Artificial Intelligence Sets Ticket Prices by Exploiting Traveler Data

SadaNews - Frequent travelers and consumer rights advocates have long complained about the complex nature of airline ticket prices. Discounted tickets can quickly become expensive through "drip pricing," which imposes additional charges for amenities that were previously free, such as baggage deposits, snacks, or getting a seat next to your child.

The vast diversity of "dynamic" price categories that change over time has made securing a good deal through advance planning difficult, or even knowing whether the price presented to you today is better or worse than the price you will find tomorrow. However, according to a report whose details have not been published before, this ambiguity may soon worsen.

The report was prepared by Ori Yerushalmi, co-founder and CEO of artificial intelligence at Fetcherr, a software startup in Israel that works with Delta Airlines and many other airlines, marketing its services more broadly.

In this research memorandum, Yerushalmi describes a pilot artificial intelligence program designed by Fetcherr for an undisclosed partner airline, replacing a relatively simple pricing structure with a highly complex one, comprising far more price categories and prices that fluctuate significantly from moment to moment.

Incomprehensible Intelligence

The memorandum shared by the company with potential clients states that these pricing structures are so complex that they "exceed the limits of human comprehension".

The memorandum describes this system as a "large market model" that uses a similar approach to generative artificial intelligence systems, such as OpenAI's image generation tool Dall-E. But instead of creating original artworks, the model is designed to absorb complex information about markets and to set pricing strategies that the memorandum claims could significantly increase revenues. Yerushalmi indirectly refers to this phase as the "exploitation phase".

High ticket prices would certainly be attractive to airlines, which have raised their prices significantly during and after the pandemic, but have since had to offer discounts to attract travelers.

However, the complex strategies described in the white paper could raise concerns that emerged in July after Delta's CEO, Glen Hauenstein, mentioned the Fetcherr system in the company’s earnings call.

Hauenstein stated that Delta uses Fetcherr to help price 3% of its local network and plans to increase this percentage to 20% by the end of the year. He added that the company is undergoing an intensive testing phase and that they are "impressed with what they see".

Congressional Pushback

The reaction was swift, as a group of Senate Democrats, led by Ruben Gallego of Arizona, wrote a letter to Delta's CEO, Ed Bastian, indicating that the program may "raise concerns about data privacy" and "is also likely to mean fare increases that reach a breaking point for every consumer, as American families struggle with rising costs".

Republican Senator from Missouri Josh Hawley described Delta's system as "the worst I've heard from the already miserable airline industry". Democratic Congressman Greg Casar of Texas introduced legislation to ban "surveillance-based pricing" nationwide.

Competing airlines voiced similar criticisms. Robert Isom, CEO of the American Airlines Group, either out of his intense anger or as an opportunity to annoy Delta during his earnings press conference, pointed out that AI pricing systems were "a trick and misleading" and unethical. Isom exclaimed, "That's not what we're going to do." Southwest Airlines also stated that it does not use AI in pricing.

Fetcherr stated in a statement that its program "does not allow for individual or personalized pricing... and will not use or collect or receive any personal identification information". It added that the program could also be used to lower prices during times of low demand.

A Delta spokesperson declined to comment on Fetcherr's marketing materials, saying it cooperates with other airlines. In a letter dated July 31 to Gallego, Peter Carter, Delta's Chief of External Affairs, described Fetcherr as a "decision-support tool" overseen by Delta analysts who refine it.

Bidirectional Adjustments

Carter wrote that the AI tool "recommends price adjustments in both directions" and described the system as an extension of the dynamic pricing models that airlines have used for decades. Carter wrote, "There is no pricing product that (Delta) has used, is testing, or plans to use that targets individuals with prices based on their personal data".

Previous statements from both Fetcherr and Delta have weakened this denial as well. A 2024 Fetcherr blog post, which was first published on Thrifty Traveler, indicated that the company’s future forecasts include "individual pricing" that considers behavioral data such as purchase history and "the immediate context of each booking inquiry," so that airlines can understand "each customer as an individual, and we enhance every interaction to maximize value".

The company deleted this section from the blog post when negative reactions to Delta began. It stated in a statement that the deleted section was clearly described as a forward-looking prediction and that the blog acknowledged regulatory concerns about privacy.

Meanwhile, Delta has previously indicated that it plans to use generative AI to raise prices for certain customers. Hauenstein stated at an investor event in November: "We will have a price available on that flight, at that time for you, individual."

He added that Delta uses Fetcherr to offer "enhanced offers" to some customers that test the limits of their price range. He questioned, "Can we accept a $20 increase in our prices without experiencing a drop in our market share? Can we accept a $40 increase?".

Analysts who attended the event appeared impressed by the idea. Michael Linenberg, managing director at Deutsche Bank, stated, "The essence of supply and demand lies in meeting each individual's personal demand curve." Hauenstein agreed. He added, "The essence is getting the right offering at the right time."

Experiments Beyond its Industry

Customers, of course, may be less interested in the subject of falling into an AI-powered "exploitation phase." But Lindsey Owens, executive director of the Groundwork Collaborative, a left-leaning research organization on economic policy, says that such systems are becoming more common.

Owens, who is writing a book on this topic, added, "Over the past decade, we have seen the emergence of a sort of cottage industry of high-tech pricing consultants... it won’t stop with (Delta)," pointing out that retailers and car rental companies are already experimenting with similar tools and that "the airline industry will export these practices to other sectors".