Italy’s Competition Authority (AGCM) Examines Airline Pricing AI Algorithms in Domestic Routes

Italian competition regulators scrutinise airline pricing algorithms for transparency and consumer fairness

The Italian Competition Authority (AGCM) recently closed a consultation on its detailed investigation into the use of pricing algorithms by airlines operating domestic routes to and from Sicily and Sardinia.

The findings reveal that all airlines examined utilise dynamic pricing strategies within their revenue management systems. These systems largely rely on established methodologies such as static pricing matrices or grids.

Predefined rules within these frameworks dictate price adjustments, creating an intricate system where fares respond to demand, timing, and availability.

Unpacking the Dynamic Pricing Systems

Interestingly, while the airlines all deploy similar foundational techniques, their implementation varies considerably. Each carrier tailors its revenue management system, introducing differences in algorithm design, inputs, and manual interventions.

This divergence results in distinct pricing behaviours across airlines, presenting challenges for passengers attempting to predict or compare costs effectively.

Dynamic pricing strategies have long been a crucial element of airline revenue management. The system involves adjusting ticket prices in real-time based on factors such as seat availability, time remaining before departure, and historical demand patterns.

However, the AGCM’s investigation goes beyond these conventional practices to scrutinise whether technological advancements and algorithmic tools have amplified these pricing mechanisms in ways that may affect market fairness.

Transparency Concerns in Ticketing

One of the key issues highlighted in the AGCM’s report is the lack of transparency surrounding airline ticket pricing and ancillary services. Consumers often struggle to make informed choices due to the opaque nature of pricing structures.

The report identifies this as a significant barrier to effective competition, as it prevents passengers from easily comparing prices across different carriers and services.

Ancillary services, such as seat selection, baggage fees, and priority boarding, further complicate the process.

These additional charges are often only disclosed late in the booking process, making initial price comparisons misleading. The AGCM’s investigation found that this practice not only frustrates consumers but also raises questions about the fairness of the pricing models employed by airlines.

While many consumers have grown accustomed to seeing fluctuating prices for airline tickets, the lack of clarity regarding how these prices are determined fuels scepticism.

The Role of Customer Profiling

Another fascinating aspect of the investigation was its exploration of whether airlines use customer profiling techniques, such as analysing device type, browsing history, or geographical location, to personalise pricing.

Interestingly, the report found limited evidence to suggest that airlines are currently engaging in such practices on domestic routes.

This finding is particularly noteworthy given the growing concerns about personalised pricing in other sectors. While some industries have embraced customer profiling to fine-tune pricing strategies, the AGCM’s investigation indicates that airlines operating in Italy have not extensively adopted these methods.

Instead, their pricing algorithms rely predominantly on traditional revenue management principles, focusing on aggregate demand and supply data rather than individual consumer characteristics.