[jmward01]

The missing point in your argument though is that the people doing this didn't want to go to the destination. So if this wasn't an option, getting off before the subsidized destination, they wouldn't be flying anyway and the airline still wouldn't be getting the subsidy.

I'm still not seeing any real answer how this practice can exist in a true free market and how it doesn't indicate collusion in the airline industry.

[teo_zero]

In the A->B->C example, probably the subsidy they get for B->C is so much higher than its real cost that they can use such "profit" to finance part of the first leg. If you skip the final leg, you risk spoiling their scheme to extract more-than-needed money from the government.

[hunter2_]

Even if the subsidy for B->C is not higher than the real cost at all... if they set their A->B->C ticket prices such that (revenues == expenses), and a skipped leg results in any hit to revenue (i.e. losing a subsidy of amount x) along with a reduction in expenses (i.e. less weight means less fuel of amount y), then they are going to take a loss any time x>y.

[teo_zero]

Sorry, how is this different from what I said? The condition x>y, with x the subsidy and y the expense, is exactly what I intended with "subsidy they get [is] higher than its real cost".

[hunter2_]

Oh, I interpreted your "its real cost" as everything that goes into the service (i.e. everything the airline does to hold up their end of the deal, which goes well beyond fuel) whereas in my version I'm defining y far more narrowly: the fuel needed to haul the weight of the person.

The subsidy could easily exceed the fuel, which means losing the subsidy despite saving on fuel is something the airline legitimately wants to avoid. They won't be in a worse position than if the seat went unsold, but it'll be worse than if they had a flying passenger.