Delta Denies “Surveillance Pricing”—But AI Doesn’t Need Your Name To Predict What You’re Willing To Pay

Delta Air Lines published a letter in response to Rep. Frank Pallone (D-NJ), denying that they use AI to engage in surveillance pricing. [T]here is no fare product Delta has ever used, is testing, or plans to use that targets customers with individualized prices based on personal data. Let’s unpack this because we know that Delta’s goal is targeting customers with individual prices – because they’ve said so. What they’re saying here is that this targeting isn’t being done with personal data. AI is going to be very important for airlines, just as it’s going to be very important everywhere. Delta CEO Ed Bastian says AI will cut costs and improve profitability by 50%. Part of that effort is cutting costs. United for instance has said they cut headquarters staff 4% last year, and they’re cutting it another 4% this year. Delta has explained how AI will be used generating more ticket revenue. Delta Has Said Personalized Pricing Is The Goal Former airline President Glen Hauenstein previously described how the airline would make an airfare offer available at that moment to “you, the individual.” The airline’s response collapses two different questions into one: Is Delta currently feeding a named customer’s personal data into Fetcherr to calculate that customer’s airfare? They say they are not, and that seems correct. Does Delta intend to move from static fare grids toward individually generated offers? They’ve previously said clearly this is the goal. Hauenstein explained at their November 2024 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.” Delta’s AI Vendor Explains How This Works Here’s the thing. (1) Delta has explicitly described moving to personalized pricing in the future. This came under criticism, and their vendor Fetcherr scrubbed its website. But the language remains archived. Fetcherr’s media rep has aggressively come at me over explaining what their product does, saying I’m describing it incorrectly, and promising me a clarifying statement – but went silent when I pointed out that their own materials describe: “understanding each customer as an individual” “finding the optimal price for each customer” using “customer lifetime value, past purchase behaviors, and the real-time context of each booking inquiry” producing a “truly personalized offer” creating personalized bundles “at the optimal price for each customer” moving from “segments of thousands” to “segments of one” Fetcherr promoted this and Delta trumpeted it until there was criticism. Delta Says They ‘Comply With The Laws’ – But The Laws Don’t Apply Delta names compliance with “applicable” laws and gives examples of “Department of Transportation’s (DOT) Unfair and Deceptive Practices regulations, the California Consumer Privacy Act (CCPA), the European Union’s Global Data Protection Regulation (GDPR), etc.” [W]e have zero tolerance for discriminatory or predatory pricing and fully comply with applicable privacy, pricing, and advertising laws. There is of course no ‘Global Data Protection Regulation’ but I don’t think Delta is being obfuscatory here, suggest they comply with something that doesn’t exist, and simply meant to refer to the EU’s General Data Protection Regulation. The FTC is warning retailers not to use private consumer data to raise prices, but the Federal Trade Commission Act expressly excludes “air carriers and foreign air carriers” from the Commission’s Section 5 authority over unfair or deceptive practices. That authority rests with the Department of Transportation. And when DOT specifically considered personalized pricing in 2014, in approving IATA New Distribution Capability efforts, and said they did not consider personalized airline offers to be illegal, leaving open whether differentiation based on income, marital status or trip purpose might be unfair or unlawfully discriminatory. And while several states are passing laws on the matter, those are expressly preempted by the Airline Deregulation Act. States aren’t permitted to regulate airline service, schedules or pricing. In other words, they are generally not ‘applicable.’ Airlines Can’t Charge More Because You’re Desperate To Fly There’s a great fear that an airline will know you need to travel to a funeral and will pay almost any amount to get there, and you’ll be forced to pay far more on that trip when you’re desperate. But in nearly every case this makes no sense even if they could infer it from family trees and published obituaries. Selling you that expensive ticket would be very profitable, so other airlines would want the business too. And they’d compete for it. Each airline would bid down the price to earn the supranormal returns – until it returned to the normal price. And an airline doesn’t need to know that your father passed away to infer willingness to pay. It can use route, date, time, device, sales channel, loyalty status, shopping history available in the session, whether you arrived through a corporate portal, and the behavior of statistically similar shoppers. Regulators and airlines can spend years arguing over which of those inputs makes a price “personalized.” The economic function is the same: estimate the highest price that wins this sale without losing the customer. AI Will Allow Airlines To Offer Lower Fares Airlines today charge people more who are willing to pay more by (1) deciding under what circumstances a lower price applies [when a flight is projected to have empty seats, they might sell the seat for less to people booking roundtrip with a Saturday stay] (2) selling different products, for instance making lower prices available without seat assignments or carry-on bags and not awarding miles or status credit (basic economy). That’s not fundamentally different. Delta acknowledges in its letter something I’ve been writing for two years – that AI pricing may mean lower pricing, although they don’t explain the mechanism. Technology, including AI-enabled decision-support tools, can help our analysts better match fares to market conditions and customer demand. In periods of lower demand, these tools, for example, may support decisions to lower fares, helping make air travel more accessible to more customers When an airline has empty seats they want to sell those seats for almost any amount. Filling the seat costs almost nothing, and when it takes off empty they get zero and can never sell it again. They’d take an airfare just slightly above zero for it – but fear a very low price would be taken by someone who would otherwise buy that same seat for more. AI will let them make the near-zero ticket price available to someone they’re confident wouldn’t otherwise buy the seat. They gain the confidence to lower prices in a way they won’t today. Personalized Fares Is Basically What Airlines Have Been Doing For 50 Years AI pricing should mean more revenue per seat, in part by filling more seats at lower fares rather than having no fare attached to empty seats. But it also may mean lowest fares offered more selectively. Everyone on the plane already pays a different price for their seat. Ever since deregulation 48 years ago (and even earlier, under Civil Aeronautics Board ‘experiments in price competition’) airlines have tried to offer different fares to each passenger based on willingness to pay, with tools like advance purchase requirements and Saturday stays and prices that change several times a day. Southwest Airlines even used to bribe business travelers with takeaway liquor to have their companies spend more for their ticket. This is really no different in kind from what airlines have been doing for 50 years. Topics on this page