Delta Air Lines is leading the way in a major revolution in the pricing of air fares, away from set fares and towards personalized pricing by artificial intelligence. This program, as part of efforts to improve profitability, is in a pilot program and recording “amazingly favorable” results, the airline said.
But it is also raising eyebrows among privacy activists worried that it will result in price-gouging and a higher degree of consumer manipulation.
Now, around 3% of Delta’s flight costs are set by artificial intelligence, a threefold increase compared to nine months ago.
The long-term goal, as explained by Delta president Glen Hauenstein, is to completely do away with static pricing. “This is a full reengineering of how we price and how we will be pricing in the future,” Hauenstein stated at the company’s Investor Day in November.
He envisions a future where “we will have a price that’s available on that flight, on that time, to you, the individual.”
Delta Takes Flight with AI: “Super Analyst” Pricing and Beyond
Hauenstein likened the AI to “a super analyst” working tirelessly to simulate real-time optimal price points. While the full rollout is expected to be a multiyear process, initial results are promising, showing “amazingly favorable unit revenues.”
Delta is implementing this through a partnership with Fetcherr, a six-year-old Israeli company that also works with other airlines like Azul, WestJet, Virgin Atlantic, and VivaAerobus.
Fetcherr’s ambitions extend beyond the airline industry, with co-founder Robby Nissan indicating plans to move into hospitality, car rentals, and cruises once established in the airline sector.
Delta’s openness about its AI pricing strategy is somewhat unusual, though other carriers are also leveraging AI in various ways. United Airlines, for instance, uses generative AI to contact passengers about cancellations, and American Airlines utilizes it to predict who will miss their flights.
Gary Leff, a prominent travel industry authority, noted that personalized pricing has been an airline goal for over a decade and a half, but Delta is the first major airline to publicly discuss and tout its AI pricing strategy with concrete metrics.
The development has sparked considerable concern among privacy advocates. Justin Kloczko, who analyzes “surveillance pricing” for Consumer Watchdog, a California nonprofit, expressed alarm, stating, “They are trying to see into people’s heads to see how much they’re willing to pay. They are basically hacking our brains.”
Is Delta’s AI Pricing Fair or “Predatory”?
Senator Ruben Gallego (D-Ariz.) also seconded these grievances, calling Delta’s conduct “predatory pricing” and promising to take action against it.
To these complaints, a Delta spokesperson reiterated the airline’s “zero tolerance for discrimination.” It replied that fares are “publicly filed and based solely on trip-related factors such as advance purchase and cabin class,” with “strict safeguards to ensure compliance with federal law.”
However, the spokesperson declined to provide preliminary information on the nature of these protections, whether machine or human, or where the 3% of the fares computed by AI are made available to the public.
It is a fact that air carriers have been differentially pricing for several years, wherein there are differences for the same route depending on booking channels or advance bookings. Even a decade ago, travel websites used to charge differently for the same flight depending on the browser.
But with the emergence of AI, this routine is supercharged, driving airlines into a legal gray area.
How AI is Reshaping Air Travel Costs?
Matt Britton, author of Generation AI, suggests that AI is “fundamentally rewriting the rules of commerce and consumer experience.” He believes that for consumers, “the era of ‘fair’ pricing is over. The rate you discover is the rate the algorithm thinks you will accept, not an industry rate.
Although differential pricing is not illegal, federal law does stipulate that charging different fees based on sex or ethnicity is prohibited. The use of specific identifiers, such as ZIP codes, has also been found to have a disparate impact on protected classes.
Without a publicly accessible record of all fares established by AI, it might be hard to determine if Delta’s system is inadvertently or deliberately causing discriminatory prices.
The immediate impact of AI pricing on individual passengers remains uncertain. Industry experts anticipate increased revenue for Delta. In the short term, AI might lead to more upfront discounts when Delta needs to fill seats. Consumers might temporarily benefit from tactics like using a VPN or clearing cookies when browsing.
However, in the long run, Leff suggests airlines might require passengers to be logged in for ticket purchases to access status benefits, effectively compelling them into an ecosystem where personalized pricing is the norm. Early research on personalized pricing, as Consumer Watchdog found, does not paint a favorable picture for consumers.
