The Federal Trade Commission (FTC) has announced that it’s investigating airlines (among other businesses), to determine to what extent they’re using personalized pricing. I know social media would have us believe that this is the most worthwhile effort ever, but don’t expect anything to come of this.
FTC launches personalized pricing inquiry into airlines
The FTC has just ordered Delta, United, and JetBlue, to provide detailed information that will allow the agency to study the use of personal data to set prices. This investigation also includes pricing and worker compensation for ridesharing and food delivery services, but that’s not what I’ll focus on in this post.
The three airlines must turn over information that will allow the agency to assess whether the pricing for a ticket varies from one person to the next based on factors such as participation in a loyalty program, or analysis of personal data by superintelligence algorithms.
Airlines have 45 days to respond and hand over information, and it’s noted how under Section 6(b) of the FTC Act, the commission has the authority to conduct wide-ranging studies that do not have a specific law enforcement purpose.
Here’s how FTC Chairman Andrew Ferguson describes this:
“We intend to scrutinize the opaque methodology that some companies in these industries may be using to determine how much consumers pay or how much gig workers are paid for the same product or service. Consumers deserve to know whether companies use their web surfing habits or other personal data to estimate the highest price they can charge each consumer. Workers also deserve to know if their compensation is affected by how companies use their personal data.”
This airline investigation is unlikely to prove fruitful
The general public largely hates airlines, and thinks they’re trying to rip people off. I have a different take — while there are aspects of the industry that frustrate me, it’s a really tough, low margin industry, and people don’t realize how expensive flights are to operate. The people most frequently getting screwed by airlines are the investors. 😉
The thing is, airline pricing is no doubt incredibly complex, and the goal is to maximize revenue with each passenger as much as possible. However, that doesn’t mean we’re actually seeing any sort of personalized pricing.
We have seen an increase in accusations of this in recent times, with all kinds of viral social media posts, of people claiming airlines are trying to charge two people different prices at the same time. In just about example I’ve seen, there has been a logical explanation, and it had nothing to do with the IP address or loyalty program participation.
Admittedly the fact that we live in an AI era, and Delta executives have made some pretty dumb comments along these lines, haven’t helped. I am a little confused why only three US carriers are being investigated, though. How were they chosen, exactly?
There’s nothing wrong with the FTC trying to investigate this, though I’m willing to say with a very high level of certainty that nothing will come of this. Actual personalized pricing among the major US carriers in the way that’s being suggested simply isn’t happening. Period.
How do I know? Well, for one, I have a generally good understanding of how airline pricing works. Complex as it is, there is a method to the madness. I’ve also yet to see an actual example of that in a defensible way. I also have quite a few friends who work in pricing at airlines, and they confirm the same (and these are people who tell me the truth off the record, even if it doesn’t fit their preferred narrative).
I will say, I think investigating rideshare and food delivery compensation is a fair initiative, and I think services like Uber should probably be pretty worried there. Or at least I saw the below video recently, and that definitely made me think that something was up. Then again, it’s not something I fully understand, so maybe I’m being as foolish here as people are in their beliefs about airlines… I don’t know!
Bottom line
The FTC is investigating airlines, to determine if they’re using personalized pricing on consumers. There’s nothing wrong with looking into this, but I’ll just say up front that I’m very confident nothing will come of this. Airlines no doubt have very complex pricing, but that doesn’t mean that they’re charging people different prices based on their IP, their loyalty program participation, etc.
Looking into rideshare and food delivery driver compensation does seem like a more worthwhile endeavor, and I feel like there might actually be some things to learn there…
What do you make of the FTC investigating airlines?
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