Friday, 8 August 2014

US DOT defers ruling on airline plans for personalized pricing

Late Thursday, the US Department of Transportation (DOT) quietly released its decision on an arcane-seeming but critically important request for DOT regulatory approval of airlines' plans for a transition from published tariffs of airfares to personalized airline ticket pricing.

DOT's missed an opprtunity to use its decision in this rulemaking to remind airlines that personalized pricing is illegal. But DOT was careful to confine its ruling to the permissible portion of the airlines' proposal, a new airline-designed XML protocol for communications related to ticket prices between airlines, travel agencies, and third parties.

The International Air Transport Association (IATA) had requested US DOT approval of a resolution adopted by IATA's member airlines in October 2012. IATA Resolution 787 is a vision statement of "high-level objectives" -- not a blueprint or specification -- for a so-called "New Distribution Capability" (NDC) for the sale of airline tickets.

DOT's decision is framed as an "approval" of IATA's request for "approval of Resolution 787". But DOT made very clear, in response to objections from consumers and consumer advocates (including myself, Assoc. Prof. Ben Edelman of the Harvard Business School, and dozens of individuals who submitted comments to DOT endorsing our objections), that DOT is not green-lighting and has not yet considered the legality of any of the new business models (e.g. personalized pricing) which these communications protocols are intended to support, and which are "envisioned" by IATA Resolution 787.

IATA is no longer formally a price-fixing cartel, and now claims that its coordinating role as a trade association of airlines is limited to setting standards. But because of the historic role of IATA "Traffic Conferences" in fixing industry-standard fares, which required explicit exemption from some antitrust rules, IATA is still subject to a degree of DOT oversight.

By submitting Resolution 787 for DOT approval, IATA hoped to get DOT pre-approval for its personalized-pricing business-model vision, before beginning to invest in the infrastructure to support it. That's exactly what the DOT declined to do, limiting its approval to what IATA had explcitly described and requested: airline collusion on XML pricing-message standards.

Both Travelers United -- formerly the Consumer Travel Alliance -- and the American Antitrust Institute had called DOT's attention to the ambiuguity as to what it was IATA wanted DOT to approve.

A few years ago, IATA would probbaly have gotten rubber-stamp approval from the lapdogs at DOT for everything it asked for. The limitations on the scope of DOT's approval of IATA Resolution 787 are testament both to the importance of organized lobbying by travellers, and of the greater (although still limited) willingness of the DOT to exercise meaningful oversight and challange at least some anti-consumer airline practices.

In a press release following DOT's decision, IATA claimed that "the path [is] now clear to begin to implement NDC". But while that is what airlines had hoped for, that's not what they got from DOT. If airlines proceed with these plans, or with investments in preparatory work toward them, they do so at their own risk, with no assurance that DOT will approve changes in pricing systems.

IATA's press release suggests, however, that airlines intend to go ahead with development of their "New Distribution Capability" and transition to personalized pricing with or without any assurance that they can get the DOT to approve it (or refrain from enforcing the existing laws against it), or that they will be able to get Congress to repeal those laws. The fight to preserve the status of airlines as common carriers, and to preserve the benefits to consumers of requirements for common carriers to sell tickets in accordance with published fare tariffs, will continue.

IATA tries to reassure travellers that an airline will still make an "offer" to sell you a ticket even if you decline to provide any personal information. But if they are freed from their current legal duty as a common carrier to base that offer on a published tariff of fares, they could make the asking price of their "offer" to any anonymous customer arbitrarily and prohibitvely high.

A recent study commissioned by the Amadeus computerized reservation system found that using the information already available to airlines to personalize "offers" could result in, on average, EUR35 (roughly US$50) in additional revenue -- i.e. higher prices -- per passenger.

That's bad enough, but the real damage would come if airlines start using larger amounts of aggregated personal data from third-party data brokers as the basis for personalized pricing. Repeal or nonenforcment of common-carrier tariff requirments and legalization of personalized pricing would create a competitive race to the bottom for airlines to learn as much about passengers as possible, to detemine how much each trip you plan to take is worth to you, or to subscribe to pricing services that can obtain and mine that data.

The elephant waiting quietly in the lobby of the personalized-pricing debate is, of course, Google, which already owns an airline reservations and ticket price information division. Google has kept silent about IATA Resolutiuon 787. But the prohibition on personalized pricing has held back Google's ability to apply its core personalized-pricing expertise to airline tickets. What company has more information about each trip you plan to take than the one that can analyze all your Gmail messages and Web searches? It would be difficult for any other price-personalizing company to compete with Google in such a marketplace for pricing services. Approval of personalized airline ticket pricing is the key prerequisite for Google to recover and realize a return on its US$700 million investment in ITA Software.

Link | Posted by Edward on Friday, 8 August 2014, 15:37 ( 3:37 PM) | TrackBack (0)
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