Delta Air Lines Shifts to AI-Driven Pricing Strategy 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 each passenger receiving a price tailored to their individual circumstances. Delta's president, Glen Hauenstein, compared AI to a "super analyst" working around the clock to determine optimal price points in real-time.

Delta is partnering with Fetcherr, an Israeli company, to implement this pricing strategy. Fetcherr, which also serves other airlines like Azul, WestJet, Virgin Atlantic, and VivaAerobus, has ambitions to expand its services beyond the airline industry into hospitality, car rentals, and cruises. The initial results of Delta's AI pricing strategy have shown favorable unit revenues, indicating a positive impact on the airline's financial performance.

While Delta is transparent about its use of AI, other airlines are likely to follow suit. United Airlines and American Airlines are already using AI for various purposes, such as contacting passengers about cancellations and predicting who will miss their flight. This trend towards personalized pricing has been a goal for airlines for over a decade, and Delta is the first major airline to publicly discuss its use of AI for pricing.

Privacy advocates have expressed concerns about Delta's new pricing strategy, fearing that it could lead to price-gouging and unfair practices. Justin Kloczko, an analyst for Consumer Watchdog, described the tactic as "hacking our brains," suggesting that airlines are trying to determine how much individuals are willing to pay. Senator Ruben Gallego (D-Ariz.) criticized the practice as "predatory pricing," vowing to take action against it. Delta has responded by stating that its fares are publicly filed and based on trip-related factors, with strict safeguards to ensure compliance with federal law.

The use of AI in pricing raises legal and ethical questions. While differential pricing is not illegal, federal laws prohibit charging different rates based on factors like sex or ethnicity. The use of AI could potentially lead to price discrimination based on protected classes, making it difficult to determine if airlines are charging vastly different fares to individuals based on their membership in these groups. Industry experts expect AI to increase revenue for Delta, but the impact on individual passengers is less certain. In the short term, passengers might benefit from using a VPN and clearing cookies when browsing for airfares, but long-term, airlines might require passengers to be logged in for purchase to obtain status benefits, essentially submitting to personalized pricing.

Early research on personalized pricing suggests that the best deals are offered to the wealthiest customers, with the worst deals given to the poorest people. This raises concerns about the fairness of AI-driven pricing and its potential impact on consumers. As Delta continues to roll out its AI pricing strategy, it will be important to monitor its effects on both the airline's profitability and the consumer experience. The shift towards personalized pricing marks a significant change in the airline industry, with potential implications for how airlines operate and how consumers interact with them.