Airline Pricing Strategies Versus Consumer Rights

As airlines price-discriminate, business travelers usually have to pay prices above average cost for flexible tickets. This allows the airlines to offer cheaper tickets to leisure travelers, albeit in the form of restrictive fares. Methods used by business travelers to circumvent strict rules of discounted fares are known as "cross-" and "hidden-city" ticketing. However, according to IATA Recommended Practice 1724, Article 3.3.1, airlines reserve the right to cancel all remaining legs of a booking if flight coupons are not used in full and sequential order. We discuss this issue from both a legal and commercial perspective. After providing an overview of various legal opinions, we predict the impact on airline marketing and economics if the described forms of fare rule circumvention are allowed. Airline pricing is a crucial dimension of airline marketing and a complex issue. Air transport services tend to be identical for everyone sitting in the same service class on a given flight. However, individual fares paid by the passengers can differ enormously, as airline revenue management tools include price-discriminating measures to absorb different degrees of willingness to pay. Hereby, the rule of "full and sequential use of flight coupons" adapted from Recommended Practice 1724, Article 3.3.1, of the International Air Transport Association (IATA) (or IATA RP 1724 see appendix) acts as a rate fence to insure that most (business) travelers with a relatively high willingness to pay cannot benefit from discounted fares intended for leisure travelers.