EXCLUSIVE: JETS ETF Manager Comments On The Airline Industry In Light Of DOJ Investigation

Airliners are selling off late in the day on Wednesday following news from the Department Of Justice that airliners would be investigated for collusion on airfares. Immediately Benzinga turned to Frank Holmes, the manager of the US Global Jets JETS ETF.

Frank highlighted two problems in the airline industry that may have generated the interest from the DOJ. For starters the airliners all use the same Yield Management Software to help set prices. This software consists of an algorithm that will calculate airfare based on how much time exists between when an airfare quote is requested and when the scheduled departure date is. This action in itself may have bothered the DOJ based upon a first glance.

What compounds the issue is the airliners unwillingness to share their prices openly on the online travel sites like Priceline, Expedia, TripAdvisor, etc. Those sites use cookies to store on a user’s computer and when the users switch between sites to compare prices, the cookie remembers this and recalculates the price based on this information. Recall that Orbitz was busted for this similar practice 2012 when the company charged users who booked services with Apple computers more than those with PC's under the assumption Mac users had a larger disposable income to tap into.

This is the outcome of big data management; algorithms used industry wide to manage interest, social trends, and pricing relate into similar behaviors. Airlines run their operations on a short string. Holmes tells Benzinga that airliners need to sell 80 percent of their capacity before they can turn a profit. This pressure on margins drives practices such as raising the ticket price a given amount for a each seat is sold.

The way airlines keep prices low and compete in a materially profit manner has created a need to utilize algorithms to manage big data with variable inputs (the very problem Yield Manage Software like PROS solves)

Holmes doesn't’t take a side on the DOJ news and views this development as “an issue of big data management, not big collusion management” and further believes the airlines have damaged their brands by not displaying their prices at all locations transparently.