What Dynamic pricing means
In the traditional model, airlines file a set of fares in advance and revenue management opens or closes the booking classes that hold them. The price a customer sees is always one of those pre-filed amounts. IATA points out that this ties pricing to a maximum of 26 booking class letters and to filing fares with a third party.
Dynamic pricing changes the price itself. IATA's Dynamic Offers material describes it as pricing based on contextual information available at the time of shopping, such as length of stay, time before travel, day of travel, competition and remaining capacity, without needing personal data. Continuous pricing is the further step that allows any price point, not just a fixed ladder. Dynamic bundling applies the same idea to which ancillaries are included.
ATPCO, through its Dynamic Pricing Working Group, has used three classifications: assortment optimisation (choosing from a small set of predefined prices), dynamic price adjustment (moving a filed price up or down by steps) and continuous pricing. The first two can work alongside existing fare filing; continuous pricing usually needs airline-controlled offers delivered through direct or NDC channels.
How Dynamic pricing works
In a dynamic model, the airline's offer system builds and prices each response at request time.
- Shopping requestAn agency or website sends a request with itinerary, dates and context such as point of sale or passenger type, often via an NDC API.
- Demand signalsThe airline's systems combine revenue management forecasts, remaining capacity and market data for the flights requested.
- Price calculationThe offer engine calculates a price, by adjusting a filed fare, choosing from a set of price points or computing a continuous value.
- Offer responseThe priced offer, with its bundle and conditions, is returned with a time limit for which it is valid.
- Order and learningIf accepted, the offer becomes an order; booking results feed back into forecasting and price models.
Dynamic pricing in practice
Illustrative. An airline files an economy fare of USD 300 on a route. Under dynamic price adjustment, its offer system may quote USD 285 to an NDC-connected agency on a quiet Tuesday flight with many empty seats, and USD 315 on a Friday flight that is filling quickly, without filing new fares. Under continuous pricing, the same airline could quote USD 297.40 or any other amount, because it is no longer limited to the steps attached to booking classes.
A traditional GDS shopping request for the same flights would still return the filed USD 300 fare if that booking class is open.
Who uses it
Advantages and limitations
Advantages
- Prices can follow demand more closely than a fixed ladder of filed fares.
- Airlines can react to market changes without refiling large numbers of fares.
- More price points can fill capacity better and give travellers more chances to find an acceptable price.
Limitations
- Prices can differ by channel and moment, making comparison and quoting harder for agencies.
- It needs modern offer and order systems; legacy GDS pricing relies on filed fares.
- Corporate agreements and audit processes built on filed fares need to be redesigned.
Frequently asked questions about Dynamic pricing
How is dynamic pricing different from revenue management?
Revenue management decides which pre-filed prices are available by opening and closing booking classes. Dynamic pricing changes the price itself at the time of the request, so the airline is not limited to the fares it filed in advance.
What is continuous pricing for airlines?
Continuous pricing is a form of dynamic pricing where the airline can quote any price point rather than a limited set tied to booking classes. It lets price follow demand more finely but usually requires airline-controlled offers through direct or NDC channels.
Does dynamic pricing use personal data about the traveller?
Not necessarily. IATA describes dynamic pricing as based on contextual information such as travel dates, length of stay, competition and remaining seats, and states that anonymous shopping remains possible. Using personal data for tailored offers is a separate step.
Can travel agents book dynamically priced fares?
Yes, where the airline distributes dynamic offers to agencies, usually through NDC connections. Agents should note that dynamic offers often carry short validity periods and may differ from prices seen in other channels.
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