Karl,
You may not think much of me ā fair enough ā as long as my wife does Iām a happy guy. But I promise that not everyone who disagrees with you is evil or stupid! Hubert Horan says that airlines are out to screw customers. To some extent thatās right but it doesnāt mean that this new technology allows them to do it. My suggestion is that the mechanism by which it will help airlines generate incremental revenue is greater price discrimination, better tailoring whom to offer the lowest fares. And maybe thatās screwing the customer ā perfectly fair to hold that view. I think Iāve been pretty non-normative in thinking through this. Iām not saying āAI is good for youā Iām saying, letās think about the economics of the product and what AI will accomplish in the near-term. As we all know, an airline seat that takes off empty can never be sold again. And carrying a marginal passenger comes at extremely low cost to an airline. Most of the expense of a trip is baked in ā the plane, fuel, crew. Airlines have gotten much better at filling seats. And they try to maximize revenue ā yet the real cost of a ticket has fallen over time, inclusive of fees. Thatās no accident. * Airlines will sell that marginal seat for almost any amount they can get for it * Except they donāt want to offer a lower fare to someone that would buy the seat anyway, at a higher fare * And so airlines go to great lengths to price discriminate, segment customers. There have been lots of tools for this over time, like Saturday night stays and advance purchase requirements to separate price-insensitive business travelers from more price-sensitive leisure travelers ā in order to offer the lower fares only to the latter group. Thatās what basic economy is all about, offering cheap flights that are just annoying enough they wonāt be an option for businesses who will spend more. AI is another tool to get more granular with price discrimination. And so it seems reasonably likely that itāll be used to figure out whom to offer those lower fares to, filling more seats at even lower fares but only offering those prices to people who wouldnāt buy at all at a higher price. Airlines can fill seats and generate incremental revenue without cannibalizing existing higher yield traffic. And what of the fear that an airline will know your aunt died and you are highly motivated to attend her funeral? That ticket will generate valuable incremental revenue to whichever airline gets it. So if one airline (in this case, say, Delta) offers you $2,000 when theyāll sell the ticket to someone else for $600ā¦ then United will offer it at $1,800ā¦ and American at $1,500 and Southwest at $1,200 and Spirit will come along, desperate for any revenue after a first quarter in which they generated a -27% margin and offer it to you for $500. Our best defense against AI pricing of the parade of horribles sort (besides our own personal AI!) is competition. Which is a whole separate topic that I very much worry about, but not necessarily for the same reasons that are most commonplace. Best, Gary p.s. Iād love to hear why you believe Iām mistaken ā thatās an opportunity for learning ā and not just that you think Iām an idiot š From: Karl L. Swartz via Mifnet <[email protected]> Sent: Tuesday, July 22, 2025 4:27 PM To: Mifnet <[email protected]> Cc: Karl L. Swartz <[email protected]> Subject: [Mifnet š° 73239] Re: Why does anyone think that airline "AI pricing" will benefit consumers? Your points just reinforce my view of Gary Leff, which is that he does a lightweight job of reporting with minimal substance. Heās better than Simpleton Flying, but thatās a very low shadow to surmount. -- Karl On Jul 22, 2025, at 1:28 PM, Hubert Horan via Mifnet <[email protected] <mailto:[email protected]> > wrote: Gary Leff published a follow up to the Delta āAI pricingā article [1] previously posted on the Mifnet. As with the first article, it includes Glen Hauenstein quotes claiming that this he was anticipating āa full re-engineering of how we price, and how we will be pricing in the futureā ā Delta was working to āget inside the mind of our consumer and present them something that is relevant to them, at the right time, at the right price.ā But unlike the first article Leff claimed that AI pricing at Delta would be a wonderful thing for consumers because it would mean ālower prices, rather than higher prices and agreeing to AI pricing could even become a requirement of airline elite status.ā This makes absolutely no sense to me. Leff didnāt support this claim with any explanation of how Deltaās āAI pricingā would actually work, or what the overall effect of āAI pricingā might be. He didnāt quote anyone with direct experience with todayās pricing/yield management practices or anyone familiar with LLCs in consumer pricing. Can anyone explain how one might conclude that Deltaās āAI pricingā would produce lower overall prices? Why would Delta undertake a major project if it thought the net result would be lower fares? Maximizing its share and yield from āhigh-endā passengers has been central to Deltaās strategy for the last decade. Why would it highlight the project to investors, who are only interested in evidence of the market power needed to extract higher and higher fares? Delta (and its competitors) already have very high load factors. Figuring out how to sell more cheap tickets makes no sense unless you have tons of empty seats, and even then airlines understand the solution is to cut capacity. And selling more cheap seats is the easy part of revenue management (if you are departing with lots of empty seats donāt shut off discount sales so soon). Figuring out how to grab a few more dollars from the last seats on high-demand flights is the hard part. Hypothetically āAI systemsā might be of some value in pricing tickets to very frequent/higher-yield passengers although no one has explained what exact information about these passengers an LLC might use, where the new info would come from, or how it would be used to change the fare displays those customers might see. But most domestic pax are very infrequent flyers. I vaguely recall a Scott Kirby quote saying something like 80% of his traffic only bought one ticket a year. What info would an LLC be able to collect on these more price-sensitive passengers, and how would it determine that a customized deeper discount would get this person to buy but not this other person? Leffās point about trying to force Delta customers with elite status into an AI-driven sales channel might be correct, but I suspect thereād be backlash, and as Leff notes most of these folks would know how to determine whether they are getting the market fare. But this falls into the āforcing our best customers to pay even higher fares than they do nowā category, not the offer consumers lower fares category. I understand that āforcing our best customers to pay even higher fares than they do nowā may be a strategic priority at Delta given the lack of obvious other ways to quickly juice profits. But that approach would logically focus on forcing them into captive, controlled channels, and preventing them from being able to readily access information about competitive alternatives. All of which should be seen as pure evil by anyone who thinks āmarket competitionā is a good thing. Again it is not clear what the LLC vendors are offering that could actually make Deltaās higher-yield frequent flyers more willing to use captive, controlled channels. There is a bit of a parallel here with ongoing Mifnet discussion about ATC/airline reliability issues. No one stops to explain what they think the deficiencies of longstanding airline pricing/revenue management systems are. What is preventing these weel-developed systems from maximizing network unit revenue today? We jump immediately to an announcement that we are throwing big bucks at consultants offering a fancy sounding ātechnologicalā solution without ever explaining exactly what the new technology does (that the current technology couldnāt) and how it will solve the defined problem. Since no one (including airline investors and executives) takes that approach, reporting is dominated by PR hackery based on transparently false claims. Airline āAI pricingā is just the same type of āprice discriminationā weāve seen for decades (as Hauenstein says itās an attempt to radically reengineer traditional pricing). Like traditional revenue management it will drive major efficiency/productivity gains (none of the conditions that allowed traditional revenue management to improve overall efficiency in past decades exist anymore). It will hugely benefit consumers by lowering prices (a sure signal that 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/ -------------------------------------------------------------------------- Revised: 20250507 You are receiving The Mifnet because you requested to join this list. The Mifnet is largely a labor of love, however the infrastructure isn't exactly cost-free. 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