The airline industry is expected to post record revenue of $996 billion this year as demand for travel soars. But the margins are still very thin. Total costs for airlines are expected to reach $936 billion, with revenue expected to reach about $6.14 per passenger, according to trade association IATA. That’s similar to the price of a latte in New York.
More airlines are turning to controversial dynamic pricing technology to increase profits. The technology varies the prices of fares and amenities based on travelers’ willingness to pay. Despite the lackluster response from consumers, 258 airlines today have introduced some form of dynamic pricing, up from 220 in 2022, according to travel industry group ATPCO.
One of the vendors providing infrastructure for dynamic pricing systems is Fetcherr, which launched in 2019. Founded by entrepreneurs Uri Yerushalmy, Roy Cohen, and Robby Nissan, the app leverages AI to predict demand for specific air routes and generate dynamic prices. , displayed when customers browse their carrier’s website.
“The airline industry faces significant challenges in adopting continuous pricing,” Cohen, CEO of Fetcherr, told TechCrunch. “Existing outdated infrastructure and rules-based systems limit real-time adjustments and rapid market adaptation. Fetcherr uses AI to generate optimal market movements, dynamically optimize prices, and automate real-time price publishing.”
Like other dynamic pricing technologies, Fetcherr uses AI models tailored to a company’s customer demographics to calculate the price shown to buyers. Fetcherr’s models are trained on years of reservations, flight schedules, availability and fare data, as well as variables such as weather and microeconomic and macroeconomic market conditions.
“Our model is based on public data and customer private data, all stored in each customer’s private cloud,” Cohen said.
Airlines prefer dynamic pricing because of its revenue-boosting potential (see JetBlue’s recent introduction of dynamic baggage fees), but given consumer aversion to it, it’s questionable whether the technology will have any staying power.
Dynamic pricing is not ideal for travelers with tight schedules, especially those who need to fly during popular times. Forbes found that a nonstop flight from NYC to Chicago that costs less than $100 in the fall could cost five times more under dynamic pricing around Thanksgiving.
Dynamic pricing can also lead to what John Thornhill of the Financial Times calls “implicit collusion” between companies, which drives up prices overall. Because airlines that rely on dynamic pricing tend to immediately match competitors’ price cuts. Not like that With technology, there is little incentive to lower rates.
It’s not clear whether dynamic pricing is in the best interest of airlines. A Yale study found that dynamic pricing systems that take competitor behavior into account can cause airlines to sell too many tickets too quickly. And in some countries, dynamic pricing could eventually be outlawed or curtailed by tariff requirements, depending on how local courts interpret those requirements.
But for now, business appears to be brisk for Fetcherr, whose customers include WestJet, Viva Aerobus, Virgin Atlantic, Royal Air Maroc and Azul Airlines. Fetcherr closed a $90 million Series B funding round led by Battery Ventures this month, bringing its total funding to $114.5 million.
Scott Tobin, senior partner at Battery Ventures, said Fetcherr is uniquely positioned to bring more “legacy” airlines on board through its dynamic pricing technology.
“Our experience with successful technology investments in the airline industry, such as ITA Software and Saber, has taught us a lot about the complexities of airline processes such as rate setting,” Tobin said in an emailed statement. “The potential for AI to have a 10x impact in this space is very clear, and Fetcherr has already made significant progress in helping our customers increase their revenue.”
Cohen said the Series B proceeds will go toward developing a new AI-based “offering engine” for bundling and pricing multiple carrier services, and that he plans to increase Fetcherr’s headcount to about 150 by the end of the year (up from 110). He said he would increase it. To fend off competition like PROS, which offers dynamic airfare pricing products, Fetcherr plans to expand beyond the airline industry and into other markets (hopefully not fast food).
“Our business has been based from day one on getting cash positive as quickly as possible, and part of that is our plan to remain lean in every way.” Cohen said. “We have a run rate, not a burn rate. The company is growing every year.”
