Dynamic Pricing
What Is Dynamic Pricing?
Dynamic pricing is a strategy where travel suppliers change prices in real time or near real time based on algorithms that consider demand, remaining inventory, competitor prices, time to departure, and other factors.
This matters because the price you see for a flight or hotel can change many times a day. For example, an airline might raise fares on a popular Friday evening flight as seats fill up, then drop prices briefly midweek if demand is softer than expected.
In business travel and expense management, dynamic pricing shapes almost every airfare, hotel rate, and car rental your employees see in tools like Navan. Understanding it helps you write smarter travel policies, set realistic budgets, and negotiate better corporate rates that work alongside fluctuating market prices.
Understanding Dynamic Pricing in Detail
How Dynamic Pricing Works
Suppliers use revenue management systems that:
... current bookings and remaining inventory.
... historical demand patterns (day of week, season, events)
... competitor prices and promotions.
... booking windows (how far in advance people usually book).
... base prices.
... available fare classes and room types.
... discounts and promotions.
... minimum stays and other restrictions.
Key Dynamic Pricing Levers
For Airlines | |
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Time to Departure | Lower prices far in advance to stimulate demand. Raise prices as departure approaches and seats fill. |
Seat Inventory (by Fare Class) | Open or close cheap fare classes (like economy discount buckets). Protect seats for high-yield customers who book late. |
Demand Patterns | Higher prices on peak days (Mondays, Fridays) and routes (business city pairs). Special pricing around holidays, events, or conferences. |
For Hotels | |
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Occupancy Level | Raise rates as occupancy climbs, especially close to arrival date. Drop rates when occupancy is low to attract last-minute bookings. |
Local Events and Seasonality | Higher rates when there are big trade shows, sports events, or festivals. Lower rates in off-season or midweek for leisure properties. |
Length of Stay and Booking Window | Discounts for longer stays or early bookings. Premiums for last-minute or one-night stays on busy nights. |
Algorithms and Data Inputs
Dynamic pricing systems use:
- Historical booking curves
- Competitor scraping (public web rates)
- Market demand indicators (search volume, events calendars)
- Corporate and channel performance
Human revenue managers still oversee these systems and apply strategy (for example, “we want higher share on this city pair”), but much of the price movement is automated. |
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Why Dynamic Pricing Matters
The biggest impact of dynamic pricing is that travel prices are not fixed, which affects budgets, policies, and traveler behavior. Companies that understand dynamic pricing typically see:
More Realistic Budgeting and Forecasting |
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- They plan with ranges and averages instead of assuming fixed fares and rates.
- They know prices spike on certain days, routes, or seasons and budget accordingly.
Smarter Travel Policies |
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- Policies nudge travelers to book earlier and avoid avoidable peaks.
- Rules can be tuned to handle volatile markets (for example, capping maximum fares or defining “best available” within a range).
Better Use of Corporate Negotiated Rates |
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- They know when corporate negotiated rates beat dynamic market rates and when public or marketplace deals are better.
- They negotiate rate structures that work with dynamic pricing, not against it (for example, “percent off BAR” instead of only static rates).
Improved Traveler Education |
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- Travelers understand why prices change and why “shopping later” can backfire.
- They accept that the same trip can cost different amounts at different times.
Actionable Benefits |
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- Lower average ticket prices and room rates by steering bookings to earlier windows and lower-demand patterns.
- Fewer budget surprises when big seasonal swings are anticipated.
- Stronger leverage in negotiations, as you can show how dynamic pricing interacts with your volume and patterns.
How Dynamic Pricing Works in Practice
1. Common Airfare Scenarios
- 45 days out: multiple cheap fare buckets open.
- 7 days out: cheap buckets closed; only higher fare classes remain.
- Result: last-minute business trips cost a lot more.
- Tuesday/Wednesday midday: airlines may adjust fares based on early-week demand.
- Friday afternoon flights on business routes: consistently priced higher due to demand.
- A major conference is announced in a city.
- Demand suggests higher willingness to pay, so prices creep up earlier and stay high.
2. Common Hotel Scenarios
- Normally, midweek business nights are moderately priced.
- During the show, dynamic pricing drives rates up across the city as occupancy climbs.
- Corporate rates with Last Room Availability (LRA) may still hold, but often at higher base levels.
- A city that is quiet in August may see lower dynamic rates.
- Hotels may offer promotions or corporate-friendly rates to fill rooms.
- Booking same-day or one day out can be:
- Very expensive in high-occupancy conditions,
- Occasionally discounted if hotels are unexpectedly empty.
3. Dynamic Pricing and Corporate Negotiated Rates
Your corporate negotiated rates (CNRs) interact with dynamic pricing. Well-designed CNRs aim to provide value across dynamic swings, not just at one price point.
- Fixed amount (for example, 180 dollars per night).
- Can be cheaper than dynamic BAR on busy nights, but more expensive on very soft nights.
- For example, “15 percent off best available rate.”
- Move up and down with market prices, but maintain some advantage.
- Static caps for certain nights, dynamic discounts on others.
Common Challenges in Dynamic Pricing and Their Solutions
Challenge 1: Price Volatility Frustrates Travelers and Managers |
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Same route, same times, very different prices on different days. To solve this: ➡️ Educate stakeholders on dynamic pricing basics. ➡️ Use reporting to show how booking windows and patterns affect cost. ➡️ Frame budgets as ranges, not absolutes, for volatile routes. |
Challenge 2: Last-Minute Trips are Extremely Expensive |
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Dynamic pricing punishes late booking on busy routes. To solve this: ➡️ Add policy rules for minimum advance purchase when trips are predictable. ➡️ Require justification or approvals for very late bookings when avoidable. ➡️ Use Navan’s analytics to show which teams often book late and target training. |
Challenge 3: Corporate Rates Sometimes Look Worse Than Public Rates |
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Static CNRs can be higher than dynamic promos on off-peak nights. To solve this: ➡️ Benchmark corporate vs. public vs. consortia rates regularly. ➡️ Consider shifting to dynamic discounts (percent off BAR) or using marketplace rates where your volume is low. ➡️ Configure your booking tool to surface the true best-value rate, not just “corporate” by default. |
Challenge 4: Hard to Predict Total Cost for Events or Group Travel |
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Dynamic pricing makes group travel budgets tricky. To solve this: ➡️ Lock in group contracts or blocks early when you can. ➡️ Use historic data from Navan to estimate uplift around similar events. ➡️ Set realistic per-night or per-trip caps based on season and city. |
Challenge 5: Tools Invent Prices |
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Users see price changes and blame the platform. To solve this: ➡️ Explain that the underlying supplier, not the tool, is changing prices through its revenue systems. ➡️ Show examples where your tool surfaces cheaper or negotiated content compared to public sites. |
Dynamic Pricing vs. Related Concepts
Aspect | Dynamic Pricing | Fixed Pricing | Surge Pricing |
|---|---|---|---|
Definition | Prices adjust frequently based on demand, competition, inventory | Prices stay the same for a period regardless of demand | Sharp, often short-term price spikes during intense demand |
Common in | Airlines, hotels, rail, cars | Traditional retail, some B2B contracts | Ride-hail, event tickets, some airlines/hotels during peaks |
Predictability | Medium–low | High | Low |
Corporate Impact | Requires flexible policy & budgeting | Easier budgeting but less realistic for travel | Occasional severe cost spikes |
Surge pricing is a specific, extreme form of dynamic pricing; most travel uses more gradual yield management curves.
Related terms and concepts
- Revenue management / yield management: The broader discipline of maximizing revenue by controlling price and inventory. Dynamic pricing is one of its main tools.
- Best available rate (BAR): The public, flexible hotel rate that changes dynamically. Many corporate and consortia rates are defined relative to BAR.
- Fare class / booking class: Underlying inventory “buckets” on flights (like Y, M, K, J). Dynamic pricing opens and closes these classes at different prices.
- Advance purchase: How far in advance a trip is booked. Dynamic pricing heavily uses this to shape demand and price curves.
- Price elasticity: How sensitive demand is to price changes. Revenue managers model this to choose how aggressively to change prices.
- Rate parity: Agreements about consistent pricing across channels. Dynamic pricing must respect or strategically bend these rules.
- Marketplace rates: Rates negotiated by platforms like Navan that can sometimes beat supplier direct or publicly dynamic rates on certain nights or routes.
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