I last wrote about NDC following the introduction of surcharges on GDS bookings with certain airlines. The GDS surcharge debate reared its head last year as long term deals between the GDSes and a number of airlines came to an end. The debate was confusing, which prompted my first article on the topic published on BTiQ earlier this year.
In my opinion, NDC, a subject I'm actually positive about, was deliberately mixed in with the GDS surcharge discussions to muddy the waters and facilitate a better deal for the airlines. The reason TMCs engaged in the debate was because getting surcharge-free content was critical for travel buyers and was based on planning to be working with the airlines on an NDC strategy over the coming two years.
It was therefore highly surprising to us and many of my TMC colleagues to find NDC fares appearing in the airline direct channel in the early part of 2018. To make matters even more confusing the battle between the airlines and the GDS effectively placed TMCs and travel buyers in the middle. Airlines stated that GDSes weren't ready to facilitate NDC content and the GDSes maintained that airlines were deliberately NOT writing to the latest NDC standard (which GDSes claim to be compliant with). So much for a standard, and so much for a supposed agreed approach to work towards an NDC strategy.
So where does this leave TMCs and travel buyers?
As always, the answer is ambiguous at best. I personally believe we are in a transition phase. Traditional airlines have been struggling to compete against low-cost carriers in the last decade; they have a different business model predicated on low cost fares when empty - increasing to higher fares when full. The ancillary sales model is an extra form of revenue designed to keep core fares low and in theory allowing the customer to choose what they want.
Legacy airlines used a model predicated on published fares and a highly complex yield management system which involved over-booking to fill a plane and cheap fares being available last minute when the yield management systems got it wrong. Have you ever heard of anyone being bumped off an easyJet flight and offered money to stay overnight?!
They also took time to transition from a full-service model to fare-only model on short-haul routes where competition was at its fiercest. These factors and the fact that legacy airlines paid what they regarded as high charges for distribution (GDS) costs combined to get us to where we are today.
This position is relatively simple. The legacy carriers now compete very effectively with the low-cost carriers when it is website to website. However, while the low-cost carriers do distribute via the GDS, it is still an incredibly small part of their business. Traditional carriers distribute a significant part of their business via the GDS because corporate customers use TMCs and we use the GDS systems.
In fact GDS systems were set up by the airlines themselves to make distribution more efficient. So, while the legacy carriers have solved (in part) the distribution cost of the GDS via the TMC channel, they are struggling to marry up the ancillary personalised model of their websites with the GDS channel, which can't yet take NDC-style content. And if you are still with me (!), that's why we are in transition.
What does this mean for the future?
NDC, or rather the model of dynamic pricing (ancillary pricing and the so-called request and offer model), isn't going away. The GDS providers belatedly recognised the need to embrace the NDC model and much of why we are in a transition period is due to the time it took them to react. The airlines need to react now to the continued competition they face from the low-cost carriers and the NDC model enables them to do this. We therefore have a period of perhaps nine to 12 months where the GDS providers work on how a very different model, which is in theory just a standard, fits with the traditional GDS model of full content and shopping by an agent.
This problem will be solved, however there is still much debate on whether the solution will be an NDC connection separate to the standard GDS display or an integrated display. Either way, I expect the GDS providers will rise to this challenge as their own future depends on it.
In the interim TMCs are doing what TMCs have always done; that is provide the content customers need and want. What will this look like? Well, TMCs booked easyJet on the easyJet website for travellers when it first launched as content wasn't available via the GDS. Initially travel buyers/travellers booked directly but very quickly realised they wanted their TMCs to provide this content and accepted that in doing so, there would be a premium over the normal fees they paid. This resulted in the low-cost carrier fee which was invariably higher than normal fees and often contained a bill-back fee, where TMCs used their own credit cards to pay for the flight as the normal central settlement plan we pay legacy carriers on wasn't applicable.
We will be booking the right content for customers, wherever it might be found. But when we access NDC content through third party connections, direct NDC connections or simply on the airline website there will need to be an additional fee for doing so. Two leading TMCs recently muted this fee at around $15-$20 supplement over the normal fees. This supplement will undoubtedly reduce as TMCs improve the efficiency of the process to book and/ or competition forces us to do so. The low-cost carrier fee has certainly reduced over the years. If the fare saving is significant, then clients will demand that these fares are booked.
What else does the future hold?
I believe the GDS providers will sort out the NDC retailing model. Will carriers still hold back certain content for their very own direct NDC connections? I suspect they probably will.
After all, have you noticed how hotel chains now offer the very cheapest rates to those travellers holding their status cards? That's because the online travel agencies have negotiated such incredible commission from hotel chains and also have contracts that state rates can't be cheaper elsewhere — even on hotel's own sites. The loophole the hotel chains found was to market directly via the status card programme which the OTAs don't enable you to enter.
And I also bet you didn't know that your TMC can access these rates because they do capture the status card number and can see the same website rates.
Airlines will hold back some fares exclusively to their channel, and probably the very cheapest flights that the price-sensitive leisure traveller searches for on shopping supermarket sites. Why would the airlines want to pay incentives to OTAs for business they could potentially attract directly to their own website now the holy grail of full content on the GDS has been broken? And yes, those highly price- sensitive business customers will also get those fares, albeit via a supplement charged by the TMC which an OTA would find difficult to justify.
Confusion seems to be the name of the game. While it is frustrating for travel bookers looking for clarity, TMCs are creating their own solutions and finding new ways to navigate an ever-changing playing field. The exact ins and outs of how airlines will look to save money on distribution are yet to be seen. Time will tell…