Delta Moves Toward Eliminating Set Prices in Favor of AI-Driven Ticket Pricing

In a move that has sparked both excitement and concern, Delta Air Lines is set to revolutionize its pricing strategy by leveraging artificial intelligence (AI) to determine individual ticket prices. The airline's goal is to increase profit margins further by maximizing what each passenger pays for fares. By the end of the year, Delta plans to have 20% of its ticket prices individually determined using AI, up from the current 3%, according to President Glen Hauenstein.

Currently, only about 3% of Delta's flight prices are AI-determined, triple the portion from nine months ago. However, over time, the airline aims to eliminate static pricing altogether and offer dynamic pricing that is tailored to each passenger's individual needs. "This is a full reengineering of how we price and how we will be pricing in the future," Hauenstein said during the company's Investor Day in November. "We will have a price that's available on that flight, on that time, to you, the individual."

Airline executives compare AI to "a super analyst" who works tirelessly to simulate real-time prices based on various factors, including demand and supply. Delta accomplishes this pricing through a partnership with Fetcherr, a six-year-old Israeli company that also counts Azul, WestJet, Virgin Atlantic, and VivaAerobus as clients. The airline plans to expand its AI-powered pricing strategy beyond flying into other industries such as hospitality, car rentals, and cruises.

"Once we will be established in the airline industry, we will move to hospitality, car rentals, cruises, whatever," Robby Nissan, cofounder of Fetcherr, said at a travel conference in 2022. While Delta is open about its use of AI, other carriers are likely to follow suit.

Industry experts praise Delta's bold move, saying that personalized pricing has been an airline goal for the past decade and a half. "Delta is the first major airline to speak so publicly about its use of AI pricing, to tout it for its potential upside at its investor day in the fall and to offer concrete metrics around its use in its recent earnings call," said Gary Leff, a travel industry authority.

However, not everyone is convinced that Delta's strategy is a good one. Privacy advocates have expressed concern about the airline's use of AI to gather data on individual passengers' willingness to pay for fares. "They are trying to see into people's heads to see how much they're willing to pay," said Justin Kloczko, who analyzes so-called surveillance pricing for Consumer Watchdog, a California nonprofit. "They are basically hacking our brains."

Sen. Ruben Gallego (D-Ariz.) has also criticized Delta's practice, calling it "predatory pricing." The airline has responded that it has zero tolerance for discrimination and maintains strict safeguards to ensure compliance with federal law.

While airlines have long offered different prices to different people based on various factors, the use of AI supercharges this type of price discrimination and puts airlines into a legal gray area. "AI isn't just optimizing business operations, but fundamentally rewriting the rules of commerce and consumer experience," said Matt Britton, author of Generation AI.

Without a public record of all fares, it would be difficult to determine if Delta is charging vastly different fares to people based on their membership in a protected class. Industry experts expect the impact of AI to mean more revenue for Delta, but the impact for individual passengers is less certain.

In the short-term, AI might mean more discounts offered upfront when Delta needs to fill seats. However, long-term, the airline and other carriers might require passengers to be logged in for purchase of tickets in order to obtain status benefits from an airline, essentially being fully within their ecosystem to gain the benefits of that system.

Early research on personalized pricing isn't favorable for consumers. Consumer Watchdog found that the best deals were offered to the wealthiest customers—with the worst deals given to the poorest people, who are least likely to have other options.