Dynamic packaging is a method used in packageholiday bookings to enable consumers to build their own package of flights, accommodation, and car rental instead of purchasing a pre-defined package.
Dynamic packages are normally given a single, opaque price, meaning the wholesaler's cost of the individual components is hidden from the consumer. The wholesaler often obtains special package-only cost rates for travel components, such as negotiated fares for flights or special package rates for accommodation or car rental. These cost prices are typically significantly lower than the cost prices suppliers offer for the same products if they were to be sold as single components. Hence, the wholesaler will be able to offer the consumer a combined saving for the dynamic package, without reducing his own margins.
Opaque pricing of dynamic packages hide the price of the included components. This has several benefits. Suppliers of travel products often impose a minimum selling price for their products. For instance, a hotel might give the wholesaler a room at cost price X, but on the condition that the room is not sold for less than Y (hotels do this to prevent wholesalers from competing with themselves). With dynamic packaging, the customer is not presented with the room price, only the overall package price, so hotels typically allow the wholesaler to discount the (hidden) price of the hotel more.
Opaque pricing also has benefits for airlines. Airlines tend to increase their fares the closer you get to the departure date, even if there are many available seats. This is to "train" the consumers to book early, making it easier for the airline to do proper revenue management. If airlines were to dump their fares if a flight failed to fill up, then this would train the customers to wait until very close to departure before booking. This would make it virtually impossible for an airline to manage their fares (fares could then only be determined based on historical data and not based on current demand). Dynamic packaging allows an airline to get rid of distressed inventory at discounted fares, as the discounted fare is effectively hidden from the consumer.