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.
DL is going to find a tremendous amount of backlash unless they can command the narrative. The pitch should be:
We (DL) offer full-fare prices in various classes, and, like others, we regularly offer discounts on those fares. We will use AI to help with this very complicated pricing system. This will permit us to offer significant discounts to the most price-sensitive customers.
Coke was developing a machine that, using ambient temperature, would dynamically price the product: lower prices when cooler out, higher when hotter. Consumers saw this as “regular price” plus mark up when hot. Coke should have sold it as “regular price” minus discounts when cold. This framing issue is important. And, of course, there’s no guarantee Coke could sell their framing. I believe the CEO lost his job over this.
And in case there are any wise-guys who wanna pretend like they don’t understand inflation or the relative value of money over time:
$200,000 in 1944 is equivalent in purchasing power to about $3,653,000 today. Anyone here earning over $3.5 million per year in ‘income’? Yeah, well, back then, any dollars earned above that woulda been taxed near 90%. I get it, taxes, inflation, money concepts are ‘hard’ to understand for some. Even harder for some: equity (fairness).
I have yet been able to figure out how DL can do this to me. Living near a non-hub, non-focus-city airport, I have a wide choice of the Big3 on every flight. I use Expedia or Google flights to see the options and prices, and then book directly. If those sites show $500 for a trip, how will DL charge me more when I go to their site? And, of course, if they try, I go to AA or UA. Or, though I prefer not to do so, I could book DL through Expedia.
Yes, Ticketmaster can manipulate my prices because they have a monopoly on sales to that concert. How can DL expect me to pay more than their competitors charge?
Finally, how would DL deal with the dozens of stories of “I logged in as a guest (or my parents, etc.) and received a $900 quote, while seeing a $1,000 quote for the same itinerary/dates/time using my account.”
For those of you who understand inflation and don’t like cherry picking, I share the following. The 1963 rate was 91% of earning over $300,000 ($3,151,618 today’s dollars) and was 52% for earnings over $24,000 ($252,129). In 1981, you paid 70% at $161,300 ($570,432) and 52% at $24,000 ($252,129). So, a one time, before we woke up, we somehow thought if you made the equivalent of a quarter million a year, the feds should take more than half of every addition dollar you make. Both of these dates were the last year before the extremely smart Kennedy tax cuts, and the equally wise Reagan cuts, respectively.
Sorry, I forgot to add that I used Head of Household rates. If I used Single rate, the taxes would have been more draconian. Married Filed Jointly would be less draconian. The 70% rate in 1981 was at $108,300 ($383,000) for Single taxpayers.
Of course, we should all have seen this AI “dynamic pricing” coming, and soon it will be everywhere. Just wait until Amazon gets ahold of it. anywhere that AI can know who you are, your income level, personal habits, history and preferences, everything down to microscopic detail, disgrace every last penny out of you.
@This comes to mind — By ‘woke up’ and referring to the 1980s, with the Reagan tax cuts, that really was the ‘beginning of the end’ of the ‘American Dream’ as wealth inequality began on its meteoric rise. Now, I understand, many of the right-wingers love him, Bush tax cuts, and #45/47, but this is ultimately not helping the country or its people as a whole. Great for the top, though. Whether you prefer Mel Brooks or Tom Petty: “It’s good to be (the) king!”
The top federal tax rate is 37% and the top California tax rate is 13.3% so taxes are still quite significant. The truly rich generally do not make their money on wages. They make their money on stocks or other forms of company ownership.
@jns — Sometimes you pay more, you get more (not always). You’d think NYC would have the highest, but it only has a combined top marginal income tax rate of approximately 14.776% (10.9% state and 3.876% local). Supposedly, Bridgeport, CT, has a total tax burden of up to 22% for its highest earners (in addition to Federal). Even Philly has 20.9%. Yikes.
By contrast, many ‘red’ states do not have income taxes; yet, their property taxes (and insurance premiums), like in Florida or Texas, can outweigh things. It’s inherently complex, nuanced, and there is no ‘right’ answer, but it’s good to consider options. At least for now, if you don’t like it where you are, you can move between states and cities.
Delta said:
“…get inside the mind of our consumer and present them something that is relevant to them, at the right time, at the right price.”
A little late to the game they are since Matrix and, to a lesser extent, its little brother Google Flights already does this.
Incredibly easy to mostly find exactly what I’m looking for with Matrix, which is usually a direct flight to DFW, LAX, SFO, or SEA and from there an international carrier out of the overpriced U.S., pools in which, given my home airport, Delta doesn’t even play.
I can see this approach potentially opening a can of worms for Delta. If you price by the individual, someone, likely the government or advocacy groups, will want to see the average price breakdown by protected class status of customer (race, gender, advanced age, etc). Even if there is no intentional bias, only disproportionate impact need be demonstrated to create the presumption of discrimination.
@Andy says:
“Just wait until Amazon gets ahold of it. anywhere that AI can know who you are, your income level,…”
Based on what I’ve seen, I expect that Amazon already has it; AMZN seems to have very little pricing discipline and extreme price volatility and, speaking as one who’s been a heavy AMZN shopper since it started, that has made it an unpleasant place to shop, so I’ve been drawn away to other retailers that can control their pricing and their inventory.
AI will never know one’s income since tax records, financial records from places like banks and brokerages, and employment records will likely never be available to AI developers. The best AI will ever be able to do is to make an educated guess based on aggregated Census Bureau income levels by residence zip code and zip+4 and that ain’t a bad thing. In my case, both my net worth and income are significantly above the average for my zip+4, so if AI wants to give me pricing based on the average income in my zip+4, I’ll take that every day of the week and twice on Sundays.
Everyone is overthinking this. When I read the headline, my first thought was, yay, I’m gonna fly First Class more because Delta will figure out how much I’m willing to pay for it. And say good-bye to free upgrades.
It’s not a guarantee that prices will rise.
@LAX Tom — But, but… ‘line go up!’ /s
@1990 – Okay, lots of rage here, not a lot of reason. So let’s walk through this with the facts, because facts don’t care about your feelings (or your snark).
You claimed that my 74% figure is dishonest because no one pays more than a 37% tax rate. But that’s a basic misunderstanding of how tax burden works. I’m not saying the rich pay a 74% rate — I’m saying the top 10% of earners pay 74% of all federal income tax revenue. That’s not a trick. That’s not misleading. That’s straight from the IRS. The top 1% earned around 22% of adjusted gross income but paid over 42% of all income taxes. The bottom 50% of earners? Again, they paid just 2.3%. That’s not a flat system, and it’s not regressive. That’s a highly progressive tax structure by any serious definition.
As for your nostalgic nod to the 1950s and the 94% top marginal tax rate: yes, that rate existed on paper, but it was mostly performative. The actual effective tax rate for top earners in that era was closer to 42%. Why? Because the tax code was riddled with shelters, deductions, and loopholes such as oil depletion allowances, income-splitting, and you name it. In fact, in 1952, fewer than 10 Americans actually paid the full 94%. That rate was political theater, not economic reality. And let’s be clear: the U.S. economic dominance of the 1950s was not a result of high tax rates. It was a result of being the only major industrial economy that hadn’t been reduced to rubble in World War II.
You then suggest that billionaires are “practically evading” taxes through loopholes, offshoring, stock-backed loans, and charity gamesmanship. Yes, there are problems in the tax code. And I fully support closing legitimate loopholes. But again, this is not an argument against capitalism or against the wealthy per se; it’s an argument for better tax enforcement and reform. As for borrowing against stocks, yes, some wealthy individuals do that, but it’s still debt, and they still pay capital gains tax when the assets are eventually sold. And taxing unrealized gains, which you imply we should do, would be economically reckless and legally dubious. Should we also start taxing homeowners based on Zillow estimates before they sell? Or retirees based on how well their 401(k) is doing this week?
Your argument that we’re living in a second Gilded Age and need a new Progressive Era misses the real problem. Wealth inequality isn’t driven by capitalism, it’s driven by poor public policy. Blue cities artificially restrict housing supply, unions block school reform, and our welfare system often punishes people for working more. Those are structural problems created by government and not by Jeff Bezos.
And finally, the “bootlicker” insult is just lazy rhetoric. It’s what people say when they’ve lost the argument. No one is defending every action of the wealthy or saying billionaires are saints. But you don’t fix inequality by scapegoating success or burning down the system that created the most innovation, prosperity, and opportunity in human history. You don’t help the poor by punishing the productive. You grow the economy. You expand the pie. You raise the floor, not by lowering the ceiling, but by letting people climb.
So next time, if you want to have an actual debate, come with numbers and logic — not envy and talking points. Facts are still waiting for you.