The airline industry is headed for record revenue this 12 months — $996 billion — because the demand for travel soars. However the margins remain razor-thin. In response to the trade association IATA, total expenses for airlines are projected to achieve $936 billion, with earnings coming out to around $6.14 per passenger. That’s concerning the price of a latte in NYC.
In a push to bolster profits, more airlines are turning to controversial dynamic pricing tech, which prices fares and amenities variably based on a traveler’s willingness to pay for them. Despite the less-than-stellar reception from consumers, 258 carriers have deployed some type of dynamic pricing today, up from 220 in 2022, per travel industry group ATPCO.
One in every of the vendors providing infrastructure for dynamic pricing systems is Fetcherr, which launched in 2019. The app, which was founded by entrepreneurs Uri Yerushalmy, Roy Cohen and Robby Nissan, taps AI to forecast the demand for particular airline routes and generate a dynamic price, which it shows to customers as they search a carrier’s website.
“The airline industry faces significant challenges in adopting continuous pricing,” Cohen, Fetcherr’s CEO, told TechCrunch. “Traditional, outdated infrastructure and rule-based systems limit real-time adjustments and swift market adaptation … Fetcherr employs AI to generate optimal market moves, dynamically optimizing pricing and automating real-time publishing of costs.”
Fetcherr, like other dynamic pricing tech, calculates the costs that buyers see using AI models tailored to an organization’s customer demographics. Fetcherr’s models are trained on several years of bookings, flight schedules, availability and fares data, in addition to variables like weather and microeconomic/macroeconomic market conditions.
“Our models are based on public data and our customer private data, all are stored on a non-public cloud for every of our customers,” Cohen said.
While carriers like dynamic pricing for its revenue-boosting potential (see JetBlue’s recently introduced dynamic baggage fees), one wonders if the tech has endurance, given consumers’ aversion to it.
Dynamic pricing is particularly bad for travelers on a decent schedule who have to fly at popular times. Forbes found that fares for a direct flight from NYC to Chicago, which may cost a little under $100 in the autumn, can climb by five times or more in the times leading as much as and after Thanksgiving under a dynamic pricing regime.
Dynamic pricing also can result in what the Financial Times’ John Thornhill calls “implicit collusion” between firms, which raises prices overall. Because airlines counting on dynamic pricing are likely to immediately match their rivals’ price cuts, carriers that aren’t using the tech have little incentive to lower fares.
It’s not clear that dynamic pricing is in airlines’ best interests, either. One Yale study found that dynamic pricing systems that think about competitor behavior could end in airlines selling too many tickets too quickly. And in some countries, dynamic pricing might eventually be outlawed or curtailed under tariff requirements, depending on how local courts interpret those requirements.
For now, though, business appears to be going strong at Fetcherr, which counts WestJet, Viva Aerobus, Virgin Atlantic, Royal Air Maroc and Azul Airlines amongst its customers. Fetcherr this month closed a $90 million Series B funding round led by Battery Ventures, bringing its total raised to $114.5 million.
Battery Ventures senior partner Scott Tobin said that he sees Fetcherr as uniquely positioned to get more “legacy” airlines on board with dynamic pricing tech.
“Our experience with successful technology investments within the airline industry, corresponding to ITA Software and Sabre, has taught us loads concerning the complexities of airline processes like setting fares,” Tobin said in an emailed statement. “The potential of AI to make a tenfold impact on this sector could be very clear, and Fetcherr has already made significant strides in helping its customers boost their topline.”
Cohen says that the Series B proceeds shall be put toward developing a brand new AI-powered “offer engine” to bundle and price multiple carrier services together, plus growing Fetcherr’s headcount to around 150 by year-end (up from 110). To beat back competition like PROS, which also offers a dynamic airfare pricing product, Fetcherr plans to expand beyond the airline industry into other markets (hopefully not fast food).
“Our business was based from day one on being cash-positive as fast as we are able to, and a part of that’s our planning on being lean in all points,” Cohen said. “We don’t have a burn rate, we have now a run rate — the corporate is growing annually.”
