Delta is just the beginning: How AI is going to put dynamic pricing into everything you buy

Summer vacation season is here, but it may be the last time Americans can travel affordably by plane—especially if Delta has its way.

As the world’s largest airline by annual revenue and the second-largest by passengers carried, Delta is a leader in the industry. That’s what makes its plans to use AI for ticket pricing so concerning.

According to Delta President Glen Hauenstein, about one in five tickets the airline sells by year’s end will be priced by AI, up from just 3% today. Delta’s long-term goal is to price all tickets this way. “This is a full reengineering of how we price and how we will be pricing in the future,” Hauenstein told investors in November 2024. While this may spell “amazingly favorable unit revenues” for the airline, it’s bad news for passengers—many of whom worry that price gouging will soon eclipse any notion of price personalization.

“The practice of dynamic pricing is certainly not new in the airline industry,” says Kerry Tan, professor of economics at Loyola University Maryland. But with better data and evolving tech, he says, “the increase in the usage of AI to price their flights” raises important questions. “Certainly Delta, as with any other company, is profit-driven, and stands to gain from this by better matching consumers’ willingness to pay to the price they pay for a flight.”

The fear is that Delta’s size and influence will prompt others—both airlines and companies in unrelated sectors—to follow suit.

“As an economist, we assume that companies are profit maximizers, and so in a way I see this as companies really making a push towards that objective of profit maximization,” Tan says. But it also highlights how firms are increasingly willing to squeeze consumers for every penny. That’s why companies like Disney can implement variable pricing for perks like Lightning Lane passes, or why Las Vegas casinos continue to raise resort fees.

Post-pandemic, the consumer environment has grown more hostile, from ubiquitous tipping prompts to ever-higher surcharges. Tan points to sports franchises pricing tickets dynamically depending on the quality of their opponent—for instance, Manchester United charging more when facing rivals like Liverpool than lesser-known teams like Everton.

And it’s not just flights or football. “I think certainly where possible companies are going to try to employ AI,” Tan says. While grocery pricing might seem less vulnerable, he notes early signs of change. Some European chains already use digital shelf tags that update in real time—lowering prices to reduce food waste but potentially able to raise them when demand spikes or a tracked customer walks in. Still, he adds, AI pricing makes more economic sense for big-ticket items like airfare than everyday goods like milk.

Tim Quigley, a management professor at the University of Georgia, agrees, and sees how easily this kind of technology could spread. “If they know there’s an ad and a bunch of people in a city searching for a piece of hardware at Best Buy, maybe the price goes up,” he says. “It’s those sorts of things AI can do without human intervention.”

Hotels may be next. “What you’re willing to pay to stay at a Marriott or a Hilton or some other hotel could be vastly different than my willingness to pay,” Tan says. “And if they can tap into that difference and charge you closer to what your willingness to pay is, they’re going to extract a lot more profits.”

Quigley warns this trend could lead to “a miserable existence” for consumers. “This creeps in further into our lives with us being silent about it,” he says. “So I appreciate you reaching out and other journalists that have written about this issue and getting it to the forefront.”

For Quigley, the solution starts with protecting personal data. “Companies are using this data in ways that you and I could have never imagined,” he says. “Maybe we ought to put some basic protections in place to say the customer, the individual—[we] own our data.”

https://www.fastcompany.com/91371885/delta-is-just-the-beginning-how-ai-is-going-to-put-dynamic-pricing-into-everything-you-buy?partner=rss&utm_source=rss&utm_medium=feed&utm_campaign=rss+fastcompany&utm_content=rss