Potential increase in airline ticket prices due to Delta's new AI-based pricing strategy?
The airline industry's use of artificial intelligence (AI) to manipulate prices can be traced back to the Airline Deregulation Act of 1978. This shift, spearheaded by airlines like Delta, has led to the development of AI tools that aim to optimize revenue by adjusting fares dynamically based on personal information, buy history, and predicted demand elasticity.
Delta's AI system, for instance, is designed to predict what customers are willing to pay for premium services tied to base fares, and to speed up existing fare adjustments. However, the potential implications of this new form of dynamic pricing, often referred to as "surveillance pricing," are raising concerns about fairness and privacy.
One key concern is price discrimination and increased fares. AI can recommend personalized markups, potentially leading to higher fares for individual travelers without human oversight. For example, it is estimated that AI could suggest up to 17% higher fares, predicting that small price increases will only slightly reduce demand but boost revenue, thus enabling airlines to maximize profits at the individual consumer level.
Another concern is reduced price transparency and fairness. Since these prices are personalized and influenced by surveillance data, the same flight can be priced differently for different customers, potentially without their knowledge or consent. This lack of transparency could lead to a lack of fairness in the pricing system.
Furthermore, with the airline industry being concentrated among a few major players, limited competition may allow such pricing strategies to flourish unchecked, risking price gouging and reduced consumer choice.
Moreover, extensive data collection and surveillance form the basis of these models, raising issues about invasive use of personal data for profit. Lawmakers have expressed significant data privacy concerns, noting that such pricing might rely on data obtained via third-party channels.
In response to these concerns, lawmakers have introduced or supported legislation to prohibit surveillance pricing and algorithmic pricing based on personal data. New York has already passed a law requiring any seller using personalized pricing algorithms to disclose this to customers.
However, industry leaders admit that there are “hardly any safeguards in place” to regulate AI-driven pricing systems before prices go public. Critics remain skeptical, highlighting the potential for opaque personalized pricing practices.
Advocacy groups urge regulators to crack down on such surveillance pricing to prevent invasive and predatory uses of consumer data in pricing decisions before such practices become widespread.
In summary, AI-based surveillance pricing in airlines could dramatically transform fare-setting by personalizing prices at scale, raising substantial ethical, privacy, and competitive concerns. Regulatory frameworks are currently emerging but have not yet fully addressed these novel challenges.
- In the airline industry, the use of AI for bookings is not limited to optimizing revenue through dynamic pricing, but also involves predicting what customers are willing to pay for premium services, thereby potentially leading to increased fares and price discrimination.
- The implementation of AI tools in the booking industry could result in a lack of price transparency and fairness, as the same flight could be priced differently for different customers due to personalized pricing algorithms, raising concerns about data privacy and invasive use of personal data.
- As the bookings industry shifts towards AI-driven pricing, there is a need for regulatory frameworks to prevent opaque personalized pricing practices, safeguard consumer data privacy, and ensure fair competition in the industry.
