Delta's AI-Powered Pricing Strategy Sparks Controversy and Legislative Action

Delta's AI spying to "jack up" prices must be banned, lawmakers say

One week after Delta announced it is expanding a test using artificial intelligence to charge different prices based on customers' personal data -- which critics fear could end cheap flights forever -- Democratic lawmakers have moved to ban what they consider predatory surveillance pricing. In a press release, Reps. Greg Casar (D-Texas) and Rashida Tlaib (D-Mich.) announced the Stop AI Price Gouging and Wage Fixing Act. The law directly bans companies from using "surveillance-based" price or wage setting to increase their profit margins. If passed, the law would allow anyone to sue companies found unfairly using AI, lawmakers explained in what's called a "one-sheet." That could mean charging customers higher prices -- based on "how desperate a customer is for a product and the maximum amount a customer is willing to pay" -- or paying employees lower wages -- based on "their financial status, personal associations, and demographics." Tlaib called companies using AI to "exploit" workers in "desperate" situations "appalling," with the one-sheet specifically shaming delivery services that lower drivers' wages based on their "pattern of taking orders" and health care companies that base nurses' pay on "an algorithmically-manipulated-bidding war, not the tasks they perform." The lawmakers also called out Delta among companies whose AI pricing plans, advocacy groups warn, stand to worsen the US "affordability crisis" that currently sees many Americans struggling to afford basic items, like groceries. Delta has confirmed it plans to "set 20 percent of prices using AI by the end of the year," lawmakers noted. And other companies "engaging in surveillance-based price setting" include giants like Amazon and Kroger, as well as a ride-sharing app that has been "charging a customer more when their phone battery is low." Public Citizen, a progressive consumer rights group that endorsed the bill, condemned the practice in the press release, urging Congress to pass the law and draw "a clear line in the sand: companies can offer discounts and fair wages -- but not by spying on people." "Surveillance-based price gouging and wage setting are exploitative practices that deepen inequality and strip consumers and workers of dignity," Public Citizen said. AI pricing will cause "full-blown crisis" In January, the Federal Trade Commission requested information from eight companies -- including MasterCard, Revionics, Bloomreach, JPMorgan Chase, Task Software, PROS, Accenture, and McKinsey & Co -- joining a "shadowy market" that provides AI pricing services. Those companies confirmed they've provided services to at least 250 companies "that sell goods or services ranging from grocery stores to apparel retailers," lawmakers noted. That inquiry led the FTC to conclude that "widespread adoption of this practice may fundamentally upend how consumers buy products and how companies compete." In the press release, the anti-monopoly watchdog, the American Economic Liberties Project, was counted among advocacy groups endorsing the Democrats' bill. Their senior legal counsel, Lee Hepner, pointed out that "grocery prices have risen 26 percent since the pandemic-era explosion of online shopping," and that's "dovetailing with new technology designed to squeeze every last penny from consumers." Hepner pushed lawmakers to support the legislation banning AI surveillance pricing, suggesting that could help "restore fair, transparent, and predictable pricing." Otherwise, "there is no such thing as a good deal when every consumer is charged a different price," Hepner warned. For consumers and workers who may not even realize they've been subjected to AI spying, the law offers paths through their state, the FTC, and the Equal Employment Opportunity Commission to sue. Any violations could force companies to either pay back the difference in any unfair transactions that AI systems recommended or $3,000 -- whichever is higher. And willful violations could triple damages owed. "Giant corporations should not be allowed to jack up your prices or lower your wages using data they got spying on you," Casar said. "Whether you know it or not, you may already be getting ripped off by corporations using your personal data to charge you more. This problem is only going to get worse, and Congress should act before this becomes a full-blown crisis." It's unclear if the Democrats can win enough support from Republicans to pass the bill. Perhaps notably, Republican FTC commissioners voted against releasing the report outlining potential concerns with AI surveillance pricing and wage setting. In their dissent, commissioners Andrew Ferguson and Melissa Holyoak suggested the report was published prematurely, criticizing Biden's outgoing FTC for "nakedly" politicizing the agency and taking an "unprecedented" step in sharing preliminary summaries of findings. However, they did agree that when the final report is ready, the "American public and Congress will surely value what the Commission ultimately learns and shares as to whether and how consumers' private data may be used to affect their pocketbooks, especially as the future of our nation's privacy laws is being considered."

Congress introduces bill to ban AI surveillance pricing

Two Democratic members of Congress, Greg Casar (D-TX) and Rashida Tlaib (D-MI,) have introduced legislation in the US House of Representatives to ban the use of AI surveillance to set prices and wages. During Delta's Q2 earnings call last week, Delta's president Glen Hauenstein said that the airline has already rolled out AI-controlled dynamic pricing for 3 percent of its customers and is aiming to have 20 percent of fares set using the system by the end of the year. Software biz Fetcherr supplies the pricing code to Delta and others in the industry, including Virgin Atlantic and WestJet. "We're in a heavy testing phase. We like what we see," he told analysts. "We like it a lot, and we're continuing to roll it out, but we're going to take our time and make sure that the rollout is successful as opposed to trying to rush it and risk that there are unwanted answers in there." Delta's move is nothing new. Many companies adjust prices depending on circumstances - the business plan for ride-hailing apps, for instance, is built around the idea that peak demand leads to peak prices. Supply and demand is a fundamental part of current economic thinking. Software that munges massive amounts of data just makes that process more efficient and instantaneous. Nevertheless, the use of AI sparked an outcry, and politicians took interest. The new legislation, the Stop AI Price Gouging and Wage Fixing Act, wants to ban the use of advanced AI systems to analyse personal data in setting prices and wages. "Giant corporations should not be allowed to jack up your prices or lower your wages using data they got spying on you," said Casar. "Whether you know it or not, you may already be getting ripped off by corporations using your personal data to charge you more. This problem is only going to get worse, and Congress should act before this becomes a full blown crisis." The representatives want the FTC, the Equal Employment Opportunity Commission, and individual states to enforce the rules of the bill. The legislation would also allow private citizens to take action against companies using such practices. In January, the FTC issued a staff report indicating that so-called "surveillance pricing" is already occurring across some sectors, and may be expanding. The agency found that companies are adjusting prices based on factors such as browser type, device used, location, shopping history, and inferred personal characteristics, including wealth. "The FTC should continue to investigate surveillance pricing practices because Americans deserve to know how their private data is being used to set the prices they pay and whether firms are charging different people different prices for the same good or service," said the outgoing FTC Chair Lina Khan. The FTC offered a hypothetical example in which a consumer profiled as a new parent could be shown higher-priced baby thermometers, since they were less likely to own one already. The agency found that at least 250 companies were working with pricing intermediaries using such techniques, and that these firms often rely on data from brokers and other third-party sources. "Armed with extraordinary access to personal information, corporations are using opaque algorithms to set prices based on perceived individual need, which often means higher costs for essential goods," said Lee Hepner, senior legal counsel at the American Economic Liberties Project, which supports the legislation. "Grocery prices have risen 26 percent since the pandemic-era explosion of online shopping, dovetailing with new technology designed to squeeze every last penny from consumers. Federal lawmakers should join this effort to restore fair, transparent, and predictable pricing." The FTC voted 3-2 to continue studying the issue, with both Republican commissioners voting against. Commissioner Andrew Ferguson, the newly appointed head of the regulator, was quite firm [PDF] in his rebuttal, saying more study of the issue is needed. Meanwhile, Republicans hold the House and the Senate, suggesting the legislation has little chance of passage. ®

Delta plans to use AI in ticket pricing. Here's how it could impact the cost to fly

Artificial intelligence could set the price of your next flight. One of the nation's biggest airlines, Delta, is making headlines after its president revealed plans to double down on using AI to dynamically set ticket pricing. The airline plans to use AI to set prices for up to 20% of its domestic flights by the end of the year, up from its current 3%. "We like what we see, we like it a lot, and we're continuing to roll it out," Delta's president said during a recent investor call. Clint Henderson with the travel website ThePointsGuy.com says integrating artificial intelligence takes the dynamic pricing model airlines already use and puts it on steroids. "Airlines already have a huge team of revenue managers who are looking to see what demand is like in different markets, what days of the week they should raise, when they should lower prices, how fare buckets are selling or not selling, and adjusting prices accordingly," Henderson said. "So instead of having 10 humans doing pricing, they'll have a machine doing it for them." But Delta's plan is hitting turbulence. Three U.S. senators sent a letter to the airline raising privacy concerns, accusing Delta of using personal data to set individualized prices. We asked Delta for comment, and a spokesperson said the airline isn't using personal data to charge customers different fares. "There is no fare product Delta has ever used, is testing or plans to use that targets customers with individualized offers based on personal information or otherwise," a Delta spokesperson said in an emailed statement. "A variety of market forces drive the dynamic pricing model that's been used in the global industry for decades, with new tech simply streamlining this process. Delta always complies with regulations around pricing and disclosures." However, Delta executives previously said to investors that the technology is capable of setting fares based on what it predicts someone would be willing to pay for that ticket. Fetcherr, the company providing the technology to Delta, previously bragged about "hyper-personalization" of prices before scrubbing it from its site, travel site Thrifty Traveler first reported. Frequent flyer Rebecca Perschon says she worries the high-tech approach could make it harder to know whether you're getting a good deal. "I think we'd be at a disadvantage," Perschon said, noting she and her husband are usually limited to traveling at peak times on weekends and during holidays due to their work schedules. "We just kind of have to build that into our travel budget every year, sadly." Henderson said as more airlines use more data to set prices, inevitably, what you pay will become more personal and less predictable. "Machines are better than humans at setting prices, so prices overall could trend higher," he said. "That's why airlines are investing in this."

US Senator Raises Alarm Over Delta Air Lines' Testing of 'Personalized' Pricing | PYMNTS.com

By completing this form, you agree to receive marketing communications from PYMNTS and to the sharing of your information with our sponsor, if applicable, in accordance with our Privacy Policy and Terms and Conditions. "I've recently seen where I think AI can be used handily in a very anti-consumer way. And that's what Delta Air Lines is starting to do," Warner said at a Senate subcommittee hearing on AI held Wednesday (July 30). Delta is testing AI-powered personalized pricing on about 3% of its flights, with plans to expand the program to 20% by year-end. The system leverages customer data -- potentially browsing behavior, income estimates, purchase history and other factors -- to offer customized fares. That contrasts with traditional dynamic pricing, which fluctuates based on market supply and demand but displays the same price to all consumers at a given moment. "We all know there's 'surge' pricing," Warner said. "Tickets for planes cost more around the holidays and cost more to go south in the winter than it does in the summer. That makes sense." But "surveillance" pricing is different since it considers "massive" amounts of data of the individual, Warner said. "Do we really want an airline to know that ... if you've got Taylor Swift concert tickets in city Y, and they know that, they can individually price to collect a few extra dollars?" the senator asked. These little price bumps add up. Warner said the prediction is that the airline industry would increase profits by $4.4 trillion. "That's a lot of money based upon a surveillance pricing scheme," Warner said. "I think we at least ought to have more information before we move forward." Warner, Sen. Richard Blumenthal (D-Conn.), and Sen. Ruben Gallego (D-Ariz.) reportedly wrote a letter to Delta expressing their disapproval of the practice, according to Newsweek. The Chicago Tribune editorial board also has spoken out about "personalized" pricing as well. In a statement last week to PYMNTS, a Delta spokesperson said, "there is no fare product Delta has ever used, is testing, or plans to use that targets customers with individualized offers based on personal information or otherwise." The spokesperson added, "A variety of market forces drive the dynamic pricing model that's been used in the global industry for decades, with new tech simply streamlining this process. Delta always complies with regulations around pricing and disclosures." Read also: American Airlines CEO Slams AI Fare Setting as Trickery During Delta's briefing with analysts last November, President Glen Hauenstein had provided details about the airline's "personalized" pricing experiment. "We will have a price that's available on that flight, on that time, to you, the individual," Hauenstein said. He described the AI tool as a "super analyst," adding that early results have shown "amazingly favorable unit revenues." Delta seeks to gain a "first-mover advantage," Hauenstein had said. "We do believe that we are ahead of our competitors in terms of implementing this and in changing our business processes and rules around it." Ultimately, this is "a full reengineering of how we price -- and how we will be pricing in the future," Hauenstein added. While Delta touts the approach as a competitive advantage, critics argue it raises ethical and regulatory concerns. The Federal Trade Commission (FTC) has labeled such practices as "surveillance pricing," and its January report cited mounting examples of retailers using customer behavior to determine prices, sometimes without clear disclosure. Delta maintains it is not targeting customers with personalized offers based on sensitive data. "There is no fare product Delta has ever used, is testing, or plans to use that targets customers with individualized offers based on personal information," a spokesperson told PYMNTS. Still, industry experts warn that trust could erode if consumers feel manipulated. Philip Carls, a board member at pricing platform Priceagent, told PYMNTS that "passengers won't know if they're getting a fair deal or being targeted." Europe's stricter data rules under GDPR may also limit Delta's ambitions abroad. Airlines must justify personalized pricing under a "legitimate interest" standard and could face lawsuits if consumers feel discriminated against, Carls said. Read more: Delta Air Lines Keeps Capacity Growth Flat Amid 'Broad Economic Uncertainty' United Airlines Raising Fees for Travel Perks