Why are flights with layovers in the opposite direction cheaper than direct flights?

Question

Why are flights with layovers in the opposite direction cheaper than direct flights?

In: Economics

Answer 1

Let’s do a hypothetical situation.

Let’s say there’s a country that’s in the shape of a square, with one city in each corner, along with one in the center. Five total cities A, B, C, D, and E

|A||B|
|:-|:-|:-|
||E||
|C||D|

Each of these cities has enough people that want to fly to each other city to fill a plane and a half full of people to each of the 4 other cities. So if every plane was direct, you’d have 20 half full flights, and 20 full flights for 40 total flights a day.

Now let’s say you make E a “hub city” and make all the half full flights fly to city E first. So for example, City A would half a half plane’s worth of people who want to go to cities B, C, D, and E all flying to city E, which is 2 full planes.

They then have a lot of people in city E who want to go to each other city. So for example they have a plane and a half of people from city E who want to go to City B, along with a half a plane’s worth of people from cities A, C, D who want to go to to City B as well. That’s 3 full planes going from city E to each corner city.

So you have 1 plane from each corner city still flying to each other corner city direct (16 total). You have 2 planes going from each corner city to City E (8 planes total). You have 3 flights from City E to each corner city (12 total).

That all adds up to 36 flights, and all of them are full, compared to 40 flights without hub cities, and half of them are not full.

Less flights mean it’s cheaper for the airlines, and everyone still gets where they want to go. More people want to do the direct flights, so they make them more expensive to incentivize people to take the non-direct route (and because they can make more money that way).