Delta Will Use AI To Cut Costs And Set A Different Ticket Price For Every Passenger—CEO Says Profits Could Rise 50%

Delta CEO Ed Bastian says AI will increase their profits by 50% by cutting costs, removing humans from some loops, and raising fares. That’s the difference between 10% margins and 15% margins or about $3 billion.<br>The airline wants to replace slow decisions made by people with constant machine-made decisions across pricing, upgrades, crew recovery, maintenance, fuel and the back office. As United Airlines has already acknowledged while reducing management headcount, some people will disappear.

Bastian likes calling it “augmented intelligence” as a better marketing term than artificial intelligence, as he explained on Scott McCartney’s Airlines Confidential podcast:

When you think about what AI does, it allows you to hopefully make better decisions. And because you have more access to data, more timely, it gives you a clearer perspective of what the opportunities are. And our industry, our company, we have lots of decisions we have to make every day—whether it’s how we’re managing the daily operations or what’s happening in the maintenance realm and with our engines and the history of the engines.

There’s so much data around our business. Revenue management, you talk about, and pricing. So much data we don’t use but a small fraction of, because we don’t have the capability and we don’t have the programming. And so much of our technology is backward-looking in terms of historically what happened. We need forward-looking data, predictive data that has the intelligence to anticipate before issues become issues and try to make decisions better, and AI is going to provide that.

Now, it’s not going to be easy, and there’s no off-the-shelf solution to how you better manage crews and weather and fuel burn and engine performance. But all those things go into play in terms of running a great operation, both financially as well as from a customer standpoint.

Then he explained the payoff:

If we could take two, three, four points of our cost down from making smarter, better decisions over a series of several years—my gosh—you look at a margin at Delta, you go from a 10% margin to a 15% margin, it’s a 50% improvement in your profitability. These things are billions of dollars substantial. Or on the revenue side, because you can make better revenue decisions on how you manage different buckets. So I think the opportunity is there. I think the issues of trust and governance are also really important, and that’s why I never refer to AI as artificial. I always call it augmented intelligence. It’s going to make our people smarter and better.

Delta Explained To Investors What AI Pricing Looks Like

At the airline’s November 2024 Investor Day, then-President Glen Hauenstein described a complete reengineering of pricing. Airlines traditionally have one group set a grid of fares and another group decide which fare buckets remain available. Delta’s goal is to merge the two into “offer management”: one price generated for a particular shopping request at a particular moment.

Hauenstein described AI as a “super analyst” working continuously. Delta began by letting Fetcherr’s system control a small share of domestic inventory in a constrained environment, then expanded its testing. The strategic significance was never whether the first deployment covered 1%, 3% or 20% of fares. It was that the machine could keep learning and repricing while human analysts sleep.

Delta Gave Congress A Technically Careful But Misleading Answer

When lawmakers objected to “surveillance pricing,” Delta told Congress that it was not setting individualized fares using a customer’s personal data. Delta has continued to say that its current AI system uses aggregated market information, not an individual’s circumstances or prior purchases.

That’s true today but is contradicted by what they told investors: an offer available at that moment to “you, the individual.” The airline’s response collapsed two different questions into one:

Is Delta currently feeding a named customer’s personal data into Fetcherr to calculate that customer’s airfare?

Does Delta intend to move from static fare grids toward individually generated offers?

Delta answered the first and pretended it answered the second. The company was very specific about what it was not doing at that moment while its investor presentation was specific about where offer management was headed.

And an airline doesn’t need to know that your father passed away to infer willingness to pay. It can use route, date, time, device, sales channel, loyalty status, shopping history available in the session, whether you arrived through a corporate portal, and the behavior of statistically similar shoppers. Regulators and airlines can spend years arguing over which of those inputs makes a price “personalized.” The economic function is the same: estimate the highest price that wins this sale...