Mining For Dollars Tuesday, August 19, 2014

Over the past weeks we've talked a lot about airline predatory pricing scams. There's the great airline lobbying scam, a.k.a. the Transparent Airfares Act, which enables airlines to hide the true cost of a flight, sometimes until it's too late for a buyer to change their mind. Then, there's the recently DOT-approved Resolution 787 which allows the airlines to use your past online shopping history and location to "customize" airfares for you. To escape this pricing trap, clear your cache and cookies repeatedly and disable your location when shopping for airfares. What made news last week was a study finding travelers could pay eight times as much as their seatmates.  Researchers at Hopper.com said they've confirmed what most travelers have known for years: Airlines charge wildly different rates for seats on the same flight. The price of airline tickets purchased within the same cabin can vary by as much as $1,400 on a single flight, according to the study. ABC News then went out and did their own research by interviewing airline passengers en route from New York to Atlanta. Their coach fares reportedly ranged from $235 to $600. Imagine if prices for Chipotle customers went like that, $5, $10, 35 cents, $2, free, $20? Why should any company be allowed to set different prices the way airlines do? They claim it's because demand fluctuates in real time, but so does demand for literally everything else. Yet prices don't change hourly at the grocery store. The New American Business Model Remember what humor columnist Dave Barry said, that the goal of the airlines was to make sure that no two people on a flight paid the same price for their tickets. He was right! Delta Airlines said about the study that "fares are determined by market supply and demand," but the carrier did not comment further. Research, however, suggests that such economic forces do not affect all airlines equally. It would seem the main reason ticket prices vary so much is not about supply and demand, as the demand for airline tickets is way over what is available due to mergers and the airlines cutting back drastically on their flights. This is more about how much the airlines can overcharge, by data-mining the customer. Yahoo Travel editor-in-chief Paula Froelich said "the findings from this study are pretty shocking," but the "upside to high price variability is that, yes, there are very good deals. If you can have the time and if you've got the planning, and it's not last minute, you can get some really awesome deals." Yes, Paula, consumers can get some very good deals, if they have lots of time to deal with getting great deals. And those "good" deals are just the lowest deals the airline is willing to do. They are only "good" if compared to being fleeced by the other "deals".  Mining Data Like The NSA The airlines have become very good at using these sophisticated models called Revenue Management Systems (also known as Yield Management, Dynamic Pricing) to vary their prices very frequently.  Some of these models know about seating preferences and already put that into their pricing. The models take into account current demand, historical demand, availability, time until date of flight, and countless other factors. It can produce surprising results: you may buy a seat on the day of a flight for $50 and find yourself sitting next to someone who booked weeks before for $500, and vice versa.   Who hasn't had pop-up ads appear that were obviously tailored to their internet's browsing history? And what is to stop the airlines from collecting your personal information to note your usual vacation times and destinations? The concept of demand is a very personal thing and the more they learn about us, the more they can try to charge us for their services.  The airlines are using what information they can gather online to profile the person purchasing the ticket; the parameters in day, including your age, estimated annual income and even your home's value and then figure out the best way to charge as much as possible. Imagine if every business ran this way? Gas, water, and electricity could be priced differently every hour of the day, unless you prepurchase 90 days in advance, but are not allowed to use the services on Saturday nights. Enter a store and you get your price now. But if you have five hours a day to spend researching, and you are flexible, and you luck out, you can save some money. Airlines generally do not allow customers to opt out of the data programs. Several carriers say they have strict rules on how they use and protect customers' data internally. British Airways, for instance, said that if passengers ask a flight attendant not to personalize their service, notes would be added to their customer profiles to leave them alone, but the carrier would continue to collect their data. It should be noted that British Airlines admitted last year that its employees searched the Internet for images of frequent fliers in order to "recognize and greet them personally". The airline has one of the most advanced data programs in the industry. Government regulations should help protect the general consumer against predatory business practices.  But too often, the problem is the businesses committing the infractions are the same ones helping to write the legislation, impeding the effectiveness of the regulatory agencies.  In the name of business and security, we are chipping away at liberty and privacy that not even science fiction writers could have imagined possible 20 years ago. In the near future every detail of our habits, preferences, beliefs, whereabouts, finances, health, affiliations, etc. will be there for the mining. The airline industry's new business model is just one small example of where we're headed. Not sure it's a good place. Not sure at all.

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