Let’s say for example I live in Los Angeles and a United airlines flight from LAX to JFK with a layover in DFW is $500 but that same flight from LAX to DFW is $600. How did I save $100 by adding an extra flight?
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This is just a case of what’s known as “price discrimination”, in which sellers charge different buyers different amounts for the same thing, based on what they think the different buyers will pay.
To your example, imagine there are only two airlines. One flies the LAX->DFW route and the DFW->JFK route. The other airline flies LAX->JFK by way of ORD.
The first airline cannot charge you too much for the flight to JFK because if they do, you’ll just choose the flight by way of ORD. But since they’re the *only* ones who fly to DFW, if that’s your terminal stop, they can charge you *more*.
Because the airlines care about marginal cost. The two primary forms of airline travelers are businessmen and tourists. Tourists want to save time and businessmen aren’t paying their own ticket. Those groups don’t care if it costs more and will always fill the direct flights. But there will still be flights that aren’t getting filled. By accepting a layover, you fill two or more flights that were likely low demand flights and would not have been filled by those other two forms of travelers.
Now the airlines calculates the cost of you flying. Just the cost of one additional passenger is a very low almost nonexistent cost if that flight would not have elsewise been filled. And so they offer it cheaper hoping it will be filled by those who don’t mind, leaving room on higher demand direct flights.
People take flights for both relatively short routes and very long routes. For example, Austin, TX to Dallas, TX is only a few hundred miles and you spend barely half an hour in the air.
So trying to decide what flights to have and how many of each flight to have is like a strategy game airlines play. If a flight is mostly empty, they either lose money or make a lot less than if it’s full. If a popular route has too few available flights, they lose money because people use other airlines.
So having a flight that goes Austin -> Dallas -> Somewhere lets them be a little more flexible than having one direct Austin -> Somewhere. Maybe Austin->Somewhere routes don’t frequently fill up, but Austin->Dallas is more likely to fill. And maybe more people fly Dallas->Somewhere overall. That means the airline makes a little more money if they DON’T have a direct flight, because they can schedule more flights closer to capacity between the three destinations.
But layovers are inconvenient and raise the probability of trouble, so some travelers want to avoid them. So for certain routes, if the airline charges a premium fee for a direct flight they can make up for the “loss” of the plane not as commonly being at capacity. From the customer side, it feels like you’re paying extra for less hassle, which is generally seen as a fair trade.
Because you inconvenienced yourself by having to stop in between where you left from and your destination.
It also increases the revenue of the airline by adding in new customers.
Say a non-stop flight from point A to point C can carry 100 passengers. That’s just 100 tickets sold.
Now you add in a midway stop at point B.
So you have 100 tickets sold for the flight guaranteed, but 30 people get off at point B and 30 new people get on at point B heading for point C.
That flight now sold 130 tickets.
For you the customer wanting to travel from point A to point C, you have to deal with the slight inconvenience of sitting at point B while people get off and on. But the airline increases it’s revenue because they are able to service more customers.
It’s usually because any flight with a layover is cheaper than a direct flight, even if the direct flight is one leg of the flight with a layover. The layover allows the airline to fly more passengers through more airports than the direct flight, so it’s still worth it to discount layover flights.