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- Delta has a long-term strategy to boost its profitability by moving away from set fares and toward individualized pricing using AI. The pilot program, which uses AI for 3% of fares, has so far been “amazingly favorable,” the airline said. Privacy advocates fear this will lead to price-gouging, with one consumer advocate comparing the tactic to “hacking our brains.”
Fresh off a victory lap after a better-than-expected earnings report, Delta Air Lines is leaning into AI as a way to boost its profit margins further by maximizing what individual passengers pay for fares.
By the end of the year, Delta plans for 20% of its ticket prices to be individually determined using AI, president Glen Hauenstein told investors last week. Currently, about 3% of the airline’s flight prices are AI-determined, triple the portion from nine months ago.
Over time, the goal is to do away with static pricing altogether, Hauenstein explained during the company’s Investor Day in November.
“This is a full reengineering of how we price and how we will be pricing in the future,” he said. Eventually, “we will have a price that’s available on that flight, on that time, to you, the individual.”
He compared AI to “a super analyst” who is “working 24 hours a day, seven7 days a week and trying to simulate… real time, what should the price points be?”
While the rollout would be a “multiyear” process, he said, initial results “show amazingly favorable unit revenues.”
Delta accomplishes this pricing through a partnership with Fetcherr, a six-year-old Israeli company that also counts Azul, WestJet, Virgin Atlantic, and VivaAerobus as clients. And it has its sights set beyond flying. “Once we will be established in the airline industry, we will move to hospitality, car rentals, cruises, whatever,” cofounder Robby Nissan said at a travel conference in 2022.
‘Hacking our brains’
While Delta is unusually open about its use of AI, other carriers are likely to follow. Already, United Airlines uses generative AI to contact passengers about cancellations, while American Airlines uses it to predict who will miss their flight.
“Personalized pricing has been an airline goal for the past decade and a half,” Gary Leff, a travel industry authority who first noted Delta’s AI strategy, told Fortune. “Delta is the first major airline to speak so publicly about its use of AI pricing, to tout it for its potential upside at its investor day in the fall and to offer concrete metrics around its use in its recent earnings call.”
Privacy advocates noted Delta’s development with concern.“They are trying to see into people’s heads to see how much they’re willing to pay,” said Justin Kloczko, who analyzes so-called surveillance pricing for Consumer Watchdog, a California nonprofit. “They are basically hacking our brains.”
Sen. Ruben Gallego (D-Ariz.) called Delta’s practice “predatory pricing,” saying, “I won’t let them get away with this.”
A Delta spokesperson told Fortune the airline “has zero tolerance for discrimination. Our fares are publicly filed and based solely on trip-related factors like advance purchase and cabin class, and we maintain strict safeguards to ensure compliance with federal law.”
The spokesperson did not immediately answer follow-up questions on what those safeguards were, whether they are human or automated, or where the 3% of fares that are currently set via Fetcherr are publicly filed.
‘Fair’ pricing is over
To be sure, airlines have long offered different prices to different people, even for the same route, based on factors like how travelers book—directly, via a comparison-shopping site or a travel agent—or how far in advance they shop. As far back as a decade ago, travel websites showed different prices for precisely the same itinerary based on details like which browser a purchaser was using to search for fares. But the use of AI supercharges this type of price discrimination and puts airlines into a legal gray area.
“AI isn’t just optimizing business operations, but fundamentally rewriting the rules of commerce and consumer experience,” Matt Britton, author of Generation AI, told Fortune. “For consumers, this means the era of “fair” pricing is over. The price you see is the price the algorithm thinks you’ll accept, not a universal rate.”
White differential pricing is not illegal per se, federal laws prohibit charging different rates to people based on their sex or ethnicity, and the use of some identifiers like ZIP codes have been shown to have a disparate impact on protected classes. Without a public record of all fares, it would be difficult, if not impossible, to determine if Delta is charging vastly different fares to people based on their membership in a protected class.
To complicate matters, while industry experts expect the impact of AI to mean more revenue for Delta, the impact for individual passengers is less certain. In the short-term, AI might mean more discounts offered upfront when Delta needs to fill seats, said Leff. Short-term, shoppers might benefit from using a VPN and clearing cookies when browsing for airfares, but long-term, Delta and other airlines might require passengers “to be logged in for purchase of tickets in order to obtain status benefits from an airline, essentially being fully within their ecosystem to gain the benefits of that system (i.e. submit to personalized pricing to get extra legroom seats),” Leff said. Early research on personalized pricing isn’t favorable for the consumer. Consumer Watchdog found that the best deals were offered to the wealthiest customers—with the worst deals given to the poorest people, who are least likely to have other options.
This story was originally featured on Fortune.com
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