Personalised pricing is when retailers make different price offers to different customers for the same thing. That’s only good news if you’re being offered the lower price. But what if the retailer knows a lot about you and uses that against you? This type of pricing may start to become the norm for airline pricing: you may only get to see the prices an airline thinks you’re prepared to pay.
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The International Air Transport Association (IATA) is the trade association for the world’s airlines. It has 240 members and accounts for 84 percent of the world’s air traffic. Air New Zealand and Qantas, the owner of Jetstar, are members. In 2012, IATA decided to develop an online interface (the New Distribution Capability or NDC) so airlines could improve the way they displayed the various services they offer.
Five airlines began piloting the NDC in 2013. Air New Zealand was one of them. The others were American Airlines, Swiss International Airlines, China Southern Airlines and Hainan Airlines. Other airlines have since joined the pilot.
Airlines already offer different prices to different customers. There are the publicly displayed fares that people can search online, and then you have non-public offers available only to members of frequent-flyer programmes or corporates.
The NDC will change the way services and fares are displayed to the public. Once the NDC interface is installed, airlines will be able to illustrate their cabin interiors and offer quotes for “add-ons” to the basic fare such as an extra bag, a preferred seat or various meal options. Air New Zealand can already do that on its own website as can some other airlines. But once the new technology comes in, airlines will be able to do this on price-comparison websites and on the websites travel agents use as well.
The IATA says its members are simply trying to step up their customer service. Not everybody wants the same thing from their airfare. However, until now airlines were limited in the online offers they could make to their customers and to travel agents.
There is a potential downside. The NDC gives airlines the capability to make private price offers to you based on what they know about you. Airlines that adopt the NDC will have the technical capacity to personalise price by, for example, charging more to those willing to pay high prices. However, IATA has agreed that airlines can’t force consumers to supply personal information to receive a price quote. This means consumers can still shop anonymously.
As the only carrier to smaller centres, Air New Zealand is a target for complaints about price gouging and anti-competitive behaviour. Those complaints could get louder if it takes full advantage of the NDC technology.
However, an Air New Zealand spokesperson told us that the company has no capacity to personalise pricing and has no intention of personalising pricing in the future.
Brent Thomas, Commercial Director of House of Travel, says he believes the NDC is on balance a positive move for everyone, giving customers more information about what’s available and making it easier for agents to tailor travel arrangements for their customers. Andrew Olsen, Chief Executive of the Travel Agents Association of New Zealand, is supportive of what NDC promises because it would increase the range of travel services agents could provide advice on.
When you’re presented with a range of airfares on an airline’s website, it’s natural to assume the cheapest price you see is the cheapest available seat on the flight. You don’t assume it’s only the cheapest offer the airline is prepared to make to you, and it might make a cheaper offer to someone else. How would they know who you are, and what could they know that would make them charge you more? If you’ve given them permission, through their website traffic and other sources, airlines can learn a great deal about you and your willingness to pay.
Websites have the capacity to place small files (innocuous-sounding “cookies”) on your computer’s hard drive whenever you visit, opening a communication bridge to your computer. Through these cookies, personal information that signals your willingness to pay travels to the airline’s website.
The website can find out your computer’s location from its IP address. The history of other websites you have searched can say a lot. If you’ve made a booking before, you will have supplied your contact details which can then be used to make an informed guess about your financial standing. The website will also know what you were prepared to pay for previous flights bought there. Other information about you is available too, especially if you’re a member of a frequent-flyer programme. If you’ve travelled with more than one airline, information about you may be shared between them.
In 2013, IATA requested approval from the US Department of Transportation for the NDC, which in essence was a co-operative arrangement across international airlines. The department tentatively supported the initiative and finally ruled in favour of the NDC in August this year because it believed it would make it easier for consumers to compare the deals from different airlines.
One condition of the department’s approval is that consumers don’t have to provide personal information to get a price – they can be anonymous shoppers. The department also pointed out its decision can’t be interpreted as support for personalised pricing generally.
The Organisation for Economic Co-operation and Development has also said IATA’s initiative “may raise consumer protection concerns, as well as competition ones”. Its fear is that the NDC may harm consumers by making prices less transparent and comparisons more difficult.
The NDC gives airlines the opportunity to potentially make every price offer a “private” one. However, we think withholding low fares available to others when displaying search results could be misleading. A reasonable consumer would think the lowest fare displayed is the lowest available to any customer. So if any airline operating here used its website (or any other) to personalise prices it could be in breach of the Fair Trading Act.
If you shop online and want to do it anonymously, always clear your computer’s browser history before searching for fares.
How to do this will depend on which internet browser and computer you use. Look for “history” under your browser settings and choose options to “empty my cache”, “clear browsing data”, “clear history” or “clear cookies and data”.
In the absence of personalised pricing, some consumers pay considerably less to fly than they were prepared to pay. So they get what economists call a “consumer surplus” – that is, money they can keep even though they were prepared to pay it.
Personalised pricing means the supplier can take some of this surplus from customers and transfer it to its bottom line.