Dynamic packaging in aviation is a rapidly growing concept. As explained in what is airline ancillary revenue management?, many airlines operate on thin profit margins, and the money made from selling seats alone is often not enough.
Airlines have therefore looked to a range of additional revenue streams. Selling hotels, car hire and other holiday components alongside flights – known as dynamic packaging – is one of the most important. This article explains what dynamic packaging is, how airlines use it and why airlines are increasingly acting like tour operators.
The airline’s role as tour operator
A tour operator is an organisation that puts the different components of a holiday together to form a package. Traditionally known as a package holiday, this usually includes a flight, airport transfers and accommodation, sold at a single price.
In the past, pre-arranged package holidays were the main way many people went abroad. Before the internet, travellers had limited access to information and relied on tour operators and travel agents to organise their holidays.
The nature of consumer behaviour has since changed. With a wealth of information online, travellers can choose the most convenient flights, the best-reviewed hotel and the cheapest transfer, and book them with relative ease. When these components are combined to suit the individual customer – either by the traveller or by a travel company in a single booking – this is known as a dynamic package.
How does dynamic packaging in aviation work?
Dynamic packaging has existed for some time, but airlines have increasingly capitalised on it. The flight is only one part of a traveller’s total spend, so by selling other elements of the trip, airlines can significantly increase their revenue per passenger.
Airlines promote additional holiday components such as hotels, car hire, airport transfers, tours and excursions. This usually happens during the booking process on the airline’s website or app, but can also come afterwards through email marketing.
When a passenger buys one of these components from a partner company, the airline earns a commission. This is known as a commission-based ancillary, and it is one of the main categories of airline ancillary revenue.
Airlines with their own holiday companies
Some airlines have gone further and created their own tour operating brands. In the UK, for example, Jet2holidays, easyJet holidays and British Airways Holidays all sell flight-inclusive packages, with Jet2holidays now one of the UK’s largest tour operators. Many other airlines around the world offer ‘flight + hotel’ packages through their websites.
In the UK, packages that combine a flight with accommodation or car hire in a single booking are covered by the Package Travel and Linked Travel Arrangements Regulations 2018 and, where flights are included, by ATOL protection. This gives customers financial protection and makes the organiser responsible for delivering the whole package.
Dynamic packaging in aviation: To conclude
The role of the traditional tour operator is being challenged by airlines entering the dynamic packaging market. For airlines, packaging is a valuable source of ancillary revenue; for customers, it offers flexibility and convenience. At the same time, independent travel agents and tour operators continue to add value through expertise and personal service.
Useful texts on this topic include Airline Operations and Management by Gerald Cook and Bruce Billig, and Air Transport Management: An International Perspective edited by Lucy Budd and Stephen Ison.
Dynamic packaging in aviation: FAQs
Below are answers to some of the most common questions about dynamic packaging in aviation.
What is dynamic packaging?
Dynamic packaging is the combining of travel components such as flights, accommodation and car hire into a customised package at the time of booking, rather than selling a pre-arranged package holiday.
How do airlines use dynamic packaging?
Airlines sell hotels, car hire, transfers and activities alongside flights, earning commission from partners or selling their own flight-inclusive holidays.
Why are airlines acting like tour operators?
Selling the whole trip rather than just the seat increases revenue per passenger, which is important because airline profit margins on seats alone are often thin.
Which airlines have their own tour operators?
Examples in the UK include Jet2holidays, easyJet holidays and British Airways Holidays.
Are dynamic packages financially protected?
In the UK, flight-inclusive packages booked together are covered by the Package Travel Regulations 2018 and ATOL protection.
Further reading
If you found this article helpful, the following posts may also be of interest:
- Airline ancillary revenue management
- What is a tour operator?
- What is package tourism?
- The chain of distribution in tourism
- Types of airlines
- What is an airline reservation system?
