Dynamic AI Pricing Could Mean Fewer Cheap Airline Seats for Travelers, Analysts Say

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Or sign-in if you have an account.Southwest Airlines passengers checking in at San Francisco International Airport in July. Airlines are turning to AI to make their dynamic pricing methods more efficient. Photo by David Paul Morris /Photographer: David Paul Morris/(Bloomberg) — Globetrotters hunting for airfare bargains are in for a rude awakening: the days of stumbling across a cheap seat on a popular flight could soon disappear.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountAirlines have long relied on analysts to devise pricing rules — such as increasing fares by 20% once a flight is a quarter full. Now, artificial intelligence is enabling carriers to change seat prices more quickly by weighing dozens of variables in real time, helping capture more revenue while shrinking the pricing gaps that once allowed travelers to find bargain fares.Driven by soaring costs, carriers from Delta Air Lines Inc. to Virgin Atlantic are increasingly adopting the technology to squeeze more revenue from every flight. For travelers, that will likely mean higher fares on busy routes as fewer seats are sold below what airlines believe customers are willing to pay and flights are packed closer to capacity.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe shift marks a new era in airline pricing, replacing rules and spreadsheets with predictive models that continuously adjust fares to demand.“Consumers should expect that airlines will be smarter about their pricing and will exploit that capability to raise fares where possible and cut prices where they have room to stimulate demand,” said Bryan Terry, an analyst at New York-based Alton Aviation Consultancy. “Airlines will see those conditions clearer, more in advance, and with more certitude, allowing them to adjust pricing — both upwards and downwards — more dynamically.”The technology could also work in travelers’ favor on quieter flights. Passengers should expect to pay less on off-peak and lower-demand routes as airlines use AI to stimulate bookings and fill empty seats, Terry said.The push comes as airlines grapple with rising labor, maintenance and fuel costs, increasing pressure to extract more revenue from every flight. Established airline software providers including Amadeus and PROS now offer AI-powered pricing tools as airlines modernize their revenue management systems.While airlines have typically turned to dynamic pricing to adjust fares based on demand, advances in AI are making those systems faster and more sophisticated, according to aviation analyst Guy Leitch. Machine-learning models can more accurately forecast demand by analyzing historical booking patterns, seat inventory and seasonal trends, while also continuously tracking competitors’ fares and capacity changes to update prices in near real time.Whether that ultimately benefits travelers remains contested.“Efficient markets are passenger friendly in that by booking smart or early, passengers can get below-average fares,” Leitch said. Critics, however, argue airlines operate on thin margins and will use increasingly powerful pricing tools to maximize average fares, aircraft occupancy and overall yields.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Israeli startup Fetcherr is among the companies helping drive the shift. Used by nearly a dozen global carriers including Canada’s WestJet and Brazil’s Azul Airlines, its AI platform enables continuously updated fares as market conditions change.During disruptions triggered by the Middle East conflict, Fetcherr’s software immediately incorporated factors including oil price swings, competitors exiting markets, flight cancellations and changing route demand to reprice flights around the world. On average, its AI-driven technology raises revenue by filling more seats on a particular flight — rather than by raising ticket prices — the firm said. “Our models analyze dozens if not hundreds of classes of variables to come up with fares. You can only now do that because of AI,” said Uri Yerushalmi, the company’s co-founder and chief AI officer. “The platform knows to adjust offerings immediately every time something changes in the market.”AI is also helping airlines generate more revenue even after tickets are sold. Say a passenger books a popular flight months in advance at a lower fare. Then a week before departure, demand surges. Atlanta-based operational intelligence company Volantio’s AI platform — which has access to an airline’s bookings — identifies people who may be willing to switch to a less crowded flight in exchange for a voucher. The vacated seat can then be resold to a last-minute business traveler for $1,000, extracting more revenue. “The airline gets more money for the seat and the passenger is rewarded for their flexibility,” said Azim Barodawala, co-founder and chief executive officer of Volantio, which counts Japan Airlines Co. among its customers. Still, the growing use of AI in airline pricing is also fueling concerns over how the technology could evolve. Consumer advocates and US lawmakers last year warned airlines could eventually use generative AI for “surveillance pricing” by charging different customers different fares for the same seat based on personal data such as browsing history or income.Delta declined to comment this week. The airline has said it isn’t using — and doesn’t plan to use — AI to set fares based on customers’ personal information. Yerushalmi said Fetcherr’s models rely on aggregated market data rather than individual passenger information. Volantio also said its offers for seat reallocation aren’t personalized. For carriers, the appeal is straightforward. “It’s the ultimate secret sauce from an airline perspective,” said Alton Aviation’s Terry. “It’s easier to lift revenue in today’s environment than it is to cut costs. And to do that, airlines continue to push the boundaries on where to generate new revenue.”Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.