelers. 

According to industry experts, airlines have economic justification for 

charging higher fares to these travelers, based on the costs of providing this 

type of product. In contrast, airlines often charge lower fares for tickets 

that require passengers to plan further in advance and meet various 

restrictions (e.g., Saturday night stay)—generally leisure travelers. 

According to airlines and expert sources, the relationship between fares 

and costs are complex because most of those costs (e.g., multiyear pilot 

labor contracts and the capital cost of aircraft) are largely fixed for 

multiyear periods. As a result, once the schedules are set, the airlines seek 

to maximize their profits by generating as much revenue as possible in each 

market and for each passenger. 
Page 6 GAO-01-831 Airline Ticketing Rules

Hidden-city and back-to-back ticketing opportunities exist because of the 

way in which airlines maximize profits by setting fares that differ according 

to the market and type of passenger. 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. As a result, passengers whose real destination is 

the hub airport may be able to save money by purchasing a ticket with a 

lower fare to a spoke community but deplaning at the hub airport. For 

example, because of the differences in airfares for nonstop travel between 

Chicago and Dallas and for connecting travel from Chicago to San Antonio, 

a possible hidden-city opportunity existed for travel to Dallas. The fares 

for nonstop travel between Chicago and Dallas (available on two airlines) 

were approximately $1,085. Five other airlines offered travel from Chicago 

to San Antonio, connecting at cities other than Dallas, that ranged from 

$439 to $1,108.5

 To compete with those prices, the fare from Chicago to 

San Antonio on one of the two airlines that connected at Dallas was $904. 

Because of the fares and services other competing airlines offered between 

Chicago and San Antonio, a hidden-city ticketing opportunity existed for 

travelers between Chicago and Dallas that could allow passengers to save 

$181 by purchasing tickets to San Antonio but deplaning in Dallas. Airlines 

we interviewed could not provide us estimates as to how frequently 

passengers use hidden-city ticketing but believe that few passengers use 

this practice because of the measures that airlines have taken to prevent its 

use.

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 may be 

able to circumvent the airlines’ Saturday night stay requirement to obtain 

lower fares. For example, rather than paying $1,490 for a ticket purchased 

14 days in advance of a flight for a trip that began on a Monday and 

returned on Friday, a passenger might purchase 2 roundtrip tickets, each of 

which includes a Saturday night stay for $580 and use half of one ticket to 

depart and half of the other ticket to return. In this case, the passenger 

5

Fare data obtained on May 30, 2001, for travel beginning May 31, 2001, and returning June 1, 

2001, from Expedia.com.
Page 7 GAO-01-831 Airline Ticketing Rules

might be able to save $910. However, airlines prohibit both back-to-back 

and hidden-city practices because they consider each travel itinerary sold 

as a separate product that they have priced according to a variety of 

factors. Thus, their officials reported that they take various measures to 

prevent their use. These measures include requiring travel agents who 

violated their contractual agreement with the airlines by selling tickets that 

were used by passengers to circumvent airline ticketing rules to 

compensate them for lost revenue or enforcing the terms of the contract of 

carriage by requiring reimbursement or confiscating the ticket from the 

passenger. Some airlines also said that they were working to improve their 

capacity to detect improper ticketing practices by deploying more 

sophisticated systems. However, these airlines could not provide us 

estimates that describe how frequently passengers use these practices.

According to industry experts and airline officials, if legislation required 

airlines to permit hidden-city ticketing, airfares in certain markets (i.e., for 

travel between certain spoke communities connecting over a hub) could 

increase immediately—especially in markets including some smaller 

communities. Airlines would take these actions to protect their revenues. 

Our analysis of hidden-city opportunities within selected markets found 

that the availability of hidden-city ticketing opportunities varied among 

airlines. However, our analysis indicates that business travelers tend to 

have a greater opportunity to acquire hidden-city tickets than leisure 

travelers. For instance, of the markets that we examined, hidden-city 

ticketing opportunities existed for 16 percent of business markets but only 

1 percent of leisure markets. If demand for travel to and from these spoke 

communities eventually decreased in response to possible higher fares, 

airlines said that they would consider reducing or eliminating service to 

these markets. Industry experts agreed that such a reduction in service 

would be the airlines’ likely response to a decrease in demand. While our 

analysis indicated that hidden-city opportunities existed in communities of 

all sizes, they were statistically more likely to exist in markets that included 

smaller communities. Because smaller communities generate relatively 

less passenger traffic and generally have fewer airlines providing them 

services, these smaller cities could be more vulnerable to potential service 

reductions, and possible further fare increases, than larger ones. Some 

airlines suggested that because permitting this practice would undermine 

the efficiencies of their hub-and-spoke networks, they would choose to 

concentrate on providing service on more heavily traveled routes.

Numerous variables—including the difficulty in using back-to-back 

ticketing and how competition could affect airlines’ reaction in individual 
Page 8 GAO-01-831 Airline Ticketing Rules

markets—make it difficult to predict the extent to which airlines would or 

would not increase fares in individual markets. Nevertheless, our 

discussions with industry experts and airline officials indicate that if backto-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. Fares purchased by 

business travelers are important to airlines because they provide the 

majority of their revenue. Therefore, there is consensus among experts as 

well as airline officials that airlines are likely to take actions to reduce 

potential losses by making discounted fares more difficult for business 

passengers to obtain. This action could also have the effect of raising fares 

for leisure passengers, possibly reducing air travel by these price-sensitive 

passengers. As a result, should the number of leisure travelers decrease, 

airline officials and industry experts indicated that airlines might reduce 

capacity (e.g., by operating smaller aircraft or making fewer flights) in 

markets experiencing a notable decline in passengers. However, the 

number of leisure passengers who might seek alternative means of 

transportation would likely depend on the amount of the fare increase and 

perhaps the willingness of these passengers to plan further ahead to obtain 

fare discounts. 

Based on our analysis of how airlines could react to permitting hidden-city 

and back-to-back ticketing, we believe that allowing these practices could 

have unintended consequences, including higher air fares and decreased 

service, for consumers. Nevertheless, consumer advocates and 

passengers have legitimate concerns that some fares are higher than what 

might be expected in a more competitive market. Thus, actions that 

promote competition would seem to offer long-term promise in assuring 

that fares reflect competitive pricing and provide some measure of relief 

from unduly high air fares for some consumers—primarily business 

consumers. 
Page 9 GAO-01-831 Airline Ticketing Rules

Background Deregulation of the airline industry in 1978 ushered in an era of intense 

competition and resulted in a wide variety of fares, including discount 

fares, and flight options for passengers.6

 The variety of prices was made 

possible because deregulation allowed airlines to set fares for what airlines 

consider being distinct “products” (e.g., scheduled air transportation 

between two locations). For example, airlines consider a last-minute ticket 

that is available for nonstop jet travel between New York and Chicago to be 

a different product than a discounted ticket purchased weeks in advance 

for a flight between those same cities that makes multiple stops and 

includes turboprop service. Deregulation also brought about unanticipated 

changes, including the importance of hub-and-spoke networks by major 

carriers and the increased dominance of individual airlines at some hub 

airports. 

Given the freedom to choose their own route structure and prices after 

deregulation, most major U.S. passenger airlines began to consolidate 

further their operations at airports, forming what are known as “hubs.”

7

 

Today, of the largest U.S. airlines, only Southwest Airlines (Southwest) 

does not use the hub-and-spoke model. With a hub-and-spoke network, 

carriers can combine “local” passengers (those originating at or destined to 

the hub) with “connecting” passengers (those not originating at or destined 

to the hub but traveling via the hub) on the same flight. In this manner, 

carriers can serve more cities and offer greater frequency of service with 

their fleet of aircraft than is possible with point-to-point service.8

6

See, for example, Airline Deregulation: Changes in Airfares, Service Quality, and 

Barriers to Entry (GAO/RCED-99-92, Mar. 4, 1999) and Special Report 230: Winds of 

Change: Domestic Air Transport Since Deregulation, Transportation Research Board, 

National Research Council, Washington, D.C., 1991. (See the attached list of related GAO 

products and selected bibliography.)

7

For the purposes of this report, we are defining “hub” airport in terms of how airlines utilize 

airports to distribute passengers within their service network. In contrast, the Federal 

Aviation Administration (FAA) uses the term hub to refer to geographical areas that are 

based on the percentage of total passengers enplaned (boarded) in the area. For FAA 

purposes, a hub could include several airports. 

8

See, for example, Alfred E. Kahn, “The Competitive Consequences of Hub Dominance: A 

Case Study,” Review of Industrial Organization, Vol: 8. No. 4 (1993). Kahn developed an 

example illustrating that an airline with 10 aircraft serving 10 cities can serve 10 routes 

offering point-to-point service. He noted that if the airline operated flights to and from an 

intermediate hub, those same aircraft could serve 70 markets—5 destinations for each of 

the 10 cities plus 20 (in both directions) between each of the spoke cities and the hub.
Page 10 GAO-01-831 Airline Ticketing Rules

Major U.S. airlines generally operate hubs in several airports. For 

example, United has hubs in Chicago (at O’Hare International Airport), 

Denver, Los Angeles, San Francisco, and Washington, D.C. (at Dulles 

International Airport). As shown in figure 1, as of May 2001, United 

provided scheduled nonstop service from Chicago O’Hare to 115 

destinations throughout the continental United States. 

Figure 1: Markets Served by United Airlines From Its Chicago O’Hare Hub

Source: GAO’s presentation of data from the Kiehl Hendrickson Group. 
Page 11 GAO-01-831 Airline Ticketing Rules

Airlines operating hub-and-spoke networks use comprehensive systems to 

set a wide variety of fares for each market (i.e., a specific origin and 

destination).9

 For each market, airlines might offer 25 or more different 

fare classes representing a variety of full-fare and discount tickets. Tickets 

within each fare class, especially discounted tickets, may be subject to 

different purchase requirements, such as requiring that a passenger buy a 

ticket a certain number of days before the departure date10 and requiring 

travelers to stay at their destination over Saturday night. Airlines use their 

systems to determine the mix of full-fare and discounted fares that will 

produce the most revenue. Likewise, because many flights carry both local 

and connecting passengers, airlines use these systems to determine the mix 

of passengers that will generate the most revenue. 

Hidden-city ticketing occurs when passengers purchase tickets with 

stopovers or connecting flights at a hub airport, intending to begin or end 

their travel at the hub airport and not the origin or final destination listed 

on the ticket. The hidden city is the hub airport. There are many ways in 

how passengers may attempt to use hidden-city ticketing. For example, 

passengers may attempt to use this ticketing practice when fares to a spoke 

community beyond the hidden city cost less than travel to the hidden city 

itself. A hidden-city opportunity exists, as illustrated in figure 2, if the fare 

between origin airport A and hub airport B is $1,000 and the fare between 

airport A and airport C with a stop at hub airport B is $800. In this case, a 

passenger could attempt to reduce the cost of travel from A to B by 

booking a ticket to airport C but departing the flight at hub airport B.

9

This definition is consistent with that applied in analyses of the airline industry. For 

example, the Department of Justice (DOJ), in its analyses of the possible effects of proposed 

mergers in the airline industry, defines the relevant market as scheduled airline service 

between a point of origin and a point of destination. This is often, but not always, defined as 

a city-pair. In addition, DOJ recognizes that nonstop service between cities is important 

because business travelers are less likely to regard connecting service as a reasonable 

alternative.

10The number of days prior to a flight that a passenger must purchase a ticket to obtain a 

discount is known as an “advance purchase requirement.”
Page 12 GAO-01-831 Airline Ticketing Rules

Figure 2: Example of How a Hidden-City Ticketing Opportunity Might Arise

Source: GAO’s presentation. 

Passengers use back-to-back ticketing to circumvent the airline’s practice 

of limiting the availability of more deeply discounted fares to passengers 

who stay at their destination on Saturday nights. Airlines normally offer 

passengers who make advance purchases and stay on Saturday nights 

discounts off of the full fare. Smaller discounts are generally available to 

passengers who purchase tickets in advance but who do not remain 

through Saturday night. As indicated in table 1, a passenger who purchases 

a ticket 28 days in advance could save $1,240 by staying over on Saturday 

night. 
Page 13 GAO-01-831 Airline Ticketing Rules

Table 1: Example of Fares Available for Passengers Booking Tickets With a Saturday 

Night Stay Restriction

Source: American Airline’s Internet Web site. Fares obtained on April 24, 2001, for travel departing 

on April 25, May 1, May 8, May 15, and May 22, 2001. 

Numerous variations exist for using back-to-back ticketing. For instance, 

passengers who need to travel to the same location on consecutive weeks 

could purchase two discounted round-trip tickets that meet airlines’

requirements for a Saturday night stay. These passengers could then save 

money by using the departure and return portions of both round-trip 

tickets, provided they use the ticket coupons out of sequence. To do so, 

one round-trip ticket must have as its origin the passenger’s real point of 

origin, and the other round-trip ticket must have as its origin the 

passenger’s real point of return. As shown in table 2, a passenger could 

purchase two 14-day advance tickets for $580 and save $1,200 on each trip, 

or $2,400 in total. 

Advance purchase requirement to obtain a round-trip fare 

between Dallas/Fort Worth and Los Angeles

1-day 7-day 14-day 21-day 28-day

Fare without a 

Saturday night 

stay restriction

$2,006 $1,490 $1,490 $1,490 $1,490

Fare with a 

Saturday night 

stay restriction

$2,006 $1,490 $290 $250 $250

Difference $0 $0 $1,200 $1,240 $1,240
Page 14 GAO-01-831 Airline Ticketing Rules

Table 2: Example of Using Back-to-Back Ticketing to Obtain Lower Fares on Two Trips

Legend: N/A=not applicable

Source: American Airlines’ Internet Web site. Fares obtained on April 24, 2001.

Another variation could be where a passenger uses only the departure 

coupons of each round-trip and throws away the unused coupons. For 

example, this same passenger could purchase two 14-day advance tickets 

for $290 each ($580 total), discard the unused portions, and still save $910 

from the $1,490 14-day advance purchase fare.

Airlines Base Fares 

Primarily on 

Competition in Distinct 

Markets

Airlines set their fares in individual markets based on a complex mix of 

economic and financial factors, but primarily on the supply of and demand 

for air transportation by passengers with different travel requirements. For 

each market, competition from other airlines is an important factor 

affecting fare levels. Airlines generally charge higher fares to business 

passengers and lower fares to leisure passengers based on their differing 

travel needs, along with passengers’ differing abilities and willingness to 

pay for travel. Airlines do not directly set fares based on the costs of 

providing individual flights. Because most of the costs of operating an 

airline are fixed, an airline’s ability to earn profits depends on its ability to 

maximize passenger ticket revenues.

Major Airlines Assess the 

Supply of Air Travel in 

Setting Fares

Airlines set fares for travel between specific origins and destinations based 

largely on the competitive amount of transportation services from other 

airlines offering similar services. Different airlines may supply 

transportation services in a given market, although the service they provide 

Departure Return

14-day advance

purchase fares

(with Saturday stay

over)

14-day advance

purchase fares

(without Saturday

stay over)

Real ticket itineraries 

A to B to A Mon. May 7, begin trip #1 Fri. May 11, return trip #1 N/A $1,490

A to B to A Mon. May 14, begin trip #2 Fri. May 18, return trip #2 N/A $1,490

Purchased ticket itineraries 

A to B to A Mon. May 7, begin trip #1 Fri. May 18, return trip #2 $290 N/A

B to A to B Fri. May 11, return trip #1 Mon. May, 14 begin trip #2 $290 N/A

Total $580 $2,980
Page 15 GAO-01-831 Airline Ticketing Rules

can vary (e.g., nonstop as opposed to connecting flights). Passenger 

demand for those products likewise varies, depending on a traveler’s 

particular objectives.

Airlines may compete for passengers in a market through various ways—

for example, through price and service quality. Service quality may differ 

according to various dimensions, but can generally be expressed in terms 

of the type of aircraft used (jet or turboprop), connections made on a flight 

(nonstop or connecting), and service quantity.11 The quantity of service 

supplied is a reflection of the number of seats available for purchase in a 

market, which depends both on the size of the aircraft operated and how 

frequently service is provided in the market. 

The amount of competition from other airlines supplying similar service is 

a key factor in determining the price of an airline ticket. Markets where 

competition is limited tend to have higher fares than markets with more 

competition. Many markets to and from airlines’ hubs—which are usually 

dominated by those airlines—often have relatively little nonstop 

competition.12 This is especially true in markets between a carrier’s hubs. 

Some research has shown that fares in those markets tend to be relatively 

higher than fares in other markets. For example, in January 2001, DOT 

concluded that market power exercised by major airlines at their hubs led

11We have traditionally measured service quality using these criteria. See, for example, 

Airline Deregulation: Changes in Airfares, Service Quality, and Barriers to Entry

(GAO/RCED-99-92, Mar. 4, 1999). That report noted that there are other measures of service 

quality as well, such as on-time performance.

12Following definitions applied by us in earlier reports, an airport is considered “dominated”

if a single airline carries more than 50 percent of passenger enplanements there. For 

example, in 2000, US Airways dominated Pittsburgh International Airport, as it carried 

about 86 percent of passenger enplanements there. Passenger enplanements represent the 

total number of passengers boarding an aircraft.
Page 16 GAO-01-831 Airline Ticketing Rules

to high fares at those dominated hub airports.13 In addition, we reported 

earlier this year that major airlines dominated 16 of the 31 largest U.S. 

airports, at which about 260 million passengers traveled in 1999. Many of 

these airports also serve as airline hubs. Low-fare airlines competed at less 

than one-fourth of these airports.14 Conversely, airfares tend to be lower in 

markets where more airlines compete. Thus, airlines operating hub-andspoke networks compete directly with one another for passengers flying 

between spoke communities, but connecting over their own hubs.15 For 

example, nine airlines provide competing service between Baltimore, 

Maryland, and Portland, Oregon, via hubs such as Dallas/Fort Worth, Texas 

and Atlanta, Georgia.

Airlines also set fares based on the advantage of maintaining or increasing 

a flow of passengers through their hub airports. Consolidating a greater 

number of passengers on individual flights at hub airports reduces an 

airline’s costs of serving each passenger. This practice also helps make 

possible more frequent departures to a large number of cities, thereby 

making the airline’s services more attractive to travelers.16 The 

Transportation Research Board (TRB), in its 1999 report on competition in 

the airline industry, observed that flight frequency is especially important

13Domestic Aviation Competition Series: Dominated Hub Fares, U.S. Department of 

Transportation, Office of the Assistant Secretary for Aviation and International Affairs, (Jan. 

2001). Based on a comparison of fares at 10 dominated hub airports, DOT estimated that 

24.7 million passengers in hub markets with no low-fare competitor paid on average 41 

percent more than those flying in hub markets with low-fare competitors. DOT concluded 

that lack of low-fare price competition, not other factors such as a concentration of highfare business travelers, resulted in these higher prices. The Transportation Research Board 

noted that relatively higher fares at hubs may also reflect the costs of serving larger 

numbers of business passengers, including those costs associated with schedule frequency, 

but that the higher proportion of business passengers may also provide hubbing airlines the 

opportunity to raise fares above the cost of efficiently providing frequent service.

14See Aviation Competition: Challenges in Enhancing Competition in Dominated 

Markets (GAO-01-518T, Mar. 13, 2001).

15Anming Zhang, “An Analysis of Fortress Hubs in Airline Networks,” Journal of Transport 

Economics and Policy, Vol. 30, No. 3 (1996), pp. 293-308.

16Oum, Tae Hoon, and others, “Airline Network Rivalry,” Canadian Journal of Economics, 

Vol. 28, No. 4a (1995).
Page 17 GAO-01-831 Airline Ticketing Rules

to business travelers because many fly rather than drive to save time. 17 

Thus, airlines may set fares in some markets at levels designed to stimulate 

passenger traffic into their hubs, thereby benefiting their network as a 

whole, as well as many passengers and communities. 

Airlines Assess the Demand 

for Travel by Passengers 

With Different Needs When 

Setting Fares

Airlines also take into account passengers’ demands for their different 

products when setting fares. The prices of airline tickets reflect not just 

differences in the type of service provided, as discussed above, but also 

various conditions or restrictions that reflect different passengers’ travel 

requirements. For example, some tickets allow passengers to obtain a full 

refund or to make changes to their itinerary without penalty, while other 

tickets include more restrictions on their use. The prices that airlines 

charge for such different tickets vary accordingly. 

The industry generally segments potential passengers into two 

categories—those traveling for business purposes and those traveling for 

leisure purposes. These groups of passengers have different travel 

requirements. For instance, because business travelers must often make 

travel arrangements at the last minute, they value the ability to purchase 

tickets on short notice, make changes to their itineraries, and cancel 

reservations. Conversely, because leisure passengers are traveling for 

personal reasons, they tend to make reservations further in advance and 

keep such plans fixed. Leisure travelers also tend to be more sensitive to 

the cost of travel and are more likely to forego travel that does not fit in 

their budgets. Figure 3 identifies some of the assumptions that airlines 

make when distinguishing between types of passengers. 

17Special Report 255: Entry and Competition in the U.S. Airline Industry: Issues and 

Opportunities, Transportation Research Board, National Research Council, Washington, 

D.C., 1999.
Page 18 GAO-01-831 Airline Ticketing Rules

Figure 3: Characteristics Associated With Business and Leisure Travelers

Source: GAO’s summary of information provided by major airlines and economic literature.
Page 19 GAO-01-831 Airline Ticketing Rules

In general, business travelers tend to place greater value on tickets that (1) 

can be bought at the last minute to meet urgent needs, (2) entitle them to 

nonstop travel to their destination at the times they want or need to arrive, 

and (3) can be exchanged or cancelled without penalty.18 These 

characteristics are typical of those demanded by business travelers, who 

tend to be less sensitive to airfare costs. Conversely, a ticket that allows a 

passenger to travel between two points but on connecting flights at offpeak times represents a different product for which airlines may charge a 

lower price. Airlines price the fares for tickets with these different features 

accordingly—setting higher fares for tickets with no restrictions, which 

they consider more valuable to business travelers and providing discounts 

on tickets that carry other restrictions or conditions, which are designed to 

appeal to leisure travelers. Figure 4 identifies the different characteristics 

of full-fare and discounted tickets.

18TRB’s 1999 report noted that fares paid by travelers in the same market can vary widely 

because of differences in the cost of traveling at different times of the day or week. Higher 

fares should be expected for travel during peak times when demand is greatest and 

resources are tight. Special Report 255: Entry and Competition in the U.S. Airline 

Industry: Issues and Opportunities, Transportation Research Board, National Research 

Council, Washington, D.C., 1999.
Page 20 GAO-01-831 Airline Ticketing Rules

Figure 4: Characteristics of Full and Discounted Fares

Source: GAO’s summary of information provided by major airlines and economic literature. Fares and 

fare rules obtained through Expedia.com on April 2, 2000.

Because business travelers do not want to stay at a business destination 

over a weekend, airlines generally use a Saturday-night stay requirement to 

distinguish them from leisure travelers. According to some airline officials, 

airlines consider this distinction to be a more powerful tool than the 

advance purchase requirement to segment the market between business 

• 14-day advance purchase requirement

• Good, but limited, availability

• Minimum stay requirement (Saturday night)

• Nonrefundable and nonexchangeable

• Fee required to change travel times

• No advance purchase requirements

• Last seat availability on all flights

• No minimum stay requirements

• Fully refundable and exchangeable

• No travel restrictions

Full Fare: Chicago–New York = $1,420 Discount Fare: Chicago–New York = $191

NAME OF PASSENGER

FROM

TO

FARE

TAX

TAX

TOTAL 

NAME OF PASSENGER

FROM

TO

FARE

TAX

TAX

TOTAL 

TO

CARRIER FLIGHT CLASS DATE

GATE

SEAT

SMOKE

NAME OF PASSENGER

BOAR

FROM

TO

CARRIER FLIGHT CLASS DATE TIME

GATE

SEAT

SMO

ABC AIRLINES

PASSENGER TICKET SUBJECT TO CONDITIONS OF CO

Chicago

New York

N

Chicago

New York

Full fare

$1,420 

Chicago

New York

Discount fare

$191 

ABC AIRLINES

PASSENGER TICKET AND BAGGAGE CHECK SUBJECT TO CONDITIONS OF CONTRACT ON REVERSE SIDE
Page 21 GAO-01-831 Airline Ticketing Rules

and leisure travelers. Given the requirements of business travel, business 

passengers often have no choice but to pay the fares set by the airlines. 

Business passengers generate a high percentage of the airlines’ revenue. 

Estimates vary, but industry experts generally estimate that business 

travelers account for 30 to 50 percent of the passenger traffic and between 

60 to 80 percent of industry revenue. 

Airlines Have Some 

Economic Justification for 

Charging Higher Fares to 

Some Passengers

Since airlines primarily account for the supply of and demand for air 

transportation services when setting fares, the relationship between fares 

and the cost that an airline may incur to operate a particular flight is 

complex. This relationship depends upon (1) consumer demand for 

different types of air service, (2) the cost of providing these services, and 

(3) the level of competition for these services in each market.

A large portion of airlines’ costs are fixed in advance, varying relatively 

little by flight or by the total distance flown. As a result, airlines can 

maximize profits best by maximizing the total amount of revenue they 

generate through each passenger ticket. For airlines, this also means 

charging higher airfares for products they consider more expensive to 

supply.

Experts generally agree that there are economic justifications for airlines 

to charge higher fares for tickets that permit travelers to fly at the last 

minute, receive a refund for unused tickets, and change reservations 

without penalty. To keep seats available for passengers who book seats at 

the last minute, generally business travelers, airlines may limit the 

availability of discount fares for passengers who may have wanted to buy 

those seats several weeks before the flight’s departure. At the same time, 

however, the airlines risk not selling these seats at all.19 Thus, when 

airlines price full-fare tickets, they take into consideration the high 

“opportunity cost” of not selling those seats. Simply put, then, airlines may 

charge business passengers higher fares, in part, because they are more 

expensive to serve.

19For this reason, airlines view seats as perishable products--that is, a product that loses all 

of its value, if it remains unused. An airline cannot sell unfilled seats once an aircraft pushes 

back from the gate. Other businesses, such as hotels, sell products with similar 

characteristics.
Page 22 GAO-01-831 Airline Ticketing Rules

From an airline’s perspective, this approach makes sense because of the 

relationship between fares and their costs. According to industry experts 

and airline officials, a high percentage of airline costs are fixed in advance 

of a flight’s departure.20 Some of these fixed costs include capital costs 

(e.g., purchasing aircraft and operating airport facilities), labor costs (e.g., 

multiyear pilot contracts), and overhead. These costs change little, 

regardless of whether an aircraft is flying with a full load of high-fare 

passengers during peak business times or flying nearly empty late at night 

with leisure passengers. Because airline costs are largely predetermined, 

once schedules are set, airlines focus on generating as much revenue as 

possible from each passenger in each market rather than trying to cover 

these costs.

TRB’s 1999 report on competition in the airline industry also stated that 

airlines may not be able to cover the total cost of providing frequent service 

without the ability to charge different fares to different passengers, 

particularly higher fares to business passengers. 21 In industries such as 

commercial aviation, which is characterized by relatively high fixed costs 

and low marginal costs, uniform prices set at marginal costs may not 

recover an airline’s total costs unless it is able to charge different prices to 

different buyers (an economic action known as “market segmentation”), 

reflecting those passengers’ different sensitivities to airfare costs. If an 

airline were not able to use market segmentation (i.e., differentiating 

between business and leisure passengers), it might not be able to cover the 

total cost of providing frequent and extensive service. As a result, certain 

groups of passengers—whether business, leisure, some combination of 

both, or those in particular communities—who valued the service would 

not, for instance, be able to fly as frequently. Thus, the ability of airlines to 

use market segmentation may be advantageous to airlines and some 

consumers.22 However, there is debate among experts about the extent to 

20These estimates vary. For instance, as indicated by one set of experts, approximately 80 to 

90 percent of total airline costs may be fixed far in advance of individual flights. See Paul 

Stephen Dempsey and Laurence E. Gesell, Airline Management: Strategies for the 21st

Century (Chandler [Ariz.]: Coast Aire Publications, 1997). 

21Special Report 255: Entry and Competition in the U.S. Airline Industry: Issues and 

Opportunities. Transportation Research Board, National Research Council, Washington, 

D.C., 1999.

22 TRB’s 1999 report notes that price discrimination in the airline industry might not be 

particularly desirable in the long term unless it can be tested by open entry and competition. 
Page 23 GAO-01-831 Airline Ticketing Rules

which such price differentiation is beneficial to consumers, and whether 

less price dispersion would be more beneficial.

At the same time, however, TRB’s 1999 report noted that airlines may have 

become too skilled at identifying passengers who are less sensitive to 

paying high prices--business passengers--and too eager to charge them 

“excessive” fares above the level necessary to provide service. The report 

also notes that a protection against an airline’s ability to charge excessive 

fares is the ability of new airlines to enter those markets and compete.

Challenges Remain to 

Effectively Oversee and 

Promote Competition

Relatively high airfares are a reflection, in part, of how individual airlines 

dominate airports and markets. As noted earlier, in 1999, major airlines 

dominated 16 of the 31 largest U.S. airports, facing low-fare competition at 

just 3 airports.23 Although dominance at an airport, in and of itself, is not 

anticompetitive, research has shown that routes to and from dominated 

airports tend to have higher airfares than routes to and from airports that 

have more competition from other airlines. In addition, dominant carriers 

often have exclusive access to essential facilities at airports, as well as 

sales and marketing practices, which combine to limit the ability of new 

entry carriers to enter markets and compete with them.

23Consistent with previous reports on airline competition, we adopted DOT’s definition of a 

competing airline as one with a market share of 10 percent or more. See, for example, 

Aviation Competition: Issues Related to the Proposed United Airlines—US Airways 

Merger (GAO-01-212, Dec. 15, 2000). In this report, we adapted that definition to include 

only airlines with 10 percent or more of available scheduled seating capacity.
Page 24 GAO-01-831 Airline Ticketing Rules

As we reported in March 2001, the federal government faces significant 

challenges in enhancing competition, particularly in dominated markets. In 

a recent case involving alleged predatory practices, DOJ exercised its 

authority under the Sherman Antitrust Act to prevent monopolization by 

filing a complaint against American Airlines. DOJ alleged that American 

violated the Sherman Act by attempting to monopolize service out of 

Dallas-Fort Worth by increasing capacity and reducing fares "well beyond 

what makes business sense,” to drive new competitors, such as Vanguard 

and Western Pacific Airlines, out of the market. However, in April 2001, the 

federal district court in Kansas granted summary judgment for American.24 

DOJ has since announced that it is appealing that ruling.

DOT generally has not taken enforcement action against airlines for alleged 

anticompetitive behavior concerning airline mergers and predatory 

practices.25 This includes the period during the 1980s when DOT approved 

a wave of mergers, such as Trans World Airline’s (TWA’s) acquisition of 

Ozark, as well as more recently, with respect to DOT’s authority to prohibit 

unfair methods of competition (e.g., predatory practices). While DOT is 

not required to take action to ensure or enhance competition, it has taken 

some actions more recently to enhance competition, such as using its 

authority to grant more slots to new entrants. DOT has used this authority 

to investigate several complaints of predatory practices by major air 

carriers against new entrants. Based on these complaints, in April 1998, 

DOT proposed guidelines for the use of DOT authority over predatory 

practices. However, DOT did not finalize or implement those guidelines, 

since the DOT Secretary decided that DOT should adopt standards through

24In another case dealing with an airline merger, DOJ successfully opposed the proposed 

Northwest-Continental merger using its authority under the Sherman and Clayton Antitrust 

Acts and the Hart-Scott-Rodino Act to review airline mergers and prohibit anticompetitive 

behavior. Proposed in 1998, this acquisition would have given Northwest 51 percent of the 

voting rights in Continental. In January 2001, DOJ withdrew its lawsuit when Northwest 

agreed to divest all but 7 percent of its voting interest in Continental. However, according to 

Continental officials, Northwest still retains the right to block certain change of control 

transactions.

25DOT has no current authority to approve mergers, but it does have general authority under 

49 USC 41712 to act against what it considers to be an unfair or deceptive practice or an 

unfair method of competition in air transportation.
Page 25 GAO-01-831 Airline Ticketing Rules

a case-by-case approach.26 The extent to which DOT’s authority under 

section 41712 applies to predatory practices is unclear.27 Because DOT has 

not exercised its authority in the area of predatory practices, the way in 

which this provision will be interpreted and applied is unclear.

Airlines’ Pricing 

Practices, Coupled 

With Varying 

Consumer Demand and 

Competition, Produce 

Hidden-City and Backto-Back Ticketing 

Opportunities

Hidden-city and back-to-back ticketing opportunities exist because of the 

way in which airlines maximize revenue by setting fares that vary 

according to market and type of passenger. Hidden-city opportunities may 

occur when airfares in markets between spoke communities are less than 

in markets to and from airline hub airports. Differences in the amount and 

type of competition from other airlines often explain variations in fares. In 

turn, back-to-back ticketing opportunities occur because airlines are able 

to charge different fares to business and leisure passengers. The contract 

of carriage allows the airlines to prohibit certain uses of tickets, thus letting 

the airlines differentiate between types of passengers.

Limited Competition From 

Other Airlines Into Hub 

Airports Contributes to the 

Creation of Hidden-City 

Opportunities 

The extent and type of competition in various markets—and particularly 

the differences in fares that result from that competition—help create the 

conditions under which hidden-city ticketing opportunities may occur. If 

an airline faces little or no competition for nonstop service in markets to or 

from one of its hubs, especially from low-fare carriers, it may set airfares in 

that market at high levels. As noted earlier, many markets to and from 

airlines’ hubs often have relatively little nonstop competition. Conversely, 

in markets between spoke cities, where more competition exists from 

other carriers for connecting service, fares may be relatively lower. As a 

result, the combination of competition in two markets—first, to an airline’s 

26The Secretary stated in January that DOT’s review of the TRB report on the proposed 

guidelines, along with additional analyses, confirmed that airlines engage at times in unfair 

competitive practices designed to eliminate or reduce competition and that it should take 

action to prevent such practices.

27Under 49 U.S.C. 41712, DOT has the authority and the responsibility to prohibit an unfair or 

deceptive practice or an unfair method of competition in the airline industry, which allows 

DOT to block anticompetitive practices that violate antitrust principles. This authority was 

intended to protect consumers from trade practices, which are unfair, misleading, contrary 

to recognized public policy, or a violation of antitrust laws or principles. Acting under this 

authority, DOT has promulgated regulations and taken enforcement actions in such areas as 

computer reservation systems, airline advertising, and the notice that airlines must give 

passengers of contractual terms between the passenger and the carrier.
Page 26 GAO-01-831 Airline Ticketing Rules

hub where less competition may exist for nonstop service and second, to 

another location that may be served by numerous airlines with competing 

service—can create a hidden-city ticketing opportunity at an airline’s hub.

Figure 5 illustrates that the degree to which competition exists in different 

markets can create a hidden-city ticketing opportunity. It shows the 

various routes through which passengers could have traveled from Chicago 

(O’Hare) to Dallas/Fort Worth, and from Chicago (O’Hare) to San Antonio 

that connected at Dallas/Fort Worth and other airlines’ hubs. Because of 

the differences in airfares for nonstop travel between Chicago and Dallas 

and for connecting travel from Chicago to San Antonio, a hidden-city 

opportunity may exist for travel to Dallas. The fares for nonstop travel 

between Chicago and Dallas (available on two airlines) were $1,085. Five 

other airlines offered travel from Chicago to San Antonio, connecting at 

cities other than Dallas, that had fares ranging from $739 to $1,108.28 To 

compete with those prices, the fare from Chicago to San Antonio on an 

airline that connects at Dallas was $904. (Southwest also provided 

connecting service to San Antonio, but its flights originated at Chicago’s 

Midway Airport.29) Because of the fares and services other competing 

airlines offered between Chicago and San Antonio, a hidden-city ticketing 

opportunity exists for travelers on one air carrier between Chicago and 

Dallas. 

28Fare data obtained on May 30, 2001, for travel beginning May 31, 2001, and returning June 

1, 2001, from Expedia.com.

29Not all travelers may regard alternative airports in the same metropolitan area as 

substitutes for one another. This is particularly true for more time-sensitive business 

travelers, who may consider alternative airports to be less convenient for the purposes of 

their trip. See, for example, Reagan National Airport: Capacity to Handle Additional Flights 

and Impact on Other Area Airports (GAO/RCED-99-234, Sept. 17, 1999).
Page 27 GAO-01-831 Airline Ticketing Rules

Figure 5: Example of How Competition to a Spoke Community May Create a Hidden-City Ticketing Opportunity

Source: GAO’s presentation of May 2001 schedule data from the Kiehl Hendrickson Group.
Page 28 GAO-01-831 Airline Ticketing Rules

Back-to-Back Ticketing 

Opportunities Result From 

Airlines’ Pricing Practices 

and Ticketing Restrictions, 

Which Vary by Market

The potential for back-to-back ticketing is created by the ability of airlines 

to maximize their profits by charging different fares to different consumers 

on the same flight. More specifically, this opportunity exists because 

airlines use the Saturday night stay requirement to prevent business 

passengers from obtaining fare discounts typically reserved for leisure 

passengers. Because major network airlines can use this requirement to 

differentiate their fares in all markets, this ticketing opportunity potentially 

exists in all markets. 

The savings that a passenger could realize by using back-to-back ticketing 

varies by market and by airline. Table 3 shows that passengers traveling 

between Atlanta, Georgia and Dallas/Fort Worth, Texas who booked tickets 

less than 6 days in advance of travel could have saved $368 by booking a 

ticket with a Saturday night stay requirement. The amount of potential 

savings generally increases the further in advance of the travel that a 

passenger purchases the ticket. Table 4 shows that a passenger traveling 

between Pittsburgh, Pennsylvania, and Charlotte, North Carolina, who 

booked tickets 1 day in advance would have saved nothing. On the other 

hand, travelers who booked 2 weeks in advance could have saved $253, and 

those who booked 4 weeks in advance could have saved $645. 

Table 3: Roundtrip Fares for Travel Between Atlanta and Dallas/Fort Worth 

Source: These data were obtained from the Delta’s Web site on May 31, 2001, for departures on 

June 4, June 11, June 18, June 25, and July 2, 2001. These fares reflect those available to 

passengers willing to purchase fares at various time intervals (e.g., 14 days) prior to departure and 

may be subject to various other restrictions (e.g., nonrefundable). The time intervals represent full 

business days, not calendar days.

Advance purchase requirement to obtain discount round-trip fares 

for nonstop service between Atlanta and Dallas/Fort Worth

1-day 7-day 14-day 21-day 28-day

Fare without a 

Saturday night 

stay over

$775 $625 $625 $625 $625

Fare with a 

Saturday night 

stay over

$407 $309 $203 $203 $203

Difference $368 $316 $422 $422 $422
Page 29 GAO-01-831 Airline Ticketing Rules

Table 4: Roundtrip Fares for Travel Between Pittsburgh and Charlotte

Source: These data were obtained from the US Airways’ Web site on May 31, 2001, for departures on 

June 4, June 11, June 18, June 25, and July 2, 2001. These fares reflect those available to 

passengers willing to purchase fares at various time intervals (e.g., 14 days) prior to departure and 

may be subject to various other restrictions (e.g., nonrefundable). The time intervals represent full 

business days, not calendar days.

These tables also illustrate that, because of differences in the amount of 

potential savings, a traveler’s ability to circumvent the Saturday night 

requirement can be more difficult in one market than in another because of 

the need to book tickets further in advance. 

Enforceable Fare Rules 

Allow Airlines to Prevent 

Passengers From Using 

Hidden-City and Back-toBack Ticketing

Most major airlines attempt to restrict passengers from using hidden-city 

and back-to-back ticketing. Southwest, however, does not prohibit or 

penalize passengers from using back-to-back and hidden-city ticketing. 

According to Southwest officials, because it largely prices its tickets based 

on travel between two points, and it is a carrier that seeks to use its low 

fares to stimulate travel by people who might not otherwise fly, Southwest’s 

fares are more closely aligned with the distance traveled by a passenger. 

Thus, the fare differentials that could motivate passengers to use hiddencity and back-to-back ticketing on other major airlines are less likely to 

exist on Southwest. 

Advance purchase requirement to obtain discount round-trip 

fares for nonstop service between Pittsburgh and Charlotte

1-day 7-day 14-day 21-day 28-day

Fare without a 

Saturday night 

stay restriction

$902 $902 $902 $902 $902

Fare with a 

Saturday night 

stay restriction

$902 $902 $649 $257 $257

Difference $0 $0 $253 $645 $645
Page 30 GAO-01-831 Airline Ticketing Rules

The six airlines that are the focus of our data analysis prohibit the use of 

hidden-city and back-to-back opportunities and told us that they take 

actions to discourage passengers from using them. These airlines prohibit 

the use of such practices in their contracts of carriage. These contracts set 

out the terms and conditions that passengers must follow when they 

purchase a ticket, which incorporates the terms of these contracts by 

reference.30 The contract also establishes the terms under which the 

airlines must transport the passenger. For example, these contracts 

include provisions that establish liability limits for lost baggage, passenger 

entitlements when flights are delayed or canceled, and prohibitions against 

back-to-back and hidden-city ticketing practices. Terms and conditions of 

this contract are legally binding on both the airline and the passenger and 

may be enforced by either party in court. Therefore, if a passenger fails to 

comply with these restrictions on how a ticket may be used, the airline has 

the right to cancel or confiscate the unused portion of the passenger’s 

ticket or demand the passenger or the travel agent who sold the ticket to 

pay the difference in value—that is, airlines have the right to receive the 

full-fare cost of the ticket. 

30For example, United’s Rule 100 indicates that valid tickets entitle a passenger to 

transportation only between the points of origin and destination specified by the ticket, via 

the designated routing, and that flight coupons will be honored only in the order in which 

they are issued and only if all unused flight coupons and the passenger’s coupons are 

presented together. 
Page 31 GAO-01-831 Airline Ticketing Rules

Airline officials told us that they use various systems to detect hidden-city 

and back-to-back ticketing but most could not supply us with estimates 

describing how often passengers have used such opportunities. Although 

they did not provide us estimates, airline officials believe that few 

passengers use hidden-city opportunities because most airlines 

automatically cancel the balance of a passenger’s reservation whenever a 

passenger fails to use one portion of a ticket. For example, if a passenger 

flies round-trip from the East Coast to Los Angeles via Pittsburgh and 

deplanes at Pittsburgh rather than Los Angeles, an airline would cancel the 

balance of the passenger’s reservation because it considers that passenger 

a “no-show.” While most airlines did not provide data on the extent to 

which back-to-back ticketing occurs, five airlines appeared to have or 

referred to some data on the extent to which this ticketing practice was 

occurring.31 Officials representing airlines that could detect the use of this 

practice reported that they had or were willing to take measures to obtain 

revenue lost due to use of this practice. For example, these officials 

reported that they would require travel agents who violated their 

contractual agreement with the airlines by selling tickets that were used by 

passengers to circumvent airline ticketing rules to compensate them for 

revenue lost due to these practices. Airlines, however, did not have data to 

show us how often this was done. Some airlines also reported that they 

were in the process of developing technology that would allow them to 

more rigorously monitor the use of back-to-back ticketing. 

Various consumer advocates recognize that passengers who use back-toback and hidden-city ticketing can be potentially identified and penalized 

by the airlines. While these advocates generally believe that consumers 

should be able to use these practices, none recommended that passengers 

attempt to circumvent the current fare rules.

31This information was not available for us to report because the airlines considered these 

data to be proprietary. See app. I for additional information on the agreements that we made 

with airlines pertaining to the use of information considered to be “business confidential.”
Page 32 GAO-01-831 Airline Ticketing Rules

Requiring Airlines to 

Allow Hidden-City 

Ticketing Could Result 

in Higher Fares and 

Possibly Decreased 

Service, Especially to 

Smaller Communities

According to industry experts and airline officials, if legislation required 

airlines to permit hidden-city ticketing, airfares in certain markets could 

increase immediately--especially those to and from some smaller 

communities. Our analysis of hidden-city opportunities within selected 

markets found that the availability of those opportunities varied among 

airlines. However, our analysis indicates that business travelers tend to 

have a greater opportunity to acquire hidden-city tickets than leisure 

travelers. Furthermore, more markets between communities of all sizes 

could offer hidden-city ticketing opportunities, but those markets with 

smaller communities were more likely to offer such fares. According to 

industry experts, if passenger traffic subsequently fell because of higher 

airfares, carriers could decrease or eliminate service from some or all of 

those smaller community markets. Our analysis suggests that because 

smaller communities generally have fewer airlines than larger 

communities, they could be more vulnerable to decreased or lost air 

service. 

Hidden-City Opportunities 

Vary Among Carriers and 

Markets

Both industry and airline officials acknowledged that hidden-city ticketing 

opportunities exist throughout each carriers’ network. These officials also 

noted that business travelers might find saving money through the use of 

hidden-city ticketing attractive to them. Even business travelers who have 

corporate rates with a particular carrier might use these opportunities.32

32Airlines sometimes enter into agreements with corporate clients (known as corporate 

incentive agreements) that represent offers by airlines for fares that are discounted from the 

prices that are otherwise applicable. They may be stated as percentage discounts from 

specified published fares.
Page 33 GAO-01-831 Airline Ticketing Rules

Our analysis of fare data on selected markets for six major U.S. passenger 

airlines supported what both industry and those airline officials stated 

about the availability of hidden-city opportunities. Of the 2,302 markets we 

examined, 398 (17 percent) provided such opportunities.33 We found that 

hidden-city fares existed on each airline’s network, although the number 

varied widely among carriers. As figure 6 illustrates, the number of hiddencity ticketing opportunities ranged from 140 (nearly 35 percent) for one 

carrier to 9 (about 2 percent) for another. 

33Our review was evenly divided between business and leisure travelers with 1,151 markets 

examined for each type of traveler. We defined a hidden-city ticketing opportunity to exist 

for business travelers if the difference in airfares between the hub market and the spoke 

airport was $100 or more. For leisure passengers, we defined a hidden-city ticketing 

opportunity to exist if the difference in airfares was $50 or more. See app. I for further 

details on the methodology used for this review.
Page 34 GAO-01-831 Airline Ticketing Rules

Figure 6: Hidden-City Ticketing Opportunities Available From Selected Markets for 

Six Major U.S. Passenger Airlines

Source: GAO’s analysis of airline fare data collected during January and February 2001. 

The majority of hidden-city ticketing opportunities existed for business 

fares.34 Of the 398 markets in which we found such opportunities, 364 (91 

percent) existed only for business travelers and 34 (9 percent) existed for 

leisure travelers. Figure 7 shows the distribution of the number of hiddencity ticketing opportunities between the 2,302 markets that we reviewed. 

34For purposes of our analysis, we defined business fares as those purchased for travel 

beginning the next business day and returning at least 1 day later, but prior to a Saturday. 

We defined a leisure fare as that purchased at least 21 days in advance and including a 

Saturday night stay.
Page 35 GAO-01-831 Airline Ticketing Rules

Figure 7: Availability of Hidden-City Ticketing Opportunities to Total Markets 

Examined

Source: GAO’s analysis of airline data.
Page 36 GAO-01-831 Airline Ticketing Rules

Analysis of Airfare Data 

Supports Theory That 

Competition Creates 

Hidden-City Opportunities

As noted earlier, economic literature, industry experts, and airline officials 

suggested that hidden-city ticketing opportunities existed, primarily 

because of how competition affected airfares in different markets.35 We 

statistically analyzed a variety of data for the 2,302 markets to determine 

whether these explanations were valid and whether other factors might 

explain the existence of hidden-city opportunities.36 We found that the 

extent these factors influenced hidden-city opportunities not only varied 

among different airlines, but also varied within individual airlines’

networks. Our analysis revealed that the amount and type of competition 

in hub markets, along with the amount and type of competition from other 

airlines into the spoke markets, were statistically significant for the major 

carriers we examined.37 That is, our analysis supported the theory that 

competition creates the conditions that foster hidden-city opportunities. 

For each airline, we analyzed all possible markets to which passengers 

could connect at the airline’s busiest hub airport from the three most 

heavily traveled inbound routes in 2000. We examined airfares in the 

markets to the airline’s hubs and to the spoke markets. We also examined 

the competition (in terms of the percentage of capacity scheduled) by all 

airlines that operated in those markets. Our analysis of data on each airline 

found that the relationship between competition from other airlines and 

the existence of hidden-city ticketing opportunities was statistically 

significant. That is, with each airline, we found that hidden-city 

opportunities were created by the combination of (a) the lack of 

competition from other carriers (either other major network airlines or 

low-fare airlines) into the airline’s hub and (b) greater competition from 

other airlines offering connecting service to the spoke communities. We 

35Airline officials also indicated that some other factors independent of competition might 

cause an airline to price service to a spoke airport less than that to a hub. Those factors 

include changes in equipment type (e.g., passengers traveling to smaller communities 

beyond the hub may have to fly on small turboprop aircraft, a perceived inconvenience for 

which the airline may extend a fare discount) and relatively high degrees of circuity (i.e., 

forcing a traveler to double-back on a route to reach a destination, such as flying from 

Albany, New York, to Norfolk, Virginia, but connecting in Atlanta).

36We included several different factors in our analysis. These factors included a flight’s 

origin, the population of the destination city, the number of stops on a flight, the dominance 

of any one carrier on a route, and the competition between major and low-cost carriers 

between the origin, hub, and final destination of the flight. See app. I for additional 

information on our methodology.

37We excluded one air carrier from this analysis because of the 266 business markets we 

examined for that airline, hidden-city opportunities existed in only 6. 
Page 37 GAO-01-831 Airline Ticketing Rules

also found that for one airline, relatively high levels of competition from a 

low-fare carrier on one of its three most heavily traveled routes effectively 

eliminated the existence of hidden-city opportunities by restraining fares in 

that market. Because competition held down fares in the market to the 

hub, fares to spoke communities beyond that hub were higher.

Yet we also found situations in which the analysis did not clearly support 

the theory that competition was responsible for creating hidden-city 

opportunities. For one airline, for example, we found that low-fare 

competition into the airline’s hub did not have the restraining influence on 

fares by the hub carrier that economic theory would have predicted. 

Despite the presence of a low-fare competitor, fares to the hub were still 

relatively high, thereby creating a situation in which the hub airline’s 

markets beyond the hub still presented large numbers of hidden-city 

opportunities. For another airline, we found large differences in the 

number of hidden-city ticketing opportunities potentially available beyond 

two different hub markets. However, the two hub markets were similar in 

terms of the competition that the airline faced from low-fare carriers and 

other major carriers. Thus, competition from low-fare airlines to that 

carrier’s hub did not explain whether the hub airline’s pricing strategy 

presented hidden-city opportunities or not.

Airline and Industry 

Officials Indicate That 

Airlines May Raise Fares 

and Decrease Service, 

Especially to Small 

Communities, If Hidden-City 

Ticketing Is Permitted

Airline officials stated that requiring carriers to permit hidden-city ticketing 

could produce broad changes throughout their networks. Independent 

industry experts (financial analysts, academics, and consultants) 

concurred, noting that requiring airlines to permit hidden-city ticketing 

could cause airlines to lose revenue, if they did not alter their fares or 

pricing strategies. However, these same officials stated that the airlines 

would likely make immediate changes to their pricing strategies, raising 

fares in markets that now have hidden-city opportunities. If passenger 

traffic eventually declined in those markets in response to the increased 

airfares, airlines might decrease or eliminate service to minimize their 

losses. Our analysis indicated that a disproportionate percentage of cities 

that might be affected would be small communities.

According to airline and other industry officials, requiring airlines to permit 

hidden-city opportunities would cause them to lose revenue in two ways. 

First, it would allow passengers to obtain seats costing less than what the 

airline intended for a given product. An airline’s potential loss of revenue 

from hidden-city ticketing on business fares could be considerable. For the 

398 markets that we identified in which potential hidden-city opportunities 
Page 38 GAO-01-831 Airline Ticketing Rules

existed, we found that the difference between the fares for travel to the 

hidden-city hub airport and fares for travel to the spoke city ranged from a 

low of $103 to a high of $1,954. That is, for each passenger that was able to 

take advantage of a particular hidden-city opportunity, the airline could 

lose between approximately $100 to $2000, depending on the route and 

hidden city traveled. Second, the airline may not have sold tickets for 

flights from the hub to the connecting city because the airline would not be 

aware of travelers’ intentions to deplane at the hidden city. Consequently, 

the airline may have foregone revenue that it otherwise could have earned 

because seats that it potentially could have sold for more money to other 

passengers went vacant. For example, a flight from Chicago to San 

Antonio with a connection in Dallas could cost $904, as opposed to $1,085 

from Chicago to Dallas. If the passenger deplanes in Dallas, the hidden 

city, and the seat is vacant from Dallas to San Antonio, the airline 

potentially lost about $594—the fare for travel between Dallas (the hub) 

and San Antonio (the spoke city)--assuming that the flight otherwise was 

full—plus another $181 for the difference between the hidden ticket and 

the cost of a ticket between Chicago and Dallas.

Industry and airline officials believe that, besides causing potential revenue 

losses by airlines, permitting hidden-city ticketing would also hinder the 

airlines’ ability to manage their operations, at least in the near term. Until 

such time as they are able to acquire sufficient data on the extent to which 

passengers use only part of their tickets, airlines could have problems 

determining the optimal capacity (i.e., size of aircraft and flight frequency) 

to schedule in specific markets. To reconcile its capacity with actual 

passenger traffic in those markets, airlines may change the extent to which 

they overbook those markets. If unusual numbers of passengers did not 

deplane at the hidden city on a given flight, then the airline could incur 

some passengers’ dissatisfaction from being denied boarding on the last 

flight segment. Furthermore, a requirement permitting hidden-city 

ticketing could also prevent airlines from pricing tickets based, at least in 

part, on the real demand for travel between specific locations, thereby 

undermining the airlines’ ability to manage their networks profitably. 
Page 39 GAO-01-831 Airline Ticketing Rules

To reduce potential losses, airline officials and industry experts stated that 

airlines would, in all likelihood, immediately increase fares for travelers in 

markets that formerly presented hidden-city ticketing to eliminate those 

opportunities. Based on our analysis, we believe that business travelers 

could be those facing these fare increases. As a result of these fare 

increases, some travelers, including price-sensitive leisure travelers, might 

choose not to fly. Thus, in the long term, with less passenger flow to the 

hub, airline officials told us that they would likely decrease or eliminate the 

level of service provided to communities with relatively little passenger 

traffic, opting instead to concentrate on maintaining service to more 

heavily traveled and profitable markets.38 Both industry and airline 

officials concurred that smaller communities would be most likely to 

experience decreases in service. 

Our analysis tends to support the hypothesis that smaller communities 

would be at risk for decreased air service or might possibly lose service 

entirely. 

• First, while communities of all sizes presented hidden-city 

opportunities, the relationship between hidden-city opportunities and 

community size was statistically significant. Our analysis indicates that 

smaller-city markets were statistically more likely than larger-city 

markets to present hidden-city ticketing opportunities.39 This was true 

for four of the five air carriers analyzed.40 Table 5 shows the distribution 

of markets analyzed, by size of spoke communities.

38One expert observed that additional analysis would be necessary to conclusively 

determine whether service reductions would occur in specific markets. He noted that this 

determination would require an analysis of flight profitability reports (e.g., reflecting the 

amount of revenue from nonstop and connecting passengers) for each market. 

39For presentational purposes, we collapsed the communities into four categories but these 

categories mask the full range of community sizes that were captured by our statistical 

analysis. We performed our analysis, and thus our test of statistical significance, prior to 

collapsing the communities into four categories. We did so to capture the entire variation of 

community sizes relative to the presence of a hidden-city opportunity. Therefore, while the 

table may suggest that small communities were not more likely to have a hidden-city 

opportunity than medium-large ones, we did in fact find a statistically significant 

relationship when examining this association across the full range of community sizes. 

40We excluded one air carrier from this analysis because of the 266 business markets we 

examined for that airline, hidden-city opportunities existed in only 6 markets. See app. I for 

additional information on how we determined statistical significance.
Page 40 GAO-01-831 Airline Ticketing Rules

Table 5: Size of Communities and Hidden-City Ticket Opportunities in Selected 

Markets 

Source: GAO’s analysis of data from the airlines’ Internet Web sites and the U.S. Bureau of the 

Census.

• Second, smaller communities generally have fewer airlines providing 

service than larger communities. If an airline that operates to a smaller 

community would decide to decrease or discontinue its flights, the 

community would be more vulnerable to monopolized air service.

The 364 business hidden-city ticketing markets represented service to 172 

different communities.41 For 36 of those 172 communities, air service is 

provided by only 1 air carrier. That is, one airline effectively monopolized 

service to and from these communities. (No other airline offered 10 

percent or more of scheduled capacity.) For the 136 remaining 

communities, more than one airline provided service. If one of the airlines 

decided to discontinue service, an additional 49 of those 136 communities 

would have virtually no airline competition, and another 45 communities 

would have service from only 2 competitors. (See table 6.) In other words, 

if one airline eliminated service to those communities, nearly half of them 

would receive only monopoly air service. 

Community 

size Measure

Hidden-city

ticket

opportunity

No hidden-city

ticket

opportunity Total

Large Number 122 314 436

Row percent 28% 72% 100%

Medium-large Number 129 258 387

Row percent 33% 67% 100%

Medium Number 73 133 206

Row percent 35% 65% 100%

Small Number 40 82 122

Row percent 33% 67% 100%

Total Number 364 787 1,151

Row percent 32% 68% 100%

41A single community can present multiple hidden-city opportunities, as different airlines 

can serve the same community over different hubs.
Page 41 GAO-01-831 Airline Ticketing Rules

Table 6: Size of Communities Producing Hidden-City Opportunities and Number of 

Competing Airlines Serving Those Communities

Source: GAO analysis of data from airline Internet Web sites and the U.S. Bureau of the Census.

Because small and medium-sized communities generally have fewer 

airlines providing air service, those communities would be more vulnerable 

to a loss of service. Of the 62 small-and medium-sized communities, 19 

receive service from only one airline. Thus, for those medium and small 

communities currently with air service provided by 2 air carriers, if one of 

these competing airlines discontinued service, the total number of 

communities with air service by one carrier would increase by 25. Those 

communities would thus be more vulnerable to potential fare increases 

and/or capacity reductions (decreases in service through some 

combination of a drop in flight frequency and/or the use of smaller aircraft 

in the market) associated with the exercise of market power, due to the 

lack of competition.42

For example, Dubuque, Iowa—a small community—could be adversely 

affected by a loss of service if hidden-city ticketing were allowed. Three 

major carriers provide service to Dubuque. A business traveler flying from 

Los Angeles to Chicago could book a flight to Dubuque and take advantage 

of a hidden-city opportunity that could save a traveler $286. Should any 

one of the three carriers decide to eliminate the hidden-city opportunity 

and thus lose passengers on the route, it might discontinue service to 

Number of airlines at those communities

Population category of 

communities presenting 

hidden-city 

opportunities 4 or more 3 2 1 Total

Large 13 17 13 12 55

Medium-large 24 15 11 5 55

Medium 4 9 18 3 34

Small 1 4 7 16 28

Total 42 45 49 36 172

42This would appear to illustrate the “other side” of hidden-city ticketing—that it provides 

some lower airfare benefits to consumers, particularly those in small-and medium-sized 

spoke cities, relative to those in larger communities for travel to other communities beyond 

the hub. 
Page 42 GAO-01-831 Airline Ticketing Rules

Dubuque because of the lower passenger traffic, leaving Dubuque with only 

two carriers.

Allowing Back-to-Back 

Ticketing Could Result 

In Higher Fares for 

Leisure Passengers

Requiring airlines to allow back-to-back ticketing would, in effect, prevent 

them from using the Saturday night stay requirement to segment their 

market between business and leisure passengers. Because business 

passengers—according to the airlines’ assessment—prefer to return home 

before the weekend, airlines use this restriction to reserve more steeply 

discounted fares for leisure passengers. Thus, by design, the desired 

outcome of permitting back-to-back ticketing would be to allow those 

business passengers who can purchase tickets in advance and use them out 

of sequence to take advantage of the reduced fares typically accessible to 

leisure passengers.

In theory, permitting the use of back-to-back ticketing would appear to 

allow some business passengers to save money when purchasing tickets. 

However, according to some airlines, most of their full-fare passengers 

(e.g., about 70 percent) tend to buy their tickets within 6 days of travel. 

Thus, use of back-to-back ticketing may only benefit those passengers who 

can purchase tickets a week or more in advance of travel. For example, 

business travelers who use this practice for a flight between Atlanta and 

Dallas/Fort Worth, as shown earlier in table 3, could save money ($368) 

without purchasing a ticket in advance. However, in other markets, a 

business passenger would need to purchase tickets weeks in advance to 

use this opportunity. For example, passengers traveling between Charlotte 

and Pittsburgh, as shown earlier in table 4, would have to purchase tickets 

at least 14 days in advance to save money ($253). In addition, some 

business passengers could be dissuaded from using this practice because 

the tickets they would purchase would not convey all the benefits of a fullfare ticket, such as last-seat availability or the ability to change 

reservations without a penalty.
Page 43 GAO-01-831 Airline Ticketing Rules

However, if back-to-back ticketing were permitted, those business 

passengers who could, theoretically, benefit from this practice might not 

realize these potential savings because airlines would likely respond to 

their anticipated losses by making discounted fares more difficult to 

obtain. They might require, for instance, that their more deeply discounted 

fares be purchased further in advance. Airline officials proposed to us, and 

industry experts agreed, that airlines would probably increase advance 

purchase fares or make these fares more difficult for business passengers 

(and others) to obtain. The officials and experts agreed that allowing backto-back ticketing could result in an increase in fares for leisure passengers 

and that such an increase would likely discourage some price-sensitive 

passengers from flying with these airlines. Should the number of leisure 

passengers decline sufficiently, some airlines would consider decreasing 

capacity (e.g., by operating smaller aircraft or making fewer flights) in 

some markets.43 Thus, potentially, airlines could lose revenue from two 

different sources: (1) from business passengers who would benefit from 

lower fares though the use of back-to-back ticketing and (2) from leisure 

passengers, because increased fares might prevent these price-sensitive 

passengers from flying. 

For example, one airline estimated that it might lose between $150 to $180 

million annually if back-to-back ticketing were permitted. These 

projections were based on two different ways in which the airline could 

respond. If the airline did not adjust its fare structure, it anticipated losing 

about $180 million annually. However, the airline projected that it could 

lose $150 million annually, if it increased its advance purchase fares and 

required that its more deeply discounted fares be purchased further in 

advance. In response to this hypothetical decision, the airline predicted 

that these changes would not only be likely to discourage some business 

passengers from using back-to-back ticketing but would also be likely to 

discourage price-sensitive leisure passengers from flying with this airline. 

While we did not have access to the data to verify the legitimacy of these 

estimates, and thus cannot endorse them, we think that these estimates 

demonstrate the concerns and options that airlines would consider should 

back-to-back ticketing be permitted.

43One expert observed that additional analysis would be necessary to conclusively 

determine whether service reductions would occur in specific markets. He noted that this 

determination would require an analysis of flight profitability reports (e.g., reflecting the 

amount of revenue from nonstop and connecting passengers) for each market. 
Page 44 GAO-01-831 Airline Ticketing Rules

It is nevertheless difficult to forecast the extent to which permitting backto-back ticketing would increase fares and potentially discourage leisure 

passengers from flying. First, as previously discussed, this practice is not 

easy to use and, in some markets, only business passengers who can 

purchase their fares in advance would be able to take advantage of this 

opportunity. For instance, the airline providing the example above 

estimated that about 70 percent of their full-fare passengers purchase their 

tickets within 6 days of departure and most would still choose to purchase 

full-fare products. Second, while airlines advised us that they would 

increase fares, some also advised us that they would make their decisions 

on a market-by-market basis, depending on the impact that change had on 

the demand for air transportation services in a given market. Third, the 

number of leisure passengers who would seek alternative means of 

transportation, or not travel at all, would depend on the amount of the fare 

increase and perhaps the willingness of these passengers to plan further 

ahead to obtain fare discounts. 

Numerous variables, therefore, make it difficult to predict how airlines 

might respond if back-to-back ticketing were permitted. Still, based on our 

analysis of how airlines price their products and interviews with industry 

experts, we believe that airlines would, as their officials indicated, increase 

fares to some extent in markets where they anticipated losses. We would 

expect that potential fare increases would be market-specific because 

airlines would still take into consideration the amount of competition and 

demand for travel existing in individual markets when they set fares. 

Airlines did not specify the markets in which these increases would most 

likely occur. We believe, however, that these airlines would most likely 

reduce the availability of discount fares in major business markets (e.g., 

New York-Los Angeles) because business passengers have the greatest 

incentive to use back-to-back ticketing. In the long run, if revenue 

decreased for the airlines, they might also decrease the number of flights to 

some locations experiencing a notable decline in passengers.

Conclusions Restricting the ability of airlines to forbid hidden-city and back-to-back 

ticketing is unlikely to help consumers. Independent industry experts, 

along with airline officials, believe that legislating restrictions on airline 

pricing practices could lead airlines to take action--such as raising airfares 

and decreasing service--to reduce losses they would be likely to incur. 

Based on our analyses of fare data and economic literature, we believe that 

these positions are credible. While the extent of these potential losses 

would vary by market and airline, permitting passengers to use back-to-
Page 45 GAO-01-831 Airline Ticketing Rules

back and hidden-city ticketing would likely have unintended consequences 

that could hurt some consumers. Nevertheless, consumer advocates and 

passengers have legitimate concerns that some fares are higher than what 

might be expected in a more competitive market. 

Actions that promote competition would seem to offer more promise than 

imposing restrictions in assuring that fares reflect competitive pricing. As 

has been shown over time with research in the industry, and as is indicated 

by our analysis here, greater competition drives airfares lower. Research 

also demonstrated that dominated airports tend to have higher airfares 

than airports that have more competition from other airlines. These higher 

airfares provide business passengers the incentive to circumvent the fare 

rules of major carriers. Our analysis confirms the long-recognized 

significance of competition in controlling fares and accounting largely for 

the fare differentiation that gives rise to hidden-city opportunities. 

Comments We provided industry experts from the Brookings Institute, College of 

William and Mary, and Northeastern University and one consulting firm 

(Microeconomic Consulting & Research Associates, Inc.) the opportunity 

to review the analysis presented in our draft report. In addition, we 

provided our draft for evaluation to representatives from the Consumers 

Union and the American Society of Travel Agents—both of which had 

previously stated that the use of hidden-city and back-to-back ticketing 

should be permitted. 

The industry experts who reviewed our draft generally agreed with our 

conclusion that permitting back-to-back and hidden-city ticketing would 

not help consumers. They also agreed that the most important way to 

mitigate consumer incentives to use these practices would be to increase 

competition, especially at dominated hub airports. Where these individuals 

made comments, they tended to suggest that we revise our discussion of 

pricing. For example, one expert observed that airlines have a fundamental 

economic justification for using differential pricing (e.g., setting higher 

fares for passengers who purchase tickets at the last minute), which 

benefits both airline efficiency and overall consumer welfare. This expert 

emphasized that TRB reached the same conclusion. In response to this 

comment and others, we expanded the report’s description of ticket 

pricing. A representative from Consumers Union, while not supporting the 

current way in which airlines price tickets, likewise found credible our 

conclusion that legalizing hidden-city and back-to-back ticketing would be 

unlikely to help consumers. In contrast, a representative from the 
Page 46 GAO-01-831 Airline Ticketing Rules

American Society of Travel Agents said that airlines could take actions to 

mitigate losses that might occur, in some markets, but that airline actions 

cannot be predicted at this time. This representative was not aware of any 

other studies that make such predictions.

After incorporating the views of these experts, we provided copies of 

sections of our draft report for technical comment to the six major carriers 

(i.e., American, Continental, Delta, Northwest, United, and U.S. Airways) 

that we interviewed as part of our study. We also provided DOT with a copy 

of our draft report for its review and comment. Representatives of the 

airlines and officials from DOT offered technical comments, which we 

incorporated into the report as appropriate.

If you or your staff have any questions about this report, please call me or 

Steve Martin at (202) 512-2834. Other key contributors to this report are 

listed in appendix IV.

JayEtta Z. Hecker

Director, Physical Infrastructure Issues
Page 47 GAO-01-831 Airline Ticketing Rules
Page 48 GAO-01-831 Airline Ticketing Rules

Appendix I

Scope and Methodology ApApenednxidexiIs

The Wendell H. Ford Aviation Investment and Reform Act for the 21st

Century mandated that we study the potential effects on consumers, 

especially those in small communities, of a requirement that air carriers 

permit passengers to use any portion of an airline ticket independently of 

the other without penalty. As agreed with the staffs of the aviation 

subcommittees, we assessed (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 effects on airfares and service of a legislative 

requirement to permit back-to-back ticketing.

To assess the factors that airlines consider when setting fares, we reviewed 

relevant economic and other literature on competition within the aviation 

network, airline pricing practices, and the use of hub-and-spoke networks 

by air carriers. (App. 3 contains a selected bibliography of the literature 

reviewed.) We also interviewed a broad range of independent industry 

experts (e.g., academicians and consultants), along with officials from the 

seven largest U.S. passenger airlines. See table 7 for additional 

information. 

Table 7: Organizations We Contacted

Organizations interviewed

Airlines American Airlines (American), Continental Airlines 

(Continental), Delta Air Lines (Delta), Northwest 

Airlines (Northwest), Southwest Airlines 

(Southwest), United Airlines (United), US Airways

Academicians Northeastern University, Massachusetts Institute of 

Technology, Harvard Law School, the College of 

William and Mary

Consultants Charles River Associates, LECG, Microeconomic 

Consulting & Research Associates, Inc. 

Consumer advocates Consumers Union, Business Travel Coalition, 

OneTravel.com 

Industry experts UBS Warberg, CIBC Oppenheimer, The Brookings 

Institution

Travel agents American Express, Expedia.com,

Trade organizations Air Transport Association, American Society of 

Travel Agents
Appendix I

Scope and Methodology

Page 49 GAO-01-831 Airline Ticketing Rules

To assess the factors that create hidden-city and the pricing practices that 

foster back-to-back ticketing opportunities, we reviewed relevant 

economic literature, particularly literature containing analyses of airline 

hub-and-spoke networks, airline pricing, and revenue management 

systems. We also interviewed industry experts and officials from the seven 

largest U.S. passenger airlines. 

To assess how fares and service could be affected should hidden-city 

ticketing be allowed, we interviewed industry experts and officials from 

each of the seven identified airlines. We also analyzed airfare and service 

data on air traffic markets for six of the seven carriers.1

 We were unable to 

draw a random sample of market data from industry sources because we 

could not obtain sufficiently detailed data to perform the type of analyses 

needed. 

We analyzed data for a selected number of markets instead. Consequently, 

our results are not statistically generalizable to the universe of airline 

markets. To generate a relatively large data set for analytic purposes, we 

built our analysis around possible connecting markets for the three most 

heavily traveled markets for each of the airline's networks.2

 We first 

identified for each of the airlines the hub facility through which most 

passengers enplaned.3

 We then identified the three markets in which the 

largest number of passengers traveled. These markets are the “hub routes”

used in our analysis. In some cases, we selected a different hub route to 

provide greater possible geographic dispersion. Our passenger 

enplanement data covered the 4 quarters between the fourth quarter of 

1999 and the third quarter of 2000--the latest data available at the time of 

our analysis. 

1

In the airline industry, a market is generally defined as scheduled airline service between a 

point of origin and a point of destination. This is often, but not always, defined as a city pair. 

Some cities are served by more than one commercial airport. These cities include Los 

Angeles, San Francisco, Chicago, New York, and Washington, D.C. In these cases, the 

relevant market may be what is termed as an airport pair. 

2

We did not analyze fare data from Southwest because it does not operate a hub-and-spoke 

network and because it explicitly does not prohibit passengers from using either back-toback or hidden-city ticketing.

3

Passenger “enplanements” represent the total number of passengers boarding an aircraft. 

Thus, for example, a passenger that must make a single connection between his or her 

origin and destination counts as two enplaned passengers because he or she boarded two 

separate flights.
Appendix I

Scope and Methodology

Page 50 GAO-01-831 Airline Ticketing Rules

To obtain data on passenger traffic for this report, we contracted with 

BACK Aviation Solutions (BACK), an aviation consulting firm, which 

obtains operational and financial information submitted by all U.S. airlines 

to DOT. These data include the Origin and Destination Survey (O&D) 

based on a 10-percent sample of tickets containing itinerary and pricing 

information; T-100 on-flight data;4 and 298C T-1 data, which supplement the 

T-100 data with data on commuter and small certified air carriers. BACK 

makes certain adjustments to these data, such as correcting recognized 

deficiencies in the air carriers' O&D data submissions, which have not met 

DOT's standard of 95-percent accuracy. We did not independently assess 

the reliability of BACK's data. 

We then identified the number of U.S. domestic communities to which 

passengers could connect at those airports from each of the hub routes. 

We identified those communities using airline flight schedule information 

submitted by all U.S. airlines for November 2000 that we purchased from 

the Kiehl Hendrickson Group, an aviation consulting firm. We did not 

independently assess the reliability of the Kiehl Hendrickson Group's 

original data. Finally, to categorize spoke communities by size, we used 

data from the U.S. Bureau of the Census. These categories are: large 

communities with a population of 1 million or greater; medium-large 

communities that ranged from 250,000 to 999,999; medium communities 

that ranged from 100,000 to 249,999; and small communities with 

populations of less than 100,000. Table 7 summarizes the markets analyzed 

for the six major U.S. network airlines.

4

14 C.F.R. 241 prescribes the collection of scheduled and nonscheduled service traffic data 

from the domestic and international operations of U.S. air carriers. The schedules submitted 

by the air carriers to DOT under this requirement collect nonstop segment data and on-flight 

market information by aircraft type and by service class. This report is known as the “T-100”

report.
Appendix I

Scope and Methodology

Page 51 GAO-01-831 Airline Ticketing Rules

Table 8: Routes Into Hubs and Number of Connecting Markets Analyzed for Each Major Carrier

To determine whether hidden-city ticketing opportunities were more 

available to business or leisure passengers, we attempted to obtain 

representative airfares for each of the 1,429 markets from each airline's 

Internet Web sites. We defined a hidden-city ticketing opportunity to exist 

for business travelers if the difference in airfares between the hub market 

and the beyond city was $100 or more and for leisure passengers, if the 

difference in airfares was $50 or more. Of the total 2,858 markets (1,429 for 

business travelers and 1,429 for leisure travelers), we were only able to 

acquire fare data for 2,302 markets—1,151 for each type of traveler. To 

approximate business airfares, we obtained fare data for travel scheduled 

the next day and chose a return date falling before the upcoming Saturday. 

To approximate airfares for leisure passengers, we selected fares that the 

airlines posted for travel beginning at least 21 days in advance and 

requiring a Saturday night stay. We recognize that this approximation of 

business and leisure travel is relatively coarse: some business passengers 

may purchase travel weeks in advance of their scheduled trip and stay over 

on a Saturday night. Similarly, some passengers traveling solely for leisure 

purposes may purchase their tickets on the day of the flight and return 

Airline Hub airport Origin of hub routes analyzed

Number of “beyond” points

(spoke routes) identified

American Dallas-Ft. Worth Los Angeles

New York (LaGuardia)

Miami

225

Continental Houston Bush Intercontinental Newark

New Orleans

Los Angeles

225

Delta Atlanta Hartsfield New York (LaGuardia)

Orlando

Dallas-Ft. Worth

296

Northwest Minneapolis—St. Paul Detroit

Boston

Seattle

222

United Chicago O'Hare San Francisco

Denver

New York (LaGuardia)

262

US Airways Charlotte Douglas Boston

Philadelphia

Orlando

199

Total 1,429
Appendix I

Scope and Methodology

Page 52 GAO-01-831 Airline Ticketing Rules

prior to a Saturday. Nonetheless, we believe that our method represents a 

reasonable estimate of business and leisure fares. 

To identify the amount of competition that each airline had in each of its 

hub-route markets and related spoke markets, we analyzed the capacity 

that other airlines made available in each market. DOT defines an airline 

“competitor” as one that has a market share of at least 10 percent, and we 

adopted that definition. Rather than using passenger enplanements as the 

basis for this calculation, we used scheduled capacity in a market (i.e., the 

total number of seats available for purchase).

Our analysis of hidden-city ticketing opportunities included data on each 

flight's origin, the population of the destination city, number of stops on a 

flight, dominance of any one carrier on a route (i.e., where an airline may 

offer more than 50 percent of the scheduled capacity in a market) and 

competition between major and low-cost carriers on both major flight 

segments to hub cities and on total city-pair markets. We conducted both 

bi-variate analyses and multiple regressions on these data, excluding 

records where any data element was missing. Our analysis of data for 

1,151 business markets and 1,151 leisure markets identified 364 hidden-city 

ticketing opportunities for business travelers and 34 for leisure travelers. 

We defined statistical significance at the 0.05 level.

We also interviewed officials with each of the seven identified airlines to 

obtain their views on how their airlines would react if a law required them 

to permit hidden-city ticketing. We then evaluated their responses in light 

of generally accepted airline economic theory and the results of our 

analysis. 

To assess how fares and service could be affected should back-to-back 

ticketing be allowed, we interviewed industry experts and officials from 

each of the seven identified airlines. We evaluated their responses in light 

of generally accepted airline economic theory. Because back-to-back 

ticketing opportunities are available for use in virtually all markets, and 

because no data are available on the extent that passengers already engage 

in this practice—or might do so if it were allowable—we conducted no data 

analysis of the extent to which the practice could occur, the financial 

implications for the airlines or passengers, and which size cities could be 

most affected. 

To increase the candidness with which airline officials would discuss these 

issues and the quantity of information they would be willing to provide, we 
Appendix I

Scope and Methodology

Page 53 GAO-01-831 Airline Ticketing Rules

provided the airlines with letters pledging confidentiality from relevant 

committee chairs and ranking members. These letters stated that these 

members and their staff would not seek to review any confidential business 

information provided by the airlines. Thus, throughout this report we do 

not refer to airlines directly by name when presenting information subject 

to this agreement.

We conducted our work from July 2000 through July 2001 in Washington, 

D.C., in accordance with generally accepted government auditing 

standards.
Page 54 GAO-01-831 Airline Ticketing Rules

Appendix II

Airline Inventory Management—Making Seats 

Available at Different Prices 45, 30, and 7 Days 

Before Departure and at Takeoff ApendxiI

Legend: N/A=not applicable

Source: These booking and fare data were provided by an airline that we have not identified at the 

airline's request. These data reflect travel on a particular day.
Appendix II

Airline Inventory Management—Making 

Seats Available at Different Prices 45, 30, and 

7 Days Before Departure and at Takeoff

Page 55 GAO-01-831 Airline Ticketing Rules

Note: The fares paid at departure represent the average one-way fare for each class of ticket 

purchased. Calculation of the average fare was based on local fares for local passengers (i.e., those 

traveling only between the origin and destination of this flight) and prorated fares for passengers 

connecting to other flights. For this particular flight, on this day, all the 21-day advance purchase fares 

were purchased by passengers traveling locally, while almost all the 7-day advance purchase fares 

were purchased by passengers connecting to other flights. Consequently, the passengers who 

purchased their fares 7 days in advance, because their fares were prorated, seem to have paid higher 

fares than the passengers who paid their fares 21 days in advance. However, had all the fares for this 

flight been based on published fares for travel in the local market, the 7-day advance purchase fares 

would have exceeded the 21-day advance purchase fares.
Page 56 GAO-01-831 Airline Ticketing Rules

Appendix III

Selected Bibliography ApendxiI

Brueckner, J.K., and others. “Fare Determination in Airline Hub-and-Spoke 

Networks.” The Rand Journal of Economics, Vol. 23, No. 3 (1992), pp. 309-

333.

Butler, Gail F., and Martin R. Keller, Executive Editors. Handbook of 

Airline Finance. New York: The McGraw-Hill Companies, 1999.

Dempsey, Paul Stephen and Laurence E. Gesell. Airline Management: 

Strategies for the 21st Century. Chandler (Ariz.): Coast Aire Publications, 

1997.

Dresner, Martin and Robert Windle. “Airport Dominance and Yields in the 

U.S. Airline Industry.” The Logistics and Transportation Review, Vol. 28, 

No. 4 (1992), pp. 319-340.

Hendricks, Ken, and others. “Equilibria in Networks.” Econometrica, Vol. 

67, No. 6 (1999), pp. 1407-1434.

Jenkins, Darryl, Executive Editor. Handbook of Airline Economics. New 

York: The McGraw-Hill Companies, 1995.

Kahn, Afred E. “The Competitive Consequences of Hub Dominance: A Case 

Study.” Review of Industrial Organization, Vol. 8, No. 4 (1993), pp. 381-405.

Nero, Giovanni. “A Note on the Competitive Advantage of Large Hub-andSpoke Networks.” Transportation Research, Part E, 35 (1999), pp. 225-239.

Oum, Tae Hoon, and others. “A Note on Optimal Airport Pricing in a HubAnd-Spoke System.” Transportation Research, Part B, Vol. 30, No. 1 (1996), 

pp. 11-18.

—. “Airline Network Rivalry.” Canadian Journal of Economics, Vol. 28, No. 

4a (1995), pp. 836-857.

Transportation Research Board, Special Report 230: Winds of Change: 

Domestic Air Transport Since Deregulation, National Research Council, 

Washington, D.C., 1991.

Transportation Research Board, Special Report 255: Entry and Competition 

in the U.S. Airline Industry: Issues and Opportunities, National Research 

Council, Washington, D.C., 1999.
Appendix III

Selected Bibliography

Page 57 GAO-01-831 Airline Ticketing Rules

Saunders, Lisa F., and William G. Shepherd. “Airlines: Setting Constraints 

on Hub Dominance.” The Logistics and Transportation Review, Vol. 29, No. 

3 (1993), pp. 201-220.

Zhang, Anming. “An Analysis of Fortress Hubs in Airline Networks.” 

Journal of Transport Economics and Policy, Vol. 30, No. 3 (1996), pp. 293-

308.
Page 58 GAO-01-831 Airline Ticketing Rules

Appendix IV

GAO Contacts And Staff Acknowledgments ApendxiIV

GAO Contacts JayEtta Z. Hecker (202) 512-2834

Steven C. Martin (202) 512-2834

Staff 

Acknowledgments

In addition to those named above, Sonja Bensen, Michael Bollinger, Colin 

Fallon, David Hooper, Joseph Kile, and Sara Ann Moessbauer made key 

contributions to this report.
Page 59 GAO-01-831 Airline Ticketing Rules

Related GAO Products

Aviation Competition: Challenges in Enhancing Competition in Dominated 

Markets (GAO-01-518T, Mar. 13, 2001).

Airline Competition: Issues Raised by Consolidation Proposals (GAO-01-

370T, Feb. 1, 2001).

Aviation Competition: Issues Related to the Proposed United Airlines-US 

Airways Merger (GAO-01-212, Dec. 15, 2000).

Airline Deregulation: Changes in Airfares, Service Quality, and Barriers to 

Entry (GAO/RCED-99-92, Mar. 4, 1999).

Domestic Aviation: Service Problems and Limited Competition Continue in 

Some Markets (GAO/T-RCED-98-176, Apr. 23, 1998). 

Aviation Competition: International Aviation Alliances and the Influence of 

Airline Marketing Practices (GAO/T-RCED-98-131, Mar. 19, 1998). 

Airline Competition: Barriers to Entry Continue in Some Domestic Markets 

(GAO/T-RCED-98-112, Mar. 5, 1998). 

Domestic Aviation: Barriers Continue to Limit Competition (GAO/T-RCED98-32, Oct. 28, 1997). 

Domestic Aviation: Barriers to Entry Continue to Limit Benefits of Airline 

Deregulation (GAO/T-RCED-97-120, May 13, 1997). 

Airline Deregulation: Barriers to Entry Continue to Limit Competition in 

Several Key Domestic Markets (GAO/RCED-97-4, Oct. 18, 1996). 

Airline Competition: Higher Fares and Less Competition Continue at 

Concentrated Airports (GAO/RCED-93-171, July 15, 1993). 

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