Gary Leff published a follow up to the Delta “AI pricing”article [1] previously posted on the Mifnet. As with the first article, itincludes Glen Hauenstein quotes claiming that this he was anticipating “a fullre-engineering of how we price, and how we will be pricing in the future” – Deltawas working to “get inside the mind of our consumer and present them somethingthat is relevant to them, at the right time, at the right price.”
But unlike the first article Leff claimed that AI pricing atDelta would be a wonderful thing for consumers because it would mean “lowerprices, rather than higher prices and agreeing to AI pricing could even becomea requirement of airline elite status.” This makes absolutely no sense to me.Leff didn’t support this claim with any explanation of how Delta’s “AI pricing”would actually work, or what the overall effect of “AI pricing” might be. Hedidn’t quote anyone with direct experience with today’s pricing/yieldmanagement practices or anyone familiar with LLCs in consumer pricing. Cananyone explain how one might conclude that Delta’s “AI pricing” would producelower overall prices? Why would Delta undertake a major project if it thought thenet result would be lower fares? Maximizing its share and yield from “high-end”passengers has been central to Delta’s strategy for the last decade. Why wouldit highlight the project to investors, who are only interested in evidence ofthe market power needed to extract higher and higher fares? Delta (and its competitors) already have very high loadfactors. Figuring out how to sell more cheap tickets makes no sense unless youhave tons of empty seats, and even then airlines understand the solution is tocut capacity. And selling more cheap seats is the easy part of revenuemanagement (if you are departing with lots of empty seats don’t shut offdiscount sales so soon). Figuring out how to grab a few more dollars from thelast seats on high-demand flights is the hard part. Hypothetically “AI systems” might be of some value inpricing tickets to very frequent/higher-yield passengers although no one hasexplained what exact information about these passengers an LLC might use, wherethe new info would come from, or how it would be used to change the faredisplays those customers might see. But most domestic pax are very infrequentflyers. I vaguely recall a Scott Kirby quote saying something like 80% of histraffic only bought one ticket a year. What info would an LLC be able tocollect on these more price-sensitive passengers, and how would it determinethat a customized deeper discount would get this person to buy but not thisother person? Leff’s point about trying to force Delta customers withelite status into an AI-driven sales channel might be correct, but I suspectthere’d be backlash, and as Leff notes most of these folks would know how todetermine whether they are getting the market fare. But this falls into the “forcingour best customers to pay even higher fares than they do now” category, not theoffer consumers lower fares category. I understand that “forcing our best customers to pay evenhigher fares than they do now” may be a strategic priority at Delta given thelack of obvious other ways to quickly juice profits. But that approach wouldlogically focus on forcing them into captive, controlled channels, andpreventing them from being able to readily access information about competitivealternatives. All of which should be seen as pure evil by anyone who thinks “marketcompetition” is a good thing. Again it is not clear what the LLC vendors areoffering that could actually make Delta’s higher-yield frequent flyers morewilling to use captive, controlled channels. There is a bit of a parallel here with ongoing Mifnetdiscussion about ATC/airline reliability issues. No one stops to explain whatthey think the deficiencies of longstanding airline pricing/revenue managementsystems are. What is preventing these weel-developed systems from maximizing networkunit revenue today? We jump immediately to an announcement that we are throwingbig bucks at consultants offering a fancy sounding “technological” solutionwithout ever explaining exactly what the new technology does (that the currenttechnology couldn’t) and how it will solve the defined problem. Since no one (including airline investors and executives) takesthat approach, reporting is dominated by PR hackery based on transparently falseclaims. Airline “AI pricing” is just the same type of “price discrimination” we’veseen for decades (as Hauenstein says it’s an attempt to radically reengineertraditional pricing). Like traditional revenue management it will drive majorefficiency/productivity gains (none of the conditions that allowed traditionalrevenue management to improve overall efficiency in past decades existanymore). It will hugely benefit consumers by lowering prices (a sure signalthat the real objective is to screw consumers).  [1] https://viewfromthewing.com/several-airlines-now-quietly-let-ai-set-ticket-prices-surprisingly-thats-great-news-for-your-wallet/
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