The airline industry is on track to hit a record $996 billion in revenue this year, driven by a surge in travel demand, but profit margins remain razor-thin: Total airline costs are expected to hit $936 billion, according to industry group IATA, and revenue per passenger is expected to be about $6.14 — roughly the price of a latte in New York.
Looking to boost profits, more airlines are turning to controversial dynamic pricing techniques, which vary fares and amenity prices based on travelers' willingness to pay. Despite a lukewarm response from consumers, 258 airlines now use some form of dynamic pricing, up from 220 in 2022, according to travel trade group ATPCO.
One vendor providing infrastructure for dynamic pricing systems is Fetcherr, which launched in 2019. Founded by entrepreneurs Uri Yerushalmi, Roy Cohen and Robbie Nissan, the app uses AI to forecast demand for specific air routes and generate dynamic prices that are displayed to customers when they search on airline websites.
“The airline industry faces significant challenges in implementing continuous pricing,” Fetcher CEO Cohen told TechCrunch. “Legacy, outdated infrastructure and rules-based systems limit real-time adjustments and rapid market adaptation…Fetcher employs AI to generate optimal market movements, dynamically optimize pricing and automate real-time publishing of prices.”
Like other dynamic pricing technologies, Fetcherr uses AI models tailored to a company's customer base to calculate the price shoppers will see. Fetcherr's models are trained on several years' worth of bookings, flight schedules, seat availability, fare data, and variables such as weather and micro- and macro-economic market conditions.
Overview of Fetcherr's various backend dashboards for dynamic pricing adjustments and configuration. Image credit: Fetcherr
“Our models are based on public data and personal customer data, all stored on each customer's private cloud,” Cohen said.
Airlines love dynamic pricing for its potential to increase revenue (see JetBlue's recent introduction of dynamic baggage fees), but consumer aversion to it raises doubts about whether the technology will last.
Dynamic pricing is particularly detrimental to travelers on tight schedules who need to fly during peak periods: Forbes magazine found that fares for a nonstop flight from New York to Chicago, which cost less than $100 in the fall, could skyrocket more than five times in the days around Thanksgiving under a dynamic pricing regime.
Dynamic pricing also risks encouraging what the Financial Times' John Thornhill calls “tacit collusion” between companies, leading to higher prices across the board. Airlines that rely on dynamic pricing tend to quickly follow any price cuts by their rivals, meaning airlines that don't use the technology have little incentive to lower fares.
It's also not clear whether dynamic pricing is in airlines' best interests: A Yale University study found that a dynamic pricing system that took into account competitors' actions could lead airlines to sell too many tickets too quickly. And dynamic pricing may ultimately be banned or limited by fare requirements in some countries, depending on how local courts interpret fare requirements.
But for now, business seems good for Fetcher: Its customers include WestJet, Viva Aerobus, Virgin Atlantic, Royal Air Maroc, and Azur Airlines. This month, Fetcher closed a $90 million Series B funding round led by Battery Ventures, bringing its total funding to $114.5 million.
Scott Tobin, a senior partner at Battery Ventures, said he believes Fetcher is uniquely positioned to get more “legacy” airlines to adopt its dynamic pricing technology.
“Our experience with successful technology investments in the aviation industry, including ITA Software and Sabre, has taught us a lot about the intricacies of airline processes such as pricing,” Tobin said in an email. “The potential for AI to have a 10x impact in this space is very clear, and Fetcher is already making great strides in helping its clients increase sales.”
Cohen said the Series B proceeds will go towards developing a new AI-powered “offers engine” that bundles and prices services across multiple airlines, and will also help Fetcherr grow its employee base from 110 to around 150 by the end of the year. To beat out competitors like PROS, which also offers a dynamic airfare pricing product, Fetcherr plans to expand beyond the airline industry into other markets, preferably not fast food.
“Our business is based on being cash positive as quickly as possible from day one, and as part of that, we plan to be lean on all fronts,” Cohen said. “We don't have a burn rate, we have a run rate. We're growing every year.”