The airline industry is on track for record revenue this year — $996 billion — as demand for travel soars. But margins remain razor thin. According to the IATA trade association, total costs for airlines expected to reach $936 billionn, with profits amounting to about $6.14 per passenger. That’s about the price of a latte in New York.
In a push to boost profits, more airlines are turning to controversial dynamic pricing technology, which prices fares and amenities variably based on a traveler’s willingness to pay for them. Despite the less than stellar reception from consumers, they have developed 258 carriers some form of dynamic pricing today, from 220 in 2022, according to travel industry group ATPCO.
One of the vendors that provides infrastructure for dynamic pricing systems is Fetcherrwhich launched in 2019. The app, founded by entrepreneurs Uri Yerushalmy, Roy Cohen and Robby Nissan, uses artificial intelligence to predict demand for specific airline routes and generate a dynamic price, which it shows to customers as they search for a carrier’s website.
“The airline industry faces significant challenges in adopting continuous pricing,” Cohen, CEO of Fetcherr, told TechCrunch. “Traditional, outdated infrastructure and rules-based systems limit real-time adjustments and rapid market adjustment… Fetcherr uses artificial intelligence to generate optimal market moves, dynamically optimizing prices and automating real-time price posting.”
Fetcherr, like other dynamic pricing techniques, calculates the prices shoppers see using artificial intelligence models tailored to a company’s customer demographics. Fetcherr’s models are trained on several years of bookings, flight schedules, availability and fare data, as well as variables such as weather and micro/macroeconomic market conditions.
“Our models are based on public data and our customers’ private data, all stored in a private cloud for each of our customers,” Cohen said.
While carriers like dynamic pricing for its revenue-boosting potential (see JetBlue’s recently introduced dynamic baggage charges), one wonders if the technology has staying power, given consumer aversion to it.
Dynamic pricing is especially bad for travelers on a tight schedule who need to fly at popular times. Forbes found that fares for a nonstop flight from New York to Chicago, which can cost under $100 in the fall, it can go up five times or more the days before and after Thanksgiving under a dynamic pricing regime.
Dynamic pricing can also lead to what John Thornhill of the Financial Times calls “tacit collusion” between businesses, which increases prices overall. Because airlines that rely on dynamic pricing tend to immediately match their rivals’ price cuts, carriers that is not The use of technology has little incentive to reduce fares.
It is not clear that dynamic pricing is in the airlines’ best interest. A Yale study found that dynamic pricing systems that influence competitor behavior could lead to airlines selling too many tickets too fast. And in some countries, there may be dynamic pricing eventually be outlawed or restricted based on pricing claims, depending on how local courts interpret those claims.
For now, however, business appears to be going strong at Fetcherr, which counts WestJet, Viva Aerobus, Virgin Atlantic, Royal Air Maroc and Azul Airlines among its clients. Fetcherr this month closed a $90 million Series B funding round led by Battery Ventures, bringing its total to $114.5 million.
Battery Ventures senior partner Scott Tobin said he sees Fetcherr as uniquely positioned to integrate more “legacy” airlines with dynamic pricing technology.
“Our experience with successful technology investments in the airline industry, such as ITA Software and Sabre, has taught us a lot about the complexities of airline processes such as fare determination,” Tobin said in an emailed statement. “The potential for AI to have a tenfold impact on this sector is very clear, and Fetcherr has already taken significant steps to help its customers strengthen their top line.”
Cohen says the Series B proceeds will go toward developing a new AI-powered “bidding engine” to bundle and price multiple provider services together, plus grow Fetcherr’s headcount to about 150 by the end of the year (from 110). To beat competition like PROS, which also offers a dynamic airline ticket pricing product, Fetcherr plans to expand beyond the airline industry into other markets (hopefully not fast food).
“Our business has been built from day one on being cash positive as quickly as we can, and part of that is our design to be lean in all aspects,” Cohen said. “We don’t have a burn rate, we have an operating rate – the company is growing every year.”
