Airlines are starting to price their seats based on your personal information – but is it legal?
Imagine if airlines behaved like stallholders at a flea market, pricing their stock according to the characteristics of the customer stood before them; higher for those wearing a pin-striped suit, holding a wad of cash and far too keen on a sale, lower for anyone counting the pennies and in need of a bit of persuading.
Such a scenario is not as far-fetched as it sounds as carriers are increasingly tempted by the lure of dynamic pricing - or fare discrimination - whereby online technology, such as cookies and customer accounts, gleans information on potential passengers, from salary to age, and offers them a unique, personalised price for a seat.
Airlines already vary the cost of travel according to peak seasons, days of the week and time of day, but the advent of setting fares by the person, rather than the flight, are fast approaching.
According to John McBride, director of product management for PROS, a software provider that works with airlines including Lufthansa, Emirates and Southwest, a number of operators have already introduced dynamic pricing on some ticket searches. “2018 will be a very phenomenal year in terms of traction,” he told Travel Weekly. “Based on our backlogs of projects, there will be a handful of large carriers that move toward dynamic pricing.”
Currently, airlines are restricted by a limited number of fare classes introduced following the deregulation of the aviation industry in the Seventies. Though they are able to rotate fares available, it is still governed by a collective rather than individual pricing.
What is dynamic pricing?
“The introduction of a Dynamic Pricing Engine will allow an airline to take a base published fare that has already been calculated based on journey characteristics and broad segmentation, and further adjust the fare after evaluating details about the travellers and current market conditions,” explains a white paper on pricing written by the Airline Tariff Publishing Company (ATPCO), which counts British Airways, Delta and KLM among its 430 airline customers.
The company is currently researching how it can introduce “personalisation” to its customers’ ticket sales.
Which major airlines use ATPCO to price fares?
Air France
American Airlines
ANA
Air Canada
British Airways
Iberia
KLM
LATAM
Lufthansa
SAS
Swiss
United
Delta
“Rather than managing only very broad segmentation, the application of [Customer Relationship Management] to revenue management results in the ability to price at a more granular level: the level of ‘who is asking’,” ATPCO wrote in 2015.
The evolution of such pricing means personalised fares will be created for customers from scratch in real time. While some customers might benefit from receiving a discounted fare, in an effort by an airline to claim their loyalty, others, perhaps those booking a one-night return to Frankfurt, might be assumed to be a business traveller and sold an inflated rate.
At a glance | The composition of an air fare
Customers returning to airlines, and signing in to member systems, might have a “bundle” of, for example, priority boarding, luggage and meals, pre-prepared into the price without the need for additional selection.
An ATPCO working group meets this week to discuss dynamic pricing, but it is likely that any roll out to its customers would be incremental.
Although at the early stages of development, the possibilities for flight pricing are endless.
At a glance | How to find the cheapest flights
But is it legal?
There are complications, of course, because the personalisation of fares raises the prospect of discrimination.
The Office of Fair Trading (OFT) has previously been concerned by how personal data is used to inform pricing, publishing a report in 2014 exploring the practice. It found that companies - not necessarily airlines - were making pricing decisions based on “aggregated information collected about customers”, but not always the best deal. It also said it was worried that the cost of introducing such technology would place an “upward pressure” on prices.
The OFT also cited possible breaches of equality laws which prohibit discrimination in relation to specific characteristics, including age, disability, sex and gender, marital status, race, religion or pregnancy. The Equality Act of 2010 is enshrined in the Equality and Human Rights Commission.
However, such discrimination is untested. But if, for example, an older customer was offered a higher fare than a younger passenger on the basis that an airline calculated they had more disposable income, the elder could sue.
“If a passenger believes this pricing model is discriminatory in some way, or breaches EU law, they would need to challenge it in a court of law,” said Richard Taylor, from the Civil Aviation Authority, which governs UK airlines.
“A legal ruling would then ensue and be the basis for any follow-up enforcement action.”
Richard said the CAA would require any dynamic pricing process to be “as transparent as conventional ticket selling.”
“Passengers need to be made fully aware of what they are getting for their money,” he added. “Airlines must by law always display prices that include all the compulsory taxes, fees and charges, so passengers know the total price of the flight. Airlines also need to clearly display the costs of any optional extras on their websites at the start of the booking process so that passengers can see which optional extras are available and how much they cost.”
The most over-priced (and best value) flights in the world
What would it mean for customers?
Personalisation might sound like a benefit, but the airlines’ motivation is to maximise revenue.
Second-guessing how to get the best fare is difficult enough today, as carriers price their routes and seats differently, based on myriad variables.
Once an airline is using information you didn’t even know they knew, it might be harder to know when to book to get the best deal.