Are customized prices next for the travel industry?

By | December 5th, 2010

Here’s a story that might have a familiar ring: Sue Clark was planning a theme park vacation for her family in Orlando when she found an affordable rate at Disney’s upscale Grand Floridian Resort & Spa.

Clark, who works for a telecommunications company in Cape Elizabeth, Maine, stepped away from the computer to consult with her family. When she returned and re-queried the site for the same hotel, the price had doubled.

She logged on to her husband’s computer, found the cheaper rate again and booked the trip. But Clark wonders why the Grand Floridian had switched prices. “I think the computer recognizes you and then changes rates,” she says, using cookies, or snippets of information on your Web browser, to identify you from your last query.

Perhaps. “We don’t target people with cookies,” says Disney spokesman Charles Stovall. The Disney site does allow guests to use special discount codes when they book online, but they have to be entered manually, something Clark hadn’t done.

But the travel industry is warming to the idea of showing you a price based on who you are. Or who it thinks you are. Last spring, a United Kingdom-based hotel site called VivaStay reportedly displayed slightly higher prices to visitors who came to the site through affiliate links than it showed to those who clicked directly on the VivaStay site. The company apologized, but said that it was unaware that price variations were frowned upon.

A few weeks ago, in little-noticed comments filed with the Transportation Department, the Interactive Travel Services Association (ITSA), which represents the major online travel agencies, described reservation technology that would make discriminatory pricing possible. A system exists, the trade group said, that would allow airlines “to differentiate the seats made available for selection through communication of the frequent flier number of the traveler,” according to ITSA.

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The filing goes on to detail a program that assigns travelers a score based on their status, “determines what value it places on the traveler” and then returns a fare.

Was this a smoking gun?

Hardly, says American Airlines, which is among the most technologically forward-looking of the major airlines.

“We do not score customers,” says airline spokeswoman Mary Sanderson. “However, we do offer different benefits and service offerings based on some customer characteristics, such as frequent flier status.” For example, why show an AAdvantage Executive Platinum member an offer for priority boarding at an additional charge when AAdvantage Executive Platinum members are already entitled to early boarding?

“We are tailoring the product and service offerings shown to the customer based on our knowledge of that customer and his frequent flier status,” Sanderson says.

In other words, technology is only used to offer passengers a more seamless experience on the site, and wouldn’t be turned around to show the same Executive Platinum traveler a higher fare.

Another technology consultant with close ties to the airline industry, Jim Davidson of Farelogix, said that he had “no knowledge” of any scoring system at work behind the scenes, insisting that the technology is simply meant to offer better service.

“The more an airline knows about what its customers like and dislike, the better it can target offers to them, and avoid offers that are known dislikes,” he said.

Regardless of how airlines intend to use this technology, it is interesting to know that booking systems can be this sophisticated. If airlines are able to display options based on your frequent flier status, they would have no difficulty offering passengers a fare quote that includes optional items such as a checked bag or an in-flight meal.

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I asked the Transportation Department, which has regulatory authority over airfares, whether airlines are permitted to show you a personalized fare. Turns out that they are.

“The law does not prevent carriers from offering special low fares to corporate clients, or free seat assignments or free checked baggage – in effect, a discount – to certain high-level frequent flier program members,” says agency spokesman Bill Mosley. “These practices would not be prohibited discrimination.”

But the technology is a slippery slope that could lead to higher airfares for everyone, cautions Al Anolik, a San Francisco attorney.

Once airlines can tap into personal data such as your home address, the size of your family and your favorite destination, they’ll leverage it to their advantage. “The carriers stand to make millions, if not billions, of dollars on customized pricing,” he says.

That’s hardly reassuring to customers like Clark, who has also experienced bait-and-switch fares when buying airline tickets, and many others whom I’ve profiled in this column. For now, the best solution is to always clear your cookies when you’re price-shopping online, and only offer your frequent flier or frequent stayer number after you’ve made a purchase.

The travel industry admits that it has the capability to switch prices based on who you are. It’s probably only a matter of time before it does so.

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