Layover vs. Direct

I’ve always just assumed that a layover is cheaper for the airline and therefore cheaper for the consumer. Which, according to the Economix Blog was the case until 2006 (mainly due to the economies of scale afforded by all the extra routes). However, they quote some research on why there was a shift three years ago: “The cost advantage of connecting flights disappeared in 2006. Conditioning on other cost shifters, the marginal cost of a connecting flight was $12 more expensive than that of a direct flight. The change is probably driven by the increasing fuel cost in the sample period. Since the fraction of fuel consumed at the takeoffs and landings could be as high as 40 percent, rising fuel costs offset the benefit of denser traffic created by connecting flights.”

March 4, 2009