NDC: New age of airline distribution?

Industry bodies representing travel agents, global distribution systems and other technology players are speaking out on proposals from the International Air Travel Association to deliver a platform to help airlines sell ancillary products. IATA’s New Distribution Capability is built around XML-based protocols and aims to enable airlines to offer personalised offers to customers.

A working group of about 30 airline representatives voted in favour of  the proposals at the World Passenger Symposium in Abu Dhabi with IATA heralding the dawning of a ‘New Age for distribution’ on Twitter. IATA boss Tony Tyler claimed that the development of the NDC was being conducted in open and transparent collaboration with all segments of the travel industry that would be affected by it. Tyler believes the use of the GDS system hinders airlines from developing relationships with their customers.

“The travel offer is put together outside the airline by third parties… it is impossible for the airline to tailor its offer to the customer via the indirect channel…. This model is focused only on finding the lowest ticket price. This has resulted in the commoditization of air travel….

In general terms, industry representatives question whether the NDC could mean the end of fare filing with ATPCO (Airline Tariff Publishing Company) and the GDSs. Key objections raised include the following:

• Parties are concerned over IATA’s failure to involve a wide-ranging group of industry representatives in the process from the beginning despite repeated calls for participation

• There are also concerns that the principles laid down in the proposal were formed by a small group of airlines

• Interested parties don’t believe the proposed NDC platform will create further transparency. Those voicing concerns range from the American Society of Travel Agents and the Business Travel Coalition to the Guild of Business Travel Agents and the European Technology and Travel Services Association

• Concerns have been raised over whether the NDC will mean an end to price comparison and enable the airlines to engage in price discrimination thereby offering different prices to different consumers

• Parties have also highlighted possible legal and competition issues especially around the CRS code of conduct and the Air Services regulation on transparency and access to fares

• It is likely that airlines and travel agents would have to develop additional systems and processes to be able to integrate NDC

“I want IATA on the record, and airlines on the record, about the ultimate objective of this initiative. I see a lot of merit in this initiative, because the airline product has become more complex. We need to get our head around how to more effectively distribute it to all channels.

Yet we have to make sure we don’t lose track of ultimately what the consumer wants. We’ve seen a regulatory debate in the US about whether or not to regulate the the disclosure of ancillary fees and upgrades.

If we take a step back, IATA did some research over the last couple of years and they had a working group look at what it is that the airlines customers are looking for. And one of the major points that were raised is that customers want to have same kind of comparison-shopping experience, whether on airline website, whether on handheld device, whether OTA or traditional travel agent or metasearch engine. They want the same offerings and same kinds of transparency across platforms.

How does the NDC initiative reflect that feedback from consumers?”

The GDSs gave their view back in August 2012 and adds Sabre:

“Based on our extensive evaluation and deep technical analysis of IATA’s proposal, our conclusion is clear. We do not see how the proposed NDC approach would work in the real world without sacrificing fare transparency, limiting comparison shopping and compromising data privacy rights.”

Not everyone one is against the NDC, however, with some technology players voicing their support for the initiative. Mark Lenahan, vice president of product strategy for OpenJaw, says:

“We think the industry, certainly the airlines, have started becoming better at retailing and that means differentiating your product, personalisation and having better content than we currently see in the GDSs.

One issue is that the current selling model is really only doing price comparison but airlines do have different price models and can do different bundles and their product is not being well served.

I think this will end up being more transparent and someone who abuses the personalisation is going to get caught pretty quickly in this modern online retailing world.”

As we can see, a few years ago the battlelines were drawn over the booking fees paid versus newer and potentially cheaper alternatives in the market whereas now the debate is around technology to make ancillary services easy to sell. To ilustrate that, just to mention thatAir France–KLM has just signed a multi-year full-content agreement with Amadeus which includes the distribution of KLM’s Economy Comfort and Air France’ Seat + services. But, senior vice president of global sales and distribution Jean Wieviorka for the carriers continues to find himself stuck between a rock and a hard place. On the one hand, Air France-KLM gets 60% of its business from outside the home markets so he freely admits to needing the global distribution giants. On the other, Wieviorka feels the group is paying GDS who, he says, have been very slowly to react to the evolving airline need to sell new products and ancillary services via travel agents.

“We need the GDS to get the revenues because our direct online sales are weaker in non-home markets. We are always keen for full-content agreements to sell our fares and ancillaries because we need to access the market.”

Alongside the need for distribution to the agency community (both online and offline, leisure and corporate) is a desire for standards. The carriers do not want to have to develop interfaces between the ‘home systems and the GDSs on the planet’. In direct sales channels it has been using Electronic Miscellaneous Document – the IATA messaging standard enabling airlines to share information on issuing, managing, distributing and fulfilling airlines services – for some time but, again, feels implementation amongt travel agents has been slow. Jean Wieviorka adds;

 ”For me there is one thing which is not going well with the GDS. We are paying booking fees to them and agents have to be trained to sell our services. “I fight with the GDS all the time becuse they don’t want to train the agent and it’s not acceptable. For me it is lost revenue. We need them to sell and they tell us they need us to distribute our ancillaries but they don’t do the work on their side. They also say they need other carriers to introduce ancillaries.” He cites KLM Economy Comfort as an example of a product which, he says, has been available in direct channels and GDS since 2009 but agents in many countries cannot sell it. Wieviorka says the fare is not sold in the US, Asia, South America or Africa and blames lack of GDS technology investment as well as agency training for the gap.

Wieviorka believes its IATA’s NDC and that introduction of the new platform could happen quite quickly once the airline body has the buy-in of the travel agency community. There are some out there who might disagree given concerns raised with the European Commission’s transport and competition divisions last year. He stands firm on his position that IATA is the right place for collaboration between airlines and distributors. However, the agency and GDS community still have many concerns, not least, who will pay for the new platform integration, who will own/control the customer information and how will airfare transparency be maintained.The fact is that this question is more than just an airline issue. Worldwide supplier schedule, price and inventory data-feeds are transmitted through the “front doors” of GDSs from hundreds of airlines, scores of rental car companies, 100,000 plus hotels, numerous rail and ferry companies and thousands of other suppliers. Out the “back doors” flow normalized data for comparative-display for use by tens of thousands of travel agencies, hundreds of thousands of corporate online booking-tool implementations around the world and billions of consumers with access to online travel-agency marketplaces.The independent distribution system anchored by the GDS is a successful, efficient and low-cost one that leisure, corporate, university, government, NGO and other major travel buyers on all continents support and willingly pay the costs of in the price of tickets they purchase. The managed travel community in particular has technology and business-process requirements that cannot be satisfactorily met nowadays on required scales by any other solutions currently offered in the marketplace other than by GDSs, as:

• Financial: Can services and costs be compared on an apples-to-apples basis? 
• Duty of Care: Can travelers’ locations – especially on international trips – be accurately tracked? Can it be ensured that a predetermined threshold-number of travelers on the same flight is not exceeded? 
• Compliance: Can corporate travel policy compliance be verified and enforced? 
• Service: Is it easy for travelers to see all the travel options and find the best deals within corporations’ travel-policy parameters? 

Virtually all air, hotel and rental car pricing is currently disciplined because suppliers know value-conscious leisure and business travelers are comparing offerings side-by-side every minute, every hour, every day. It is understandable why some suppliers would like to see total disintermediation and drive as many consumers as possible to supplier.com where comparative shopping, expert advice and corporate travel policies are not available. However, that is not in the interest of the leisure or corporate traveler – either managed or unmanaged. Indeed, it’s not in the long-term interest of the airline industry either, if it seeks to remain deregulated.Actually one only has to look at the current state of play with respect to ancillary fees to foresee difficulties that could lie ahead in a disintermediated and content-fragmented environment. Some airlines currently refuse to provide these fee data to travel agencies; therefore, consumers cannot see and compare the total cost of air travel efficiently and before a purchase decision is taken. Importantly, ancillary-fee components, as a growing percentage of overall air travel costs, are not effectively price-disciplined because consumers cannot view them on an apples-to-apples basis across multiple airlines’ offerings. This runaway pricing situation with ancillary fees is a good proxy for problems that would lie ahead in a disintermediated travel-purchasing environment where all manner of content is fragmented and comparative shopping is substantially degraded.I am sure that the travel community as well as consumer advocacy organizations around the world will support an airline ancillary-fee financial model along with strategies that enable airlines to offer traveler-authenticated, customized offerings, including through direct-connect systems. However, consumers, and those responsible for managed travel programs, will require no less than (1) complete access to fares and fees, (2) consumer control over the ability to efficiently comparison shop, and (3) the preservation of low-cost and efficient travel distribution system work-flow processes.