PLEase explain this to me

Revenue optimization. You have to think of airline seats as a perishable good-- an empty seat gets you zero revenue, but still has the same costs. So you try to optimize to fill every seat at the highest possible price. This is a very difficult problem, of course, and sometimes it results in odd outcomes... which may appear to be a loser (and which you can take advantage of), but which make more money in the aggregate.

 

You didn't say the date, but one could also buy a United roundtrip from Houston to Austin and go to Austin to get the better Austin to Rio fare and still save a net $444 ($700-$256 = $444). I guess the "cost" is the investment in flight time to Austin but I would assume you could get some frequent flyer miles for it. Would be interesting to see if United's computers would flag this strategy and disallow it. Also, you could take Southwest to Austin and then take the United roundtrip to Rio and on the return, get off in Houston and throw away the United ticket to Austin. But, United computers would probably catch this and black-list you for the future.

Houston (IAH)
Austin (AUS)
Roundtrip
Depart Sat 23 Dec 2017
Return Tue 2 Jan 2018
from$ 256*Viewed: 23 hours ago

 

I once wanted to fly from ATL to SEA, but the best fare I could find at the time was $440 round-trip. By flying BHM to SEA, that dropped to $220 - and that required a change of planes in ATL! So I eventually boarded the same plane flying from ATL to SEA that I could have flown on directly, but by driving to BHM first (about 2-1/2 hours), I saved half the fare!

 

and yet on a flight with many empty seats they will not give you a last minute discount

 

smaller market pricing ( perhaps promotional ) vs major market pricing... happens all the time, just check pricing... have taken advantage of it for years, with no fall out from the airlines...it really adds up to serious saving when buying several seats... makes it a nice perk to be surrounded by small market airports with not needing much more effort than driving to local major airport...

 

I remember going to California as a kid and it was the same thing. My grandparents drove us to Austin, we flew to Houston for a layover, and then on to Cali.

 

I am going up to Idaho for Christmas to spend the week with my daughter. If I fly United from ELP to IDA it is about 700 round trip AA or SWA 600 to SLC and Delta would be over 1000 and an all day ordeal as I would have to fly ELP - ATL - SLC - IDA

I can drive to Mesa Az and fly Alligiant non stop to IDA for less than $200 round trip the savings alone will pay for my rental while there, and not have to drive 2 days with the possibility of getting stuck due to winter weather each way.

 

Competition. Austin flyers have a choice; United through IAH or American through DFW. Travelers living in cities served by multiple air carriers sometimes benifit from fair wars.