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Are airlines the new tour operator? Dynamic packaging in aviation

Dynamic packaging in aviation is a new is rapidly growing concept. As I explain in this post- ‘What is airline ancillary revenue management?’, airlines are often struggling to turn over a profit in today’s aviation industry. The money made from the sale of the seat is no longer enough.

Airlines have looked to a number of different avenues to investigate additional revenue streams. Some airlines, such as South West and Ryanair, have been extremely successful in this regard. To find out more about how they make money, I suggest you visit this post- ‘What are the categories of airline ancillary revenue?’.

For more info on ancillary revenue management and airline management in general I recommend the texts Airline Operations and Management by Cook and Billig and Air Transport Management: An International Perspective by Budd and Ison. You’re more than welcome to cite anything that I have written in this post, but if you’re doing research for an academic piece of work remember that you will need a range of sources in your reference list- I’ve added the links to these two recommended books for you here and here

Dynamic packaging

The airline’s role as tour operator

A tour operator is essentially an organisation that puts various components of a holiday together to form a package. Traditionally known as a package holiday, these components generally include a flight, transfer from the airport and accommodation.

These holiday packages were super popular when I was young. Twenty years ago we didn’t have the Internet to research travel options. We didn’t have the expertise in travelling that we do now. We would trust the tour operator to organise the holiday on our behalf.

The nature of consumerism has changed in recent years, however. We no longer need to rely on what a Travel Agent advises us, we have a wealth of information at our finger tips via the Internet. We can find the flights that are most convenient for us, the hotel with the best review and the cheapest transfer. We can book this all ourselves, without the help of a tour operator, with relative ease. This is known as a dynamic package.

Dynamic packing has been around for a while, but it is only in recent years that the airline industry has really begun to capitalise on this. The flight is actually only a small part of our itinerary and by airlines tapping into the overall travel market place, they can significantly increase their income per passenger. In fact, it is said that airlines can make three-five times as much by offering dynamic packaging than if they were to sell only flights.

How does dynamic packaging in aviation work?

So we have established that dynamic packaging is when the consumer puts the various elements of their holiday together themselves. Whilst this can be done relatively easily, it does take some effort on the part of the passenger to research and book each component individually.

Airlines are now providing a helping hand by promoting these additional holiday components. They advertise suitable hotels, transfers and other elements such as tours or excursions. This will often be during the booking process via the website, but can also come afterwards via e-mail marketing.

By purchasing one or more of the holiday components advertised by the airline, the airline will make a commission. This is known as a commission-based ancillary, where the third party companies pays a fee to the airline for directing the business to them. For more on how dynamic packaging in aviation is closely linked to commission-based ancillary revenue, visit this post- ‘Why do airlines use commission-based ancillary revenue products?’.

So as you can see, the role of the traditional tour operator is being challenged by increasing competition from airlines who are breaking into the dynamic packaging market. Have you ever used dynamic packaging? What were your experiences? Leave your comments below!