Game Changer

CHAPTER 13The Dynamic Game: When Everything Matters

With contributions from Alberto Guerrini, Fabian Uhrich, Gabriele Ferri, and John Elder

The airline industry is the poster child for the Dynamic Game – the automated, real‐time setting of price points, using live data on costs, demand, and supply.

But for the better part of the twentieth century, the opposite was true: Every customer paid the same price as everyone else in the same class of service. Until 1978, regulations in the United States defined which routes an airline could operate and the fares they could charge. Prices were fixed and published in price lists. With limited competition, airlines were guaranteed a profit, and they lavished flyers with costly services covered by expensive airfares.

But the silverware and cloth napkins came at a high social cost: the vast majority of Americans couldn't afford to fly at all.¹

When oil prices skyrocketed during the energy crisis of the 1970s, a team of economists and US senators pushed to deregulate the industry, resulting in the Airline Deregulation Act of 1978. With more airlines entering the market and competing for passengers, American Airlines realized they needed a way to optimize their revenue. They developed a system called DINAMO (Dynamic Inventory and Maintenance Optimizer), which used algorithms to determine the optimal price for each flight, based on factors ...