One of the promises of "Big Data" to companies - a deep, empirical understanding of shoppers' buying habits - has always posed an implicit threat to consumers. If, say, an airline or hotel chain knows what you've previously been willing to pay, why should it ever offer you a significantly better deal? More broadly, if it can predict your relative level of price sensitivity, it has a powerful negotiating edge.
That's one of the key threats that critics see in a proposal before the U.S. Department of Transportation from the International Air Transport Association. Resolution 787, for which the IATA is seeking approval by June from the DOT, is portrayed by airlines as an important modernization of data-exchange systems that are crucial to selling tickets and filling jets in the Internet era.
But that's not all it does, according to critics such as Kevin Mitchell, chairman of the Wayne-based Business Travel Coalition, which has collected more than 200 signatories on a letter asking DOT Secretary Ray LaHood to reject the proposal.
Mitchell says the problem isn't the new technology, it’s the new business model it would impose on the industry that would end open price competition and transparency.
While the IATA calls the new model a "win-win" for airlines and travel agents, because offers can be tailored to customers, the Business Travel Coalition's letter identifies a serious drawback beyond customers' privacy concerns:
Mitchell, whose group represents corporate and institutional travel departments, offered his own experience as an illustration. He recently checked prices for a trip to Phoenix, an itinerary that from Philadelphia is a hub-to-hub route for US Airways, which is the only carrier to fly it nonstop. But when he checks prices on a website such as Orbitz, he sees not only US Airways' $600-plus ticket price, but other carriers' one-stop offers for about half that fare - a pricing constraint on US Airways.
Under the new model known as the "New Distribution Capability," he says, Orbitz won't have the ability to offer the most-competitive prices from other carriers, because carriers that adopt the NDC will have to agree to stop publishing their fares, schedules, and fare rules. Instead, third-party sites will be limited to offering "plain vanilla" rack-rate prices. Mitchell says that's "the equivalent of a price on the back of a hotel-room door - a price nobody pays."
Mitchell says the lack of transparency will shift negotiating power to the carriers, and produce upward pressure on prices.
"If I go to Orbitz or one of the other sites today, US Airways doesn't know who I am, and I see those other prices. Tomorrow, under NDC, I have to provide" access to personal information that includes his own ticket-purchase patterns. "Now, US Airways knows it’s Kevin Mitchell going out to Phoenix on business, and they know I almost always fly nonstop. I’m going to pay more under this new model."
Are criticisms such as Mitchell's exaggerated? That's the contention of American Airlines, for one, which urged LaHood to accept the IATA proposal. In a comment to the department, American - which is planning to merge with US Airways - said:
Mitchell and other critics note that companies are always free to experiment individually with new business models. Their argument to LaHood is that the IATA's proposal, because it comes from a group representing the vast majority of airlines, is anti-competitive.
"Any individual firm can try to price discriminate," he says. "But when 240 competitors agree to a new business model, that’s a red flag,"