What is it with the airline industry?
Last year it was Boeing that kept making headlines, with a series of spectacular equipment failures, leadership changes, criminal investigations, and the apparent suicide of a whistleblower just before he was scheduled to give testimony. (See this post for a quick list of links.) In the twenty-three weeks from January 25 to July 4 last year I wrote eleven posts focused on the rolling disaster that Boeing had become in the public eye. And in fact, Boeing has had at least one more highly-publicized crash this year, but I can't tell if it represents any fundamentally new root causes.
Not to be outdone, Delta recently announced a plan to move to individualized pricing, managed by Artificial Intelligence.* Delta president Glen Hauenstein recently explained to investors, “This is a full reengineering of how we price and how we will be pricing in the future.... [Eventually,] we will have a price that’s available on that flight, on that time, to you, the individual.”
What is "individualized pricing"?
![]() |
Delta president Glen Hauenstein |
But individualized pricing goes farther than that. If you are logged into a site while buying your tickets, Delta knows who you are. They have access to your flying history, so they know what you have paid for tickets in the past—and therefore they can guess what you plan to pay for this one. They know not just whether you are on a bargain-ticket website today, but how often you shop through bargain-ticket websites in general. They can watch your behavior on the website to determine whether you are casually checking prices, or in a hurry; whether you might change your mind, or whether you need to get that ticket right now and can't be bothered to waste time over a couple of dollars. I'm sure there are more factors that I'm not devious enough to think of. And all of these will affect the individualized price they offer you.
To be very clear, the AI tool will use all these inputs to calculate the maximum price you are willing to pay for this flight on this day, and then that's what you'll be charged. This is why Delta expects individualized pricing to provide a huge support to their profitability.
Is that Quality?
When I first read about this plan, ... well, as a customer I was worried. Sorry, but I cannot imagine this ever working out to my benefit. But as a Quality professional, I was actually intrigued. Can this possibly count as Quality? I'm pretty sure no customer ever dreamed of asking for such a thing, but how does it line up with the letter of the law?
At a first reading, I don't see any violation of the rules in ISO 9001. Those rules are mostly procedural: if you do wicked things but you plan them carefully and do them in the right way, ISO 9001 mostly won't stop you. (See also this post, for comparison.) But ISO 9000 spells out the quality management principles underlying those rules, principles that we examined in some detail earlier this year. Is there any conflict with those?
The very first quality management principle is Customer Focus. And right away I can imagine someone from Delta arguing, Of course this pricing plan involves Customer Focus! We focus on the customer with a microscope. We know his habits, his likes and dislikes—everything about him. We know how much he'll be willing to pay even before he knows it himself. That's the beauty of the whole scheme, after all.
And yes, that's all true. But that's not what the ISO means by "customer focus." Let's look at the text of ISO 9000:2015. Clause 2.3.1.1 states:
The primary focus of quality management is to meet customer requirements and to strive to exceed customer expectations.
I guarantee no customer has ever required or expected a pricing mechanism that studies him personally to squeeze out the maximum he will pay. Clause 2.3.1.2 continues:
Sustained success is achieved when an organization attracts and retains the confidence of customers and other relevant interested parties.
Roger Dooley, writing in Forbes, argues that this pricing tool will undercut customer confidence.
Every aspect of customer interaction provides an opportunity to create more value for the customer.
Note that it says "create more value for the customer," and not "extract more value from the customer"!
I could go on, but you get the idea. The rest of clause 2.3.1 reads the same way. It calls, in short, for an approach that doesn't have much to do with Delta's approach to individualized pricing. Unfortunately, it is not possible to write nonconformances against ISO 9000.
The death of Adam Smith
From a Quality perspective, that's pretty much it: individualized pricing does not contradict the procedural requirements of ISO 9001, but it seems to sit awkwardly with the spirit of the law. Nonetheless, there is a wider significance to this innovation.
Ever since the time of Adam Smith, the strongest moral justification for laissez-faire capitalism has always been that it benefits customers—that it provides better goods at cheaper prices than any other economic system, and that it prevents the accumulation of vast wealth by sellers. After all, the argument goes, if one baker sells bread so dear that he can afford to dress in silk, then another baker who is content to dress in wool or cotton will sell his bread cheaper and take away all the first one's business. Therefore the "invisible hand" is supposed to keep business profits to a minimum.
Historically it hasn't worked out that way, for a number of reasons. Innovators are given a legal monopoly on their innovations for a period of years, so they have an opportunity to get rich until their patents expire. Some individuals collude with the government to restrict their competition. And there are plenty of other reasons as well. But behind the abundant list of instances where it has failed in practice, the principle has remained that buyers and sellers meet on a level playing field; then sellers offer their goods at the best price which will still keep them in business, buyers select from among the choices, and the winners are those who can meet their (more or less) similar expenses most efficiently in order to sell for the lowest price.
That principle ends now. With the introduction of AI-powered individual pricing, Delta will seemingly no longer set prices based on any calculation of their costs, nor yet of what margins they need to stay in business. There will be no way to measure Delta's efficiency at serving their customers, over against competitors like United, American, or Lufthansa. Prices will no longer be set, in fact, with any clear relation to Delta's own operations at all. Instead, prices will be targeted exclusively on the customer: just low enough to lure him in, but otherwise high enough to get the maximum benefit out of his trade. This looks like predation. And it may be the face of the future: the articles that I link in the footnote suggest that plenty of other industries are watching Delta with an eye to following them. But if we ever reach the point where a majority of customers feel their routine commercial relationships to be predatory, I fear the response may not be pretty.
Perhaps even now there is time to back away from this threshold and reconsider.
__________
* See, for example, articles like this one and this one that explain it. See also multiple discussions through social media online, e.g. here and here.