Delta Air Lines Shifts to AI-Driven Pricing for 20% of Tickets by Year-End

Delta Air Lines is embarking on a significant shift in its pricing strategy, moving away from fixed fares and towards a more personalized approach using artificial intelligence (AI). This long-term strategy aims to enhance profitability by tailoring ticket prices to individual passengers. The airline has already implemented a pilot program where AI determines 3% of its fares, and the results have been described as "amazingly favorable."

By the end of the year, Delta plans to expand this AI-driven pricing to 20% of its ticket prices. Currently, about 3% of the airline’s flight prices are AI-determined, a figure that has tripled from nine months ago. The ultimate goal is to eliminate static pricing altogether, with the president of Delta, Glen Hauenstein, explaining that the airline aims to have a price available on a flight at a specific time for each individual passenger.

Hauenstein compared AI to a "super analyst" working around the clock to simulate real-time price points. While the rollout is expected to be a multiyear process, initial results have shown favorable unit revenues. Delta is partnering with Fetcherr, an Israeli company, to achieve this personalized pricing. Fetcherr, which also serves other airlines, has ambitions to expand into the hospitality, car rental, and cruise industries once established in the airline sector.

Delta's move towards AI-driven pricing has raised concerns among privacy advocates. Critics argue that this approach could lead to price gouging and unfair practices. One consumer advocate likened the tactic to "hacking our brains," suggesting that airlines are trying to exploit individual willingness to pay. Senator Ruben Gallego (D-Ariz.) has criticized Delta's practice as "predatory pricing," vowing to take action against it.

Delta has responded to these concerns by asserting that its fares are publicly filed and based on trip-related factors such as advance purchase and cabin class. The airline maintains strict safeguards to ensure compliance with federal law, although specific details about these safeguards were not immediately provided. The spokesperson did not clarify whether these safeguards are human or automated, nor did they specify where the 3% of fares set via Fetcherr are publicly filed.

The use of AI in pricing is not new to the airline industry, but Delta's openness about its strategy is unprecedented. Other carriers, such as United Airlines and American Airlines, have already begun using AI for various purposes, including contacting passengers about cancellations and predicting who will miss their flight. Industry experts expect that Delta's move will prompt other airlines to follow suit, further integrating AI into their pricing models.

The shift towards AI-driven pricing marks a significant change in how airlines operate. For consumers, this means the era of "fair" pricing is over, as the price they see will be determined by what the algorithm thinks they will accept, rather than a universal rate. While differential pricing is not illegal, federal laws prohibit charging different rates based on protected characteristics such as sex or ethnicity. The use of AI in pricing raises questions about potential disparities and the need for transparency in how fares are determined.

The impact of AI on individual passengers is less certain. In the short term, AI might lead to more discounts being offered upfront when Delta needs to fill seats. However, long-term, passengers might be required to log in to purchase tickets to obtain status benefits from an airline, essentially submitting to personalized pricing to gain extra benefits. Early research on personalized pricing suggests that the best deals are often offered to wealthier customers, while the poorest people, who have fewer options, receive the worst deals.