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| 3 minutes read

Airline pricing algorithms under the Italian antitrust watchdog scrutiny: an attempt to clip AI’s wings?

On 18 November 2023, the Italian Competition Authority (“ICA”) launched an ex-officio fact-finding market investigation (the “Investigation”) on the use of pricing algorithms in passenger air transport on routes between the Italian peninsula and the two main Italian islands (i.e., Sicily and Sardinia), which, in the ICA’s view, are characterised by special mobility needs (considering their limited connection with the rest of the Italian peninsula).

The Investigation is indeed based on the fact that high price levels for airline tickets to Sicily and Sardinia have been registered at peak demand periods (i.e., summer and winter holidays), coinciding with the recovery of passenger air transport demand from 2022 onwards. 

For years, airlines have adopted dynamic pricing systems, commonly referred to as “revenue management systems”, aimed at optimising revenues on the routes they operate by differentiating and adapting the fares of individual flights based on a series of factors (such as flight load factor, actual versus expected demand and the temporal distance between the moment of booking/purchase and that of flight departure). 

However, in recent times, the degree of automation and sophistication of such “revenue management systems” has increased considerably, since the digitisation of economic and commercial processes has enormously increased the availability and variety of data that can be processed. This increased data availability, in turn, results in an increasing differentiation of prices, not only according to the characteristics of the demand, but also to their rapid adaptation to other relevant variables (e.g., the costs of production or the prices/quantities offered by competing companies).

Given the rapid development of AI and machine learning techniques, the ICA fears that, in the not-too-distant future, the use of the “revenue management systems” under scrutiny could enable algorithms capable of elaborating new inference criteria between data (according to a self-learning process) to determine pricing decisions based on the detection of competitors’ strategies and systematic consumer profiling.

In light of the above concerns, the ICA decided to launch the Investigation with a view to verify whether and under what conditions the algorithms used by airlines might be able to adversely affect - or at least influence - the air transport services conditions offered to consumers, also with reference to the price differentiation and customisation policies. 

The ICA will also investigate the disclosure modalities of the prices of air tickets (and related components), with a view to fully allow consumers to compare the available options when deciding whether to purchase.

The launch of the Investigation is remarkable not only because it confirms the attention of the EU antitrust authorities into the IA systems, as it puts into question, from an antitrust perspective, algorithms functioning, but also because it follows a first legislative attempt to control airline price-fixing algorithms in Italy. 

In August 2023, the Italian Government adopted a legislative decree (the “Omnibus Decree”) which included a stop to algorithms that raise prices for Italian domestic routes to and from national islands during a period of peak demand and if the ticket price resulted to be 200% higher than the average fare for the flight. Under the Omnibus Decree, it was also forbidden to set fares based on web profiling or the device model used. The Omnibus Decree had caused the wrath of the airline companies (especially the low-cost ones). The latter called for the intervention of the European Commission, which, in turn, asked the Italian Government for clarifications.

Following the intervention of the European Commission, the Italian Government then amended the Omnibus Decree by providing for the assignment to the ICA of the verification of the existence of concerted practices not only if deriving from agreements between natural persons, but also if implemented by algorithms from themselves commissioned or practices of abuse of a dominant position. The Investigation at stake thus represents a follow-up in the attempt to curb rising prices on air routes to the Italian islands.

Notably, the Investigation is also a remarkable “first of its kind” in procedural terms. It has in fact been launched pursuant to the new powers recently conferred to the ICA by Decree Law 104/2023 (“Asset Decree”), as converted by Law n. 136/2023. The new rules allow the ICA, at the end of fact-finding market investigation, to impose behavioural or structural measures on the involved undertakings to eliminate distortions of competition or to recommend appropriate legislative/regulatory changes to improve the functioning of the relevant market. 

Moreover, during the Investigation, the ICA may assess the suitability of commitments eventually submitted by involved undertakings. 

The Investigation is due to be closed by 31 December 2024. The ICA decision to launch the market investigation is available (in Italian only) at the following link.

If you need more information or further guidance in this area, please contact Federico Marini BalestraLucia Antonazzi and Chiara Horgan.



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