Who really benefits from “custom” airfares?

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By | July 6th, 2014

Mention a “custom” airfare to Joan Eisenstodt, and she’ll admit that she’s worried.

“I live in downtown D.C., not far from the new City Center complex with high-end shops,” says Eisenstodt, a hospitality consultant. “Will I be quoted a higher fare than, say, my niece in a smaller Southern town?”

I mention custom airfares only because the government has. The Transportation Department has tentatively approved a controversial proposal that it claims will help modernize the marketing and sale of airline tickets.

Thanks to a peace deal quietly brokered between airlines and travel agents this year, most of the travel industry greeted news of this approval with a yawn. A spokesman for the Travel Technology Association, which represents the major online travel agencies, called the decision a “step in the right direction.” But some travelers continue to view it as a dangerous development for passengers.

The proposal, referred to as Resolution 787, would update the decades-old systems that allow airlines to connect their computer records to travel agents, global distribution systems and, ultimately, you. The new format promises to make booking systems more flexible and affordable by creating a better data transmission standard.

But in practice, it would also allow airlines to create customized airfares based on what they know about you. And airlines want to know a lot about you. The aviation industry is slowly building the technology and collecting the data that would allow it to send you a fare based on your profile, a thought that troubles more people than just Eisenstodt.

Some travel agents are bothered by the proposal, too. They fought the airline industry last year when it introduced Resolution 787, claiming that it would create an unfair marketplace for consumers and travel resellers. Some of their concerns remain.

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“While this may look like a pro-consumer move by the Department of Transportation, I still have doubts about the way the pricing would be administered,” says Bob Winter, who owns a travel agency in Pewaukee, Wis. The potential shenanigans wouldn’t end at the point of sale, he fears. He’s afraid that if you don’t spend enough on your ticket, these systems could be used to adjust your baggage fees and reservations charges to make up the difference. One way or another, he believes, the airline is going to get your money.

He believes this despite the fact that the DOT has added a number of consumer safeguards to ensure that passengers shopping for air travel would not be required to disclose personal information, and specifying that airlines and ticket agents would be obliged to follow their published privacy policies on the sharing and storing of personal information. The airline industry agreed to these concessions after a sustained attack by privacy advocates and a coalition of travel agency groups.


Still, a few dissenting voices remain. One belongs to Edward Hasbrouck, a privacy advocate who specializes in travel issues. He says that the agreement that paved the way for the DOT’s approval doesn’t adequately address passengers’ concerns.

“For example, DOT proposes to require airlines to offer tickets to anonymous customers,” he says. “But airlines would be allowed to make that offer, and the price of anonymity, as high as they like.”

What if, for instance, an airline somehow learns — whether or not you tell it — that you’re desperate to get to your dying mother’s bedside? The airline can make its ticket offer as high as it likes under this proposal.

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Another critic, Boston lawyer Ben Edelman, questions whether the DOT’s proposed approach follows federal law. He points out that current statutes require air carriers and ticket agents to sell air travel only at a specified, published price, called a ticket tariff. Yet the DOT’s regulations purport to let airlines charge any price they want.

Edelman says that published tariffs are good for travelers. “Thanks to the published fare database, it’s feasible for me to check numerous flight options and plan accordingly,” he says. Tariffs also protect passengers in case of changes. Without them, there would be no limit on what an airline could charge a passenger to make a change.

These critics aren’t necessarily outliers. Although large online agencies and airlines have settled their differences over custom airfares, it’s not difficult to find consumers who think that they’re a terrible idea, even with the current provisions in place.

Sure, the Transportation Department has said that customers must still be able to shop for airfares anonymously. The agreement between airlines and agents also stipulates that an airline may ask for certain information voluntarily, but that you can’t be required to give it in exchange for a quote on an airfare or an ancillary product.

But it isn’t what’s in the government’s approval that worries travelers — it’s what’s not in it.

“It’s strange to me that airfares would be customized,” says Paul Cram, an actor based in Minneapolis. Like a lot of travelers, he sees the potential for abuse by the airline industry. “What’s to stop an airline from using data in a way that ultimately is racist, sexist or something similar in their custom costs? Would you get better rates if you are gay or straight? Does living in a low-income Zip code mean that you’ll pay less or more for their custom airfares?”

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These are questions that won’t be answered for years, perhaps even decades. But the government has taken an important first step toward a world where these tailor-made fares are possible — for better or worse.

Who really benefits from "custom" airfares?

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  • Brace yourself… The same thing – personalization of hotel rates will be occuring as well – it actually has already started…

  • TonyA_says

    The airlines are creating a hacking environment. Someone’s gonna figure out how to beat the game.

  • MarkKelling

    As far as the anonymous fares go , you still have to provide all of your info when you finalize your purchase so what is stopping the airline from then coming back and saying the low fare you thought you were getting is no longer available?

    Anything that a company wants to do “in order to improve customer service” worries me these days. Because what it means is they have found someway to charge me more.

  • sirwired

    I’d like to point out that while individually-custom pricing is not universal in the world of commodity goods and services, it is utterly routine for most large transactions. Businesses that sell to other businesses use custom pricing, based on what each party knows about the other, All The Time. A customer really needs your services quickly and doesn’t have time to shop elsewhere? They pay more. A business is having cashflow struggles and really needs to make a big sale, any sale, even at a low profit, in order to keep debt covenants? The buyer demands to pay less. A customer is looking to buy his fifth Mustang the week the new one comes out? He ain’t paying a single penny less than Full MSRP. (maybe more) Likewise, a customer knowing that a car has been discontinued and there’s a glut of inventory remaining to be disposed of at the dealer can drive a hard bargain, knowing that the dealer needs to free up space and cashflow. Real Estate? Same thing; Impending Foreclosure vs. Gotta Rent An Apartment This Week.

    With modern IT systems, even retailers of moderate size use everything they can find about an individual customer when placing ads, mailing promotions, etc. Why should airlines be prohibited from pricing techniques that are nearly ubiquitous in other industries?

    Yes, there are traps. Yes, it will be a cat-and-mouse game with regulators. Yes, in many cases it’ll probably backfire. But I don’t see this as any different than any other sort of business.

  • Raven_Altosk

    BIG.
    BROTHER.
    IS.
    WATCHING.

  • Raven_Altosk

    Maybe 4chan will spam their system.
    With porn.

  • Alan Gore

    In the IT business we call it a VPN: instead of connecting to the Interent from your condo in downtown DC, you set up a ‘tunnel’ that makes it appear to everyone else in the world that you are connecting from Mudsuck, WV. The customizing airline site will quote you fares from IAD that assume that you are an infrequent flyer from the little town.

    VPNs are also available for a variety of foreign countries. This came in handy a few weeks ago when, during a visit to Germany, I discovered that streamed episodes of a TV series I was following were about to scroll off and be lost for good. But in attempting to stream from Germany, I ran into yet another one of Hollywood’s batty viewing restrictions, ‘Content unavailable in your geographic region’. But by using a VPN to tunnel me to the US, I could watch what I wanted to by pretending to be Stateside.

  • The Original Joe S

    I have nothing good to say about most airlines – especially the US flag carriers.

  • I can’t wait.

  • jerryatric

    How do I, a really technically challenged old guy, get VPN? How does it work?
    Please explain or steer me to the How To! THANKS

  • frostysnowman

    If the airlines want it, it’s not good for us.

  • Equating the airline industry to car salesmen. Not exactly the same, but maybe so on the level of perceived ethical standing by the general public. And as for real estate, again not really appropriate. There is only one piece of land at a certain place… not the hundreds of tickets (possibly) for a flight. And if a flight route is so popular, the airline can add additional flights. Can’t, as a general rule, add new land to a particular location.

    Imagine going to a grocery store, where the price posted can change whether you drive up in a brand new BMW or a 40 year old broken down old Pinto…. The price should be the price, regardless of who is buying…

  • AJPeabody

    Do you trust the airlines? Do leopards change their spots? Do you feel lucky, punk?

  • Nigel Appleby

    Check out tunnelbear.com – it’s the one I use. It’s quite easy to use and I think the pricing is reasonable.

  • Bill___A

    I have the information you want, but I have no connection with this company at all except that I am a customer.
    Vyprvpn – they will give you a month free trial so you can see if it is what you want.

    http://www.goldenfrog.com/vyprvpn

  • TonyA_says

    Reminds me of a recent 2€ ticket sale in Spain. You had to be in Spain to get the fare so people started using VPNs with Spanish IP addresses. :-)

  • TonyA_says

    The face of the new, average traveler.

  • Carver Clark Farrow

    Except, the price is not necessarily the price, regardless of who is buying…

    If I’m a member of the loyalty program I might get a cheaper price or a targeted promotion from the grocery store lowering the price.

    When I go to my hotel, the prices vary widely depending on innumerable factors…including membership, employment, group rates, negotiated rates, etc.

    Any credit or insurance transaction will be personalized.

    I don’t know what I think about customized pricing. The article doesn’t really convey any information about it, fears and concerns, but no real information to make an informed decision.

  • joaneisenstodt

    Robert – In what instances are hotels customizing rates? Based on one’s location or spending habits? Or?? Thanks. – Joan

  • $16635417

    Can someone please fill me in on the downside of this? Specifically with regards to the airline industry.

    How would this differ from a promo that I receive from any other company that I have a affinity card with? How does this differ from promos airlines have been using for years?

    Many moons ago, when I was a recent college grad, Northwest sent me 2 coupons for a $99 RT fare anywhere in the lower 48. I used them both. It was a targeted promo. Who benefited more? (I also got a similar targeted promo for American Airlines.)

    Back in the ’80s, Northwest sent a coworker a coupon and he gave it to me to use. When I tried to use it, I was told is was a targeted promo valid for Worldperks members who lived in certain zip codes…mine was not included. (My co worker lived 2 or 3 towns away from me.) I ended up buying that ticket on another carrier for more than the coupon, but less than what Northwest wanted without the coupon. I guess you could argue Northwest won that battle by sending me to another carrier. So they benefited more?

    I used to receive Northwest coupons in a “Val-Pak” mailing. Friends and family who lived in Northwest dominated cities did not get them. I used to send them to those friends and family so they could use them. (They were a significant savings.) The difference in this example was there was no blackout on where you had to live. Did Northwest benefit because my friends took a trip they may not have been able to afford…or did my friends?

    Other than using technology to drive this, how does this differ? If the airline knows I rarely check a bag, will they offer me a discounted bag fee to entice me to check a bag? Once they keep find my price point for a checked bag…did I benefit more..or did they?

    Confused.

  • Pegtoo

    Just like “new and improved” on the cereal box. They simply found a cheaper way to produce it – and because you’ll taste or notice the difference, they want you to believe it’s an improvement.

  • RonBonner

    Airline ticket prices should be the same price for each seat for a given class of service.

  • $16635417

    I disagree. Being able to yield manage actually can help keep fares low and keep a route operating.

    I have an aircraft with three seats. I need to make $300 per flight to cover my costs and make the profit I need to stay in business. I charge $100 per ticket and average two people per flight. I lose money and realize this pricing model is not sustainable.

    I raise my fare to $150 but unexpectedly lose one customer per flight! Even worse!

    I could charge $50 per set and fly full, but I’m running out of money and would be losing $150 per flight.

    I decide to charge $50 for one seat and $100 for the second and $150 for the third. (But I put restrictions on the cheaper seats that the highest paying customer would not meet in order to drive the purchases. Non-refundable, advance purchase…etc.)

    I now have 3 people per flight and generate the $300 per flight I need to continue operating the service and serve the most number of people. Average fare goes from $100 per passenger (but only two people per flight and almost puts me out of business) up to $150 in the second example (but even worse total revenue!) and back to $100 in the final one. I have also increased my customer base.

  • AJPeabody

    If you trust that the airlines to use this new power only for discounts, fine. If you believe that they will use it to extract the maximum fare, then you will understand the fear of it.

    The evidence is in: Airlines manipulate have a history of exploiting every nuance of fares and services to raise revenue. At least we are all on an equal footing. We are all exploited equally. Now they want to exploit some more than others by customizing their exploitation. Bah!

  • TonyA_says

    You described the old distribution capability. They allocate seat availability by fare buckets.

  • TonyA_says

    How true. The airlines trying too hard to redefine a commodity by stripping it apart and selling the old parts as unbundled options. Sometimes they can get cute by offering deals like 2 for 1 or the like.
    If only the airlines only put the same effort into improving service. Now that’s real hope.

  • Miami510

    Would Alan Gore and/or others explain the Websites that hide your Modem address so the hotel/airline/etc., doesn’t know your location, or that you’ve made inquiry before. Is this
    the same as anonymizing yourself as you browse the Internet?

    I use AOL as my Internet server and they have something called “DataMask,” which supposedly puts a random, changing number, in place of one’s modem address.

    I find it uncomfortable that a quoted price would depend upon what the vendor knew of my modem address, my zip code, or my previous purchase; i.e. if I previously flew first class.

  • Carver Clark Farrow

    Some businesses like Disney have given discounts for local residents, e.g. Southern California.

  • Discounts may be based on anything – location, datws, booking channel, stay history, affiliation, social profile – any signal wil suffice.

    Rate parity rules have been outlawed in the UK/EU, so nearly anything goes. Will be playing a greater role in US hotel pricing – bith by hotels and OTAs.

  • $16635417

    The principle of how different fares increase unit revenue is what I was going for. RonBonner may not wish to pay $100 for the flight I described, if so he may benefit from the $50 fare. He would not have that option if all seats are the same price.

  • Bill___A

    If the airlines didn’t benefit in some way, they wouldn’t do it. Although there’s the possibility that it *may* be mutually beneficial, they aren’t going to offer it unless it benefits them or both.

  • Cybrsk8r

    In that last paragraph, you very succinctly explained why many people are worried about this. This would be like going into an auto parts store and finding out that they’re going to charge you 10% more for a quart of oil simply because you’ve bought that brand twice in the last month, which tells them it’s your favorite brand and they might be able to charge you a little bit more.

    This is yet another reason why I pay cash whenever possible. The anonymity of cash appeals to me.

    To answer your question, a VPN (Virtual Private Network) establishes a secure, encrypted connection between your computer and a server in a distant location, France for example. Now, any web-site you visit will check your IP address, and instead of seeing your real IP address, they’ll see the IP address of the remote server and think you’re in France.

  • bodega3

    Yes, residency rates are found in many areas regarding travel.

  • bodega3

    Define class of service. I am wondering if you mean cabin, as there can be many classes of service for coach class, a couple for business and for first.

  • bodega3

    Residency rates. Membership rates.

  • TonyA_says

    Notice all the industry discussion focuses on how an airline wants to sell its services and not on how passengers want to search, shop around and buy. This cannot be a good sign.

  • $16635417

    I figured the hacking environment that’s created will take care of that part of it! ;-)

  • LonnieC

    I think that there are flaws in the parallels mentioned by several other writers. In large commercial sales among businesses, both parties are relatively equal. They each have bargaining positions which can lead to a mutually satisfactory agreement. As for car salesmen, while buying a car may be important, the consumer can always walk away, and go to another dealer at a later time. The same is true with groceries at a market (i.e., multiple choices and the ability to wait). However, with the airlines, the consumer is helpless. When one needs a flight it must – usually – be on a particular date from and to specific locations. The consumer can’t just walk away and wait a few days. And certainly the traveler is not equal to the airlines when it comes to negotiating. While the airline may know quite a deal about the consumer (income, education, profession, address, etc.), the consumer will know essentially nothing about the airline. Basically, I see custom pricing as a way for the airlines to make it even more difficult to know in advance what the general cost of a flight will be at any specific time. I highly doubt we consumers will benefit from this at all.

  • Judy Serie Nagy

    We’re from the government. We’re here to help you. RUN!

  • Jeanne_in_NE

    Ran across this today from the Washington Post “In NSA-intercepted data, those not targeted far outnumber the foreigners who are” – NSA is watching people using VPN:

    In many other cases, analysts seek and obtain approval to treat an account as “foreign” if someone connects to it from a computer address that seems to be overseas. “The best foreignness explanations have the selector being accessed via a foreign IP address,” an NSA supervisor instructs an allied analyst in Australia.

    Apart from the fact that tens of millions of Americans live and travel overseas, additional millions use simple tools called proxies to redirect their data traffic around the world, for business or pleasure. World Cup fans this month have been using a browser extension called Hola to watch live-streamed games that are unavailable from their own countries. The same trick is routinely used by Americans who want to watch BBC video. The NSA also relies routinely on locations embedded in Yahoo tracking cookies, which are widely regarded by online advertisers as unreliable.

  • Miami510

    Since my last post, I called AOL and asked specifically if their (free) add-on called Data Mask, allowed people to go on the Internet and have their modem address and their computer number/adddress anonymized. Their answer was “yes.” These identifying numbers are replaced by a constantly changing encryption.

  • Dutchess

    -> File -> New Incognito Window

    Problem solved.

  • ctporter

    You always have choices in flights when you fly out of a major airport. Some are more convenient than others. I choose NOT to fly overnight. I choose to fly to airports near my destinations. I chose to fly at times that allow me to check into hotels, and to find food services available. i can choose cheaper flights without those options. It is a matter of choice. If I must fly out of a smaller airport I am limited, but that again, is a choice I make between flying and driving.

  • Lindabator

    But that is NOT the same thing – what the airlines want is to present you only a set number of fares, and not all of them — the hotels give discounts to AAA, AARP or on pre-paid, but you know they are there, although you might not qualify. The airline fares they DON’T wish to show you, you DO qualify for – they just choose to charge you more. NOT a good idea.

  • Lindabator

    No, they are going to require sign-ins, which gives them a profile of each traveller — they do NOT want to offer the sites you have now – in the future, they want you to sign in with Delta.com (just an example), sign in, and then they will adjust accordingly. Scary, huh?

  • Lindabator

    But if it can offer you a rate of $300, me a rate of $400 and Bodega a rate of $500, when ALL 3 rates are available, then obviously Bodega and myself are NOT getting access to all they have to offer. And therein lies the problem.

  • Lindabator

    But to offer a DISCOUNT is one thing – to not even ALLOW someone access to a fare they QUALIFY for (because they feel they can squeeze them for more), that’s something altogether different – and why the travel agent community so vehemently opposes this system. Just because my client has a better zip code does NOT mean he should be penalized – and just because another has a poorer one, does NOT mean they should not have access to the nonstop flights, but only to “cheaper” connecting ones. Get it?

  • Lindabator

    Because it is not access to DISCOUNTED fares, but to ALL fare options, all flights. Under this new system, they could offer nonstops for higher cost to those in a better zip code, and ONLY offer connecting for a lower fare to those in a poorer zip code. Or offer the same flights, same class of service, but instead of only charging you $300, can inflate it, because YOU can afford it. If you do not even KNOW there is another option, you cannot get the best price/schedule.

  • Lindabator

    Technically, this is true – but you have to understand that there can be 12 classes of service in coach (why the fare differences).

  • Lindabator

    But under this new system, if the late flights are tight, they don’t even have to OFFER them, as they want to foist off earlier flights. So it would not longer BE a matter of choice – unless you count the airline’s offerings as CHOICE.

  • Nathan Witt

    I think this may be much ado about nothing. If the airlines are proposing to design a system whereby the only place you can acquire a ticket is through them directly so that they can tailor your fares to extract the maximum possible dollar, then, sure, we should worry. But all the travel agents and OTAs are still out there, and what they know is that people shop for airfare on a bottom dollar basis, and I’d bet they want to protect their ability to offer the “lowest” price. Am I going to have to disclose my identity to Expedia before it’ll give me a fare? And even if they get a system up and running that does vary the fare based on the individual’s ability to pay, the first time a protected minority gets quoted a higher fare than someone else, you can bet the ensuing legal fun will cause some rethinking.

  • LonnieC

    Certainly there are some choices. However, when planning a vacation, for example, once the dates are set (time off from work, school, hotel reservations, etc.), there is little flexibility in the date(s) one needs to fly. And many of us are in locations where only a few airlines provide service. Unlike an auto purchase (my example above), where you can wait weeks, or longer, and where there are many choices of brand, dealer and location, the airlines still have considerable more power and control. Any negotiation is clearly one-sided, and pretty much against the traveler.

  • Carver Clark Farrow

    Oh, I get it, but I also understand reality. People are routinely charged more or less due to any number of factors.

  • ctporter

    Tight as in not a legal connection? Not sure what you are saying. If I fly from SEA to LAX I have a multitude of airlines and times of day or night to choose from, if I fly from Yakima WA to LAX I am very limited until I get to a connecting airport, are you saying this is where the new system would no longer show all possible connections?

  • Lindabator

    NO, if they are selling faster, and offer less seats. NOW you have a multitude of flights to choose from – they want to be able to “personalize” this option to offer only what THEY wish to offer you, so now you no longer HAVE all those options, while someone else may. Therein lies the problem.

  • Lindabator

    But this would pass through to agents and OTAs – even the airline’s OWN websites. Hence the reason agents are so against this – those in poorer neighborhoods may get cheaper, albeit lousy schedules to offer, while those in a better zip code get nonstops, but for a higher cost. NOT a good option for anyone.

  • innchfromnj

    This kind of custom pricing has been policy in many venues.
    For example, MLB teams will place ticket premiums for certain games based on the opponent.
    The better the opponent or the more important the rivalry, the higher the ticket price.
    This looks like the airlines are going to set fares based on where a person resides.
    One scenario might be the passenger that resides in Bernardsville or Essex Fells NJ will pay more than a customer who lives in West Orange or Newark

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