Twenty percent of Delta Air Lines airfares will be priced by AI by the end of the year, working to figure out how much each individual customer is willing to pay them.
In the fall, Delta Air Lines revealed that they were using artificial intelligence to price about 1% of their inventory, trying to figure out the most each passenger would be willing to pay at the time they search for fares. They use Israeli company Fetcherr for this.
Delta’s President Glen Hauenstein explained at their Investor Day,
We will have a price available on that airplane at that time that’s available to you the individual…what we have today with AI is a super analyst, an analyst working 24/7 a day, trying to simulate..real-time what should the price points be? ..We’re letting the machine go ahead and price in a very controlled environment. It’s going to be a multi-year, multi-step process.
They see this as “a full re-engineering of how we price, and how we will be pricing in the future” – working to “get inside the mind of our consumer and present them something that is relevant to them, at the right time, at the right price.” And they expected the pilot to last 18-24 months.
Already though things are ramping up. We’re now seven months later, and during Delta’s second quarter earnings call on Thursday Hauenstein said they’re “about 3% of domestic” – so, a tripling – but the real shocker was that their “goal is to have about 20% by the end of the year” though they still consider themselves in “testing phase.”
I mean, we we can report back on what the actual numbers are, but you have to train these models as you might and and you have to give it multiple opportunities to provide different results. So we’re in heavy testing phase. We like what we see. We like it a lot, and we’re continuing to roll it out.
But we’re going to take our time and make sure that the rollout is successful as opposed to trying to rush it and risk that there are unwanted answers in there. So this this the more data it has and the more cases we give it, the more it learns, and we’re really excited about it, and we’re really excited about partnering with Fetcherr.
We haven’t heard as much about AI pricing from other airlines, but we certainly will. To the extent that Delta is successful, we’ll certainly be seeing other airlines match. For years airlines have talked about personalized pricing, but often in terms of giving discounts to specific customers that wouldn’t be available if you were shopping outside of their own website, or shopping as a guest. But this takes that to the next level.
While you might expect to be able to defeat this by searching outside of Delta’s channels, in the future I’d expect to see loyalty benefits tied to submitting to this sort of regime. Price segmentation only works if you can segment people. Airlines charge business travelers more than leisure travelers based on the kind of trip they’re buying, and now even whether there’s more than one person on the itinerary. They’re not going to so easily allow consumers to opt out of AI pricing if it’s important to their bottom-line.
Ugh, not ‘great’ for most consumers, but I presume all airlines (and businesses) will soon be doing this. Maximize their profits; provide the same (or worse) services and products. Isn’t this sort of a progressive tax, though, if they determine you have more ‘wealth,’ won’t they charge you more? Or, is it the trope of wealthier folks being stingier, so they’ll pay less than the poor?
Great. I’ll train my AI bot to keep checking and find the lowest price that exactly matches what they’re willing to sell it for…. once it’s done writing my great American novel.
@Rico — Tell us more, Mr. Twain/Hemingway/Steinbeck/Fitzgerald/Salinger!
@ Gary — Good reminder to not login to my account when booking and to use a Romanian VPN server. Thos should be fairly easy to work around while waiting for a D admin to ban the practice completely.
@Gary “By Year-End, 20% Of Fares Will Exactly Match The Most You’re Willing To Spend”
I will bet you $100 that the price is wrong.
@Gene — Only the best rates from Bucharest!
So, I guess they will be somehow tapping into our search data, as a way to gauge our interest on a particular flight, and then tie the same to our zip code to calculate our ability to pay.
Zip code pricing has been going on for a while, even before the ability of AI to use this as a way to determine price points.
Evil
Demand and flex pricing is the wave of the future. Already standard for sporting events and concerts (along with general hotel and airfare prices based on event/seasonal demand) you are seeing it get into restaurant pricing (becoming standard in Las Vegas). This just takes it to the next level with AI optimizing pricing based on search history, related searches (algorithms can consolidate disparate data) and account history.
No problem and smart to Delta. You don’t have to buy their ticket. BTW Gene no administration would outlaw this. Without bias toward a protected group there is no basis to do so in a capitalist society and SCOTUS would shoot down any law that may be passed to that effect
Just do lots of searches for what you (might) want, but don’t buy. Even put the flight in your shopping cart for a while then cancel the cart. Eventually you will be able to train the AI bot as to your limits. Sometimes I put something I want in a retailer’s shopping cart (I’m logged into the site.) then just leave. A day later I often receive an email from the vendor saying, “Hey-you left something in your cart. Here’s an extra 15% off code to use at checkout.” This probably won’t work with an airline, but it is a way of communicating with their computers.
Of course the ones who will get screwed the most by this are the Delta frequent fliers. They already have all the data they need on you.
Please, someone set up a scenario where a Black businesswoman, preferably with a disability, and a White college kid price the exact same itinerary at the same time and document that the Black woman is being charged more than a White kid. Then push that information on social media and any MSM that cares.
Doesn’t matter if it’s legal. Doesn’t matter if the algorithm includes race or disability status. Doesn’t matter if they make comparisons to the old “weekend layover” or 2-week in advance purchase crap. The resulting social media backlash would hopefully kill it — and cost some people behind it their jobs.
@ Nick — Well they should know I’m cheap, so that should guarantee great fares!
My translation: We are training this to make sure we charge you the absolute maximum we can get out of you. While we do that, we are carefully monitoring things to make sure it doesn’t offer you a low ball deal”
Maybe all the fares that I walk away from will make a difference. Be interesting to see if the D1 price comes down to better reflect the actual value of the product.
I absolutely hate this and I actually want it to be illegal. And that’s coming from someone who is otherwise extremely pro free market.
If I use a VPN and invent a different login, and I manage to find a lower price that way, will Delta honor it? Or will they say no, Mike Hunt, that price isn’t for you?
@Mike Hunt — If we’re logged into our SkyMiles accounts when booking, I doubt VPN is gonna help much. Maybe the key will be to enter SkyMiles details after booking, but, there could be downsides to that, depending on what you want. Who knows. Let’s regroup in 2 years and commiserate on how much more inflated everything feels. Like, right now, JFK-MIA, is $500/person/way in First on average. If it’s more by then, they got us. Bah!
Just add your mileage account to the ticket when you check in. Get help if needed.
@1990
Palahniuk
AI could be an extremely powerful tool. It could make a conclusion if you really need to take the trip. It could decide if you’re unwilling to take a red eye. It could read other cookies and try to determine who you are. There are even probably subtle gender and racial differences in purchasing behavior. It could determine if you won’t even consider Spirit and Frontier.
It could try to determine who you are and then sock you with the most money they can get.
So we’re basically looking at trying to outdo a computer that has records of our past transactions. As breathtakingly awful as this is, it’ll get worse. Then the airlines will do the same with awards on top of paid seats. After that the hotels will do the same.
Delta has figured out a Premium way to screw their customers.
Delta Buslines is just plain Nasty.
I see an opportunity for a brilliant young mind to create an Uber consumer AI platform that is designed to create a consumer profile designed to elicit the lowest possible price the “company” is willing to sell the product at.
I would definitely sign up for this service today.
@Alan +1
This is going to suck. Imagine this – I search flight options on Google flights to find the best combo of price/stops and choose my itinerary. I then go to buy the tickets, (whether or not I login to Delta) and somehow they look at lots of data points (many will be incorrect) and price it the highest they think they can get away with, which if it works, will be different than my Google flights search results that I based my decision on. What a pain and this will not make me feel good about remaining a loyal Delta customer, I mean serf.
@Rico — “The things you own end up owning you.” (Always liked that line from Fight Club.)
How much a customer is willing to pay? This will kill direct bookings for those who stand to lose and care
Yes we here at delta will fleece you AI style to get every single dollar out of your Wallet we can
You might as well just give us your bank account number and let us suck you dry
We will get rid of all you bottom feeders /cheap people seeking a low cost flight
Back to full fare
We gotcha at Delta
It will be interesting to see if this pricing method is compatible with commerce in the USA as it has been practiced for over 200 years. Discounts and deals are out there but they are generally available to all that qualify within their time limitations. A similar situation exists where driving tickets get charged at a higher rate for rich people. The underlying situation would be similar to insurance, especially life insurance, where you have no true indication of how much is going for the reasonable cost of the insurance and how much is going to the agent and the insurance company stock holders. It is little wonder that insurance is a central part of Berkshire Hathaway. The fact that the big USA airlines are common carriers may have something to do with the legality.
Not a stretch for them to eventually have a good estimate of your checking & savings balances as they already know far to much by your use of their co-branded credit card..
During your fare/search, they’ll subtly remind you of this by hinting you can afford their artificially inflated fares …
I guess AI will be even more cancerous than social media …
Why does everything have to go this route. Why don’t we get a say in all this tech being forced on us? These evil geniuses want a socialist world.
@Joanie Adams — You’re suggesting the tech oligarchs want ‘socialism’ by using artificial intelligence to fleece us by charging as much as possible. Madam, that’s definitionally late-stage capitalism, not socialism. If anything, they want outright feudalism, and for us to be their freaking serfs. Sheesh!
@Joanie Adams – No, Socialism is where the ultra rich pay the most, the middle class pays some but not a lot while the poor pay nothing. Outside of Social Security that’s pretty much the opposite of The American Way lately where the rich screw everybody else. Why else do the top 1% control a third of all the wealth while the bottom half of our people control 2% of all the wealth? We’re the richest country in history yet we have people dying homeless on the streets. In a Socialist country we’d help them instead of laughing.
If you want some good practical examples of Socialist countries today, just look up happiest countries in the world and the top ones are Socialist.
@Christian – Okay. So let’s break this down piece by piece, because nearly everything you just said is wrong or, at best, misleading.
First off, the claim that “in socialism, the ultra-rich pay the most, the middle class pays some, and the poor pay nothing” — that’s not socialism. That’s a progressive tax structure, which, spoiler alert, the United States already has. In fact, the U.S. has one of the most progressive tax codes in the developed world. The top 1% of earners in America pay over 40% of all federal income taxes. The top 40% pay nearly ALL income tax. The bottom 50%? They pay around 2%. That is the opposite of the “rich screwing everybody else.” That is the rich subsidizing everybody else.
Now, do some rich people exploit loopholes? Sure. Should we close those loopholes? Absolutely. But that’s a tax enforcement issue, not a case for overturning the entire economic system that has generated more prosperity than any in human history.
Next, you say the top 1% “control a third of all the wealth.” Okay. And? That’s a static snapshot. Wealth inequality is not the same as poverty. The United States also has one of the highest standards of living, best access to innovation, and most charitable giving because of that wealth creation. And by the way, people move in and out of income brackets all the time. The top 1% isn’t a caste. Many of them are entrepreneurs who took enormous risks to create things you use every day. Ya know, like the iPhone you just used to tweet about how evil capitalism is.
Now you say, “People are dying homeless on the streets.” Yes, that’s tragic. But what you ignore is that the vast majority of those people are suffering from mental illness, addiction, or both. It is not from a lack of socialist government programs. In fact, the U.S. spends billions each year on homelessness and housing assistance. The problem isn’t spending. The problem is bureaucratic incompetence and policies that actually encourage vagrancy instead of offering real treatment or accountability.
And finally… ah yes, the old “happiest countries in the world are Socialist” trope. No. Just no. The Nordic countries you’re referring to such as Denmark, Norway, Sweden, are NOT socialist. Their governments would tell you so themselves. These are capitalist economies with free markets, strong property rights, and – yes – higher taxes on everyone, not just the rich. In Denmark, the middle class pays a 60% marginal tax rate. Are you ready for that? Didn’t think so.
@1990 @Christian – I think what @Joanie Adams is saying is that late stage capitalist moves such as this will eventually lead to a backlash resulting in the big ole scary S the red hat f**kboys claim to know so much about while actually knowing nothing.
@Mike Hunt: I love you. Awesome reply. I’m saving that for future use.
@Everyone Else: You have to remember that “AI” pricing will account for everything. It reads these blogs, it knows what we want and don’t want, and it will suck up EVERYTHING. It knows we want free upgrades and cheap first class seats and lounges that have no people in them and the best buffet you’ve ever seen. It knows our “break” points when we will accept something or walk away and choose something else. You should see some of the latest models that are behind huge paywalls none of you in this thread have even seen before. Just wait a few more years.
I hope the algorithms become extremely discriminatory based on protected characteristics and we see lawsuits that send these AI companies and Delta into bankruptcy.
Probably won’t happen, but a man can dream…
Well guess what? If you start using AI based dynamic pricing, if there’s any tricks there (…and these AIs seem to invariably be buggy so there will be tricks) I *will* get that flight for like $1 (if you don’t constrain your rates) or the very lowest if you do. If you’re going to try to get every penny you can out of your customers you better get it right!
Is it me or has @Tim Dunn been conspicuously quiet on this new Delta enhancement?
This seems easy to defeat: search on Google Flights (where the airline AI doesn’t know anything about you), lock in on the flight and price, click thru, then login at the airline site. They’re not going to change the price after they’ve already quoted you, right?? Am I missing something?
@Mike Hunt: You’re just gullible. The US does *NOT* have a progressive tax structure.
Short version: If a billionaire replaces workers with automation or AI and their net work increases by $1 million, they will pay no taxes on that increase in wealth. If a worker puts in overtime to make $1,000, they’ll pay 15% payroll tax plus their marginal tax rate, or about 40%. Billionaires paying 0 percent and workers paying 40% is *NOT* progressive.
The biggest lie that you’re perpetuating is pretending that “income taxes” = “taxes”. “Income taxes” are only a subset of taxes that Americans pay. They make up only 40% of federal revenue, because the wealthy executed a neat trick and relabeled half of taxes on income as PAYROLL taxes, which only workers pay, while the wealthy pay zero.
Even within income taxes, we don’t really have a progressive tax system, as the wealthy redefine a lot of income as NOT actually income, or put it into special categories like capital gains with lower rates.
That’s why you can have people with a net worth of 100+ billions of dollars who have paid less than 1% of their net worth in taxes – they changed the laws so their increase in wealth doesn’t count as income.
Another fallacy is that billionaires face some sort of risk…. they don’t. List one former billionaire that’s now broke. For some reason, ALL the billionaires have their wealth increase over time. Do they put money at risk? Sure. Do they put their TIME or LIFE at risk? Never. There’s a big difference between someone who takes out a 2nd mortgage and puts everything they own on the line to start a business, and someone whose parent gave them a bunch of money.
And you’re right, countries like Sweden are NOT socialist. But they do have socialized healthcare, like we have socialized law enforcement, fire protection, national defense, disaster response, etc. Most Americans would be better off with a higher tax rate if it included a healthcare system that worked for them.
If you cut Medicaid for working Americans, people die. If you place reasonable taxes on billionaires hoarding the fruits of their workers’ labor, the yachts they can afford are smaller.
Trickle-down economics doesn’t work. Its long past time we MAGA and return to the high tax rates on hoarded income that we had when most families could survive on one income.
So many stupid people. The price is the price, it doesn’t matter if it’s being set by a statistician in Atlanta or an AI algorithm in Israel. Delta offers you a ticket for $X, and you decide if you’re willing to pay X. How Delta arrives at X is irrelevant.
AI pricing lol. No thanks.
@Christopher J Raehl — Thank you, and well said. @Mike Hunt and a few others cannot help but ‘carry water’ for billionaires. Fellas, if you don’t have at least a spare $10,000,000 lying around, you ain’t ‘in the club.’ Instead of perpetuating the culture, remember, it’s always been a class war. Let’s lift each other up. We deserve better.
@LAX Tom — How companies price things can be an issue; see ‘price fixing.’ The problem is that regulators like the FTC are likely to be neutered in favor of special interests over the wellbeing of consumers, especially these years.
@Christopher J Raehl – Thank you for the greatest hits album of economic misconceptions, moral grandstanding, and a fundamental misunderstanding of how taxes actually work.
Claim 1: “The U.S. does NOT have a progressive tax structure.”
Wrong. Categorically false. The U.S. tax system is one of the most progressive in the developed world. According to the OECD, the top 10% of American earners pay a larger share of the total tax burden than in virtually any other Western country, including those “happy” Scandinavian countries you idolize.
– Top 1% of earners in the U.S. pay over 42% of federal income taxes (IRS, 2020).
– The bottom 50% of earners pay just 2.3%.
– The top 10% pay about 74%.
If that’s not progressive, I’d love to hear your definition.
Claim 2: “Billionaires pay 0%, workers pay 40%.”
False. You’re conflating unrealized gains with actual taxable income. If Jeff Bezos’s net worth goes up by $1 million because Amazon stock increases, he doesn’t pay tax yet because he hasn’t sold it.
You don’t pay income tax on imaginary income, and that rule applies to everyone, not just billionaires. It’s called mark-to-market taxation, and we don’t do it… because taxing unrealized gains is a disaster waiting to happen.
Meanwhile, when that worker makes an extra $1,000 in overtime, yes, they pay income tax and payroll tax. But those taxes go toward Social Security and Medicare, which the wealthy already subsidize heavily but often receive relatively little benefit from.
Oh, and billionaires? They pay capital gains tax, currently 23.8% federally. Add in state taxes and they can pay over 30%. The idea that they “pay nothing” is utter nonsense.
Claim 3: “Payroll taxes are just a trick to screw workers.”
No. Payroll taxes are earmarked taxes for programs that directly benefit workers: Social Security and Medicare. They’re not some secret scam. And guess what? High earners pay into those, too, up to the wage cap, and then they receive reduced relative benefits. So yes, they subsidize the system.
Also, many wealthy individuals pay both income tax AND payroll tax. Especially if they own S-corps or pay themselves a salary. (I happen to know because I fall into this category myself.) Again, this is just economics 101.
Claim 4: “Capital gains have lower rates, so it’s unfair.”
Let me explain this slowly: Capital gains are taxed lower because they are taxed on money that has already been taxed once. You take your income, you pay taxes, and then you invest it (RISKING IT!) and if it grows, you pay again. This is double taxation. That’s why we encourage long-term investment with lower rates, because it benefits the economy.
Also: you can lose money in investments. The worker doesn’t lose their paycheck at the end of the week. So yes, capital gains are different. Because they ARE different.
Claim 5: “Billionaires face no risk.”
Really? No risk? What an absurd statement. Some billionaires inherited wealth, of course. Others built it from nothing. Elon Musk, Jeff Bezos, Sara Blakely, Oprah Winfrey. All of them risked capital, reputation, and time. Many lived on ramen noodles in their 20s. Many entrepreneurs go broke. You just don’t hear about them because they don’t make the Forbes list.
Risk isn’t only measured in whether you “put your life on the line.” That’s a non sequitur. Risk is financial, reputational, and legal. And it’s everywhere in business.
The problem with AI-based price setting is that the Nash equilibrium for a mostly stable oligopoly like the airline industry will nearly always be sustained algorithmic price fixing. If the AI pricing bots run optimally tacit collusion will be the profit-maximizing (but welfare-reducing) result. Algorithmic price fixing is illegal but increasingly rampant across industries (the RealPage rental collusion case is a prominent current court case about this).
The solution will probably need to come from Congress. Congress should mandate that companies fully publicly disclose the specific model parameters used in AI-based pricing (the weighting scheme could be proprietary but viewable on-demand by regulators like the DOT, DOJ and FTC). It should ban using race, gender, age, religion, marital or relationship status, or zip code as model parameters (to ensure that Americans are treated equally regardless of where they choose to live, whether they are single or married, and their fundamental characteristics). It should also mandate that if airlines choose to be viewable on aggregator search engines (like Google Flights) then they MUST honor the publicly listed price for a searched flight for a specified period of time (perhaps 30 minutes). Same with frequent fliers who log into their account after finding a flight price in incognito mode. Airlines should be allowed to offer a lower price to frequent flier members who sign in then the publicly listed one, but not a higher one.
I enjoy watching free-market arguments crush hand-waving socialists. Let me add this one on income mobility. A research effort a view years back tracked individual taxpayers and their income over time using IRS data. They found people moved up and down in income (no surprise). So mobile are U.S. taxpayers that over a 44 year period:
12% of population was in top 1% for 1 or more years
39% of population was in top 5% for 1 or more years
56% of population was in top 10% for 1 or more years
73% of population was in top 20% for 1 or more years
@Mike Hunt The claim that billionaires pay 0% could be partially true in a few cases (though far from all or even most). The wealthy can buy citizenship by investment in a Caribbean country like Antigua and Barbuda for a few hundred thousand dollars and then renounce citizenship. These countries offer zero capital gains tax or estate tax. The US tax code also has a very generous estate tax exemption and a “step-up in basis”. So, here’s a hypothetical example. John Smith is a US citizen worth $10 million. To avoid ever paying capital gains tax he used the “buy, borrow, die” strategy. Upon his death his lone son Jim inherits all of his assets. He pays $0 in estate tax and takes advantage of the “step-up in basis”. Having already bought citizenship by investment in Antigua and Barbuda he immediately renounces US citizenship and moves his official residence to Antigua to avoid paying any exit tax. There he accumulates stock and other assets with zero capital gains tax in perpetuity. His son Bob then inherits his assets tax-free upon his death.
A company using IA to manage pricing means that prices will definitely rise