Are passengers compensated for incurring an airport layover? Estimating the value of layover time in the U.S. airline industry

Abstract

American, Delta, and United have organized their operations into extensive hub-and-spoke networks that typically require passengers originating and concluding travel in non-hub cities to board a connecting flight at a hub en route to the final destination. From the passenger perspective, layovers are detrimental since the addition to total travel time relative to a nonstop itinerary is a cost incurred by the passenger. An airline is able to reduce a passenger's layover time by narrowing the gap between flights at the connecting airport. However, narrowing this flight gap has the adverse effect of increasing airport congestion. Taking these perspectives into account, it is clear that layover time influences a prospective passenger's purchasing decision and an airline's flight scheduling decision. Using published fare and itinerary data from Google Flights, this paper provides insight into both decisions by providing empirical estimates on the value of layover time in the U.S. airline industry. This paper finds that passengers are compensated with a fare that is $42.74-$47.60 cheaper per hour of layover time. Of the three dominant legacy carriers, United passengers are found to be compensated at an even higher rate of $61.89 per hour.