Airlines could soon start offering customized fares to travelers based on how regularly they fly, where they live and the kind of trip they are taking.
The world's largest airlines have agreed to adopt a new standard for distributing airfare information that could significantly compromise the privacy of customers and allow carriers to charge travelers different prices for the same trip. Airlines, of course, already charge different fares based on when a ticket is purchased, whether a Saturday stay is included and so on, but they are now looking to go much further by seeking to differentiate among fliers based on personal characteristics.
The new standard, which was agreed to at a meeting of the International Air Transport Association in October, will allow airlines to ask customers searching for airfares through travel agents or websites to first provide their names, frequent flier numbers, contact details and other information before presenting them with prices. A few airlines are expected to test this approach this year, and it could be widely adopted in a few years, according to the trade group. A majority of the group's 240 members, which include most U.S. airlines though not Southwest, voted for the standard.
Industry officials say the standard, which they call "new distribution capability," is simply a way for airlines to better tailor their services to the needs of their customers. For instance, an airline might offer a package that includes free checked-in baggage, an aisle seat and a 10 percent discount to frequent fliers. And customers would be able to compare competing bundles from different airlines. They also say customers will still have the option of shopping anonymously for basic fares if they choose not to provide any information about themselves.
It seems clear that the standard, as described by the group, could also be used to present higher fares to, say, a business traveler who airlines determine could pay more because she travels between New York and Dallas every week. Airlines will also have a big incentive to present much higher basic prices when customers shop anonymously to encourage them to provide more information about themselves in order to see "special deals."
The new pricing model comes at a particularly worrisome time, with mergers among airlines already reducing competition and pushing up fares. On many domestic routes Americans now have only one or two choices for nonstop service. Recently, American Airlines and US Airways announced a merger that would leave more than 70 percent of the passenger business in the hands of just four big airlines, down from five. And by adding fees for particular seats, bags, meals and other services, airlines have made it harder for customers to compare fares.
Federal regulators have not yet studied the new standard. But the Department of Transportation has the authority to police unfair and deceptive practices, and it should demand safeguards, like limiting the amount of personal information airlines can require. So should the European Union, which has historically taken a tougher stand on privacy than the United States, and governments elsewhere. Regulators should also study whether the use of this new approach by most of the world's airlines could result in illegal collusion to raise prices for travelers based on their characteristics.
Many airlines have struggled with high fuel costs and aggressive competition from low-fare carriers. They may be counting on the new airfare pricing standard to increase revenue and profits. It is hard to see how this approach could result in more competition or anything but higher costs for many travelers.
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