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U.S. Transportation Department Raises Concerns Over AI Use in Personalized Airline Ticket Pricing

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U.S. Transportation Secretary Sean Duffy expressed concerns on Tuesday regarding the use of artificial intelligence to set personalized airline ticket prices and announced plans to investigate any such practices. This follows recent claims that some airlines may be using AI to adjust fares based on individual consumer profiles.

Delta Air Lines (DAL.N) clarified last week before lawmakers that it has neither used nor plans to use AI to price tickets on an individual basis. “To try to individualize pricing on seats based on how much you make or don’t make or who you are, I can guarantee you that we will investigate if anyone does that,” Duffy said. “We would engage very strongly if any company tries to use AI to individually price their seating.” He added that he takes Delta’s assurances at face value.

Last month, Democratic Senators Ruben Gallego, Mark Warner, and Richard Blumenthal warned that AI-based pricing could lead to fare increases tailored to a consumer’s personal “pain point.” Delta plans to deploy AI-powered revenue management technology across 20% of its domestic network by the end of 2025, partnering with Fetcherr, a company specializing in AI pricing. Fetcherr lists several airlines, including Delta, Westjet, Virgin Atlantic, Viva, and Azul, as clients.

American Airlines (AAL.O) CEO Robert Isom also expressed concerns that AI-driven pricing could damage consumer trust. Democratic lawmakers Greg Casar and Rashida Tlaib have introduced legislation aimed at banning companies from using AI to set prices or wages based on personal data, including prohibiting airlines from raising prices after sensitive searches such as family obituaries.

Delta emphasized that dynamic pricing—where fares fluctuate based on factors like demand, fuel costs, and competition—has been standard for over 30 years but insisted it does not use personal consumer information to set prices.

The Price You Pay: How Personalized Pricing is Affecting Your Costs

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It’s not just in your head—prices can vary significantly even for the same products and services due to advanced personalization tactics used by companies. A recent experience with Starbucks highlights this trend: while one person received a buy-one-get-one-free offer, another saw no such promotion. This disparity often results from companies using artificial intelligence (AI) to tailor offers and prices based on individual customer behavior and willingness to pay.

Starbucks employs an AI system called Deep Brew, which uses customer data to determine who is most likely to respond to promotions. This approach aims to maximize sales by targeting those who are less likely to buy otherwise, while full-price customers, like the one who missed the offer, are not incentivized.

The Federal Trade Commission (FTC) is scrutinizing this practice, issuing orders to major companies like Mastercard and JPMorgan Chase to investigate how AI-driven personalized pricing might exploit consumer data. FTC Chair Lina Khan expressed concerns that such practices could lead to higher prices based on individual data, raising privacy issues and potential unfair pricing.

Historically, companies segmented customers and offered different prices based on broader categories. AI has now refined this approach, allowing businesses to predict and influence individual buying behavior with high precision. Companies like Revionics, which aids retailers in setting prices, provide analytics that helps forecast consumer responses to various price points, thereby optimizing inventory and maximizing revenue.

The use of AI extends beyond pricing. For instance, notifications about sales or offers may vary in wording and content depending on the recipient, further personalizing the marketing experience. While this technology can lead to more tailored and potentially lower prices, it also means some consumers might face higher costs due to their purchasing patterns.

In summary, personalized pricing driven by AI is reshaping how much we pay for goods and services, often leading to significant disparities between customers. As companies continue to refine these strategies, understanding how and why these variations occur can help consumers navigate this evolving landscape.