Ever feel like flight prices are all over the map?
So does the Federal Trade Commission (FTC).
The consumer watchdog agency recently issued an order to eight companies seeking information to see how dynamic pricing(adjusting fares based on demand)and surveillance pricing (adjusting fares based on your personal data) are used to set airfare.
The good news is that you can enlist a few easy tricks to avoid the eyes of big data and save on your next flight.
The Two Faces of AI Pricing
Let’s start by defining the terms:
Dynamic pricing adjusts fares based on external factors like demand, timing and competition. For example, airfare often increases as seats fill up during high-demand travel periods like Thanksgiving.
Surveillance pricing goes deeper, using personal data like browsing habits or location, or even income to set prices just for you. If you search for flights on your MacBook, you might pay more than someone using a budget PC.
Airlines and travel search engines, such as Expedia, claim these tools help them offer tailored experiences, but they’re also about boosting profits.
How Airlines Use Dynamic Pricing
Dynamic pricing has been around for years, but AI is taking it to new levels. According to a white paper by IBS Software, airlines like Finnair use AI-driven models that analyze over 13.5 million price combinations.
Finnair saw a 3% revenue increase by adopting dynamic pricing models. The report also highlights how AI platforms like Amadeus Nevio bundle flights with extras like seat upgrades or lounge access, tailoring offers to individual travelers.
Here’s what factors into dynamic pricing:
Demand: Tickets for popular routes or busy seasons cost more.
Timing: Booking last minute? You’ll probably pay extra.
Device type: Studies suggest premium devices like iPhones or MacBooks might show higher prices.
In one trial, a large unnamed network airline saw a 6% revenue boost by switching to AI-powered pricing. While this system is great for airline profits, it often leaves you paying more than someone for the same flight.
When Pricing Gets Personal
Surveillance pricing takes things a step further by tailoring costs to what companies think you’re willing to pay. This isn’t just about how many times you’ve searched for a flight—it’s about your entire digital footprint.
The FTC is investigating how companies, including software providers serving airlines, profit off the use of personal data.
“Firms that harvest Americans’ personal data can put people’s privacy at risk,” says FTC Chair Lina Khan. This includes everything from your location and browsing history to income levels.
Two companies, PROS Holdings Inc. and Accenture, are under FTC scrutiny. They provide pricing tools used in industries like airlines.
PROS specializes in software that helps airlines manage revenue and adjust prices dynamically, while Accenture offers consulting services that include pricing strategies for airlines. Though the exact details of their role in setting fares isn’t fully clear, these companies’ involvement in pricing optimization suggests they may influence how airlines determine ticket costs.
“AI algorithms analyze vast datasets to identify patterns and forecast future trends, helping airlines stay ahead of market fluctuations,” says Adel Javanmard, professor of data sciences and operations at the University of Southern California’s Marshall School of Business..
Read the full article at Forbes
