PRIMED FOR TAKE OFF
Few areas of business travel are as divisive as NDC but it is transforming airline distribution whether it’s welcomed or not
It may have begun with low-cost carriers or with IATA’s introduction of New Distribution Capability (NDC) in 2012, but the revolution was truly kickstarted when Lufthansa introduced an NDC product in 2018. Of course, ‘new’ in the world of airline distribution means little more than a means other than the GDS – the airlines’ traditional method – of delivering content to agencies.
Low-cost carriers’ whole business model had been predicated upon the idea that selling air travel was a retailing activity which simply needed to be distributed directly to market. They also changed the rules by disaggregating the core product and making money from selling ancillaries – and this meant a myriad of packages.
So far, so good, but was it relevant? Business people flew on traditional carriers, right? But they were consumers too. On their holidays they discovered that low-cost carriers were easy to book and provided perfectly good service. They also flew between the secondary cities to which business travellers increasingly needed access.
According to James Marchant, head of business development at easyJet: “The majority of [easyJet] business bookings are still made directly on our website or the mobile app because we attract a large SME customer base that don’t have policies that force them to book through other channels.”
But how about the larger, managed travel programmes? Lufthansa moving to direct distribution was a very different proposition. A doyen of traditional European carriers and linchpin of corporate programmes was abandoning wholehearted participation in traditional airline distribution – namely putting all its content on a GDS.
Why did Lufthansa need a new method of distribution? Or to put it another way, why are airlines seeking and embracing NDC? Very simply because there is plentiful demand for lucrative retail air products and services that cannot be delivered via legacy GDS systems and, well, because distributing content via the GDS costs airlines money.
SO WHAT CHANGED?
The issues with traditional distribution are deep and very much connected with profiles of air travel supply and demand changing – and expanding – while distribution capability remained limited.
Airlines began as state-owned national carriers, some long-haul specialists and some short-haul carriers. But the landscape has changed considerably since the GDS was conceived as their universal distribution system – the birth of alliances, giant Middle Eastern carriers and non-GDS carriers just for starters.
Airlines’ content used to be fairly simple: there were limited fare classes (how many letters of the alphabet are there?), three fare levels (high, low and off season), and one product with which to transport someone from A to B with baggage, seat and refreshment included. Of course, the quality of the seat and refreshment might vary between first and economy class but you get the picture. Most importantly of all, full content deals were standard for corporates.
Demand has become much more like any other retail experience, with travellers – and their travel departments – now expecting to tailor what’s on offer to what they need.
Consumers now face much more product and price choice and expect fare pricing to be dynamic but the ability to access this full content via airline partners is no longer taken for granted.
Some content has become more accessible – easyJet content is available on GDSs via an aggregator’s API. “You can get extras so long as the GDS, aggregator or OBT has made it available,” explains Marchant.
But, as with any retail product, the air product is not just the travel itself. It’s also about service. This can be especially frustrating for corporates because of their volatile itineraries. Parexel’s senior director of procurement and travel, Ben Park, sums it up: “If you call customer service to change your flight and they pick up the phone within four hours, you’re lucky. If nothing needs changing fine, but if you need to change, it’s terrible.”
SERVICING THE BOOKING
The challenge is summarised by Lufthansa Group’s head of channel partners, Johannes Walter. “NDC is capable of most servicing – refunds, exchanges – but it seldom occurs because a travel agent needs to run a capable system.”
A key consideration for corporates and their TMCs is the limitation on what’s involved in servicing itinerary changes such as refunds and reticketing because their mid and back-offices are powered by GDS technology. Ann Cederhall of LeapShift explains: “Few of the network airlines’ NDC solutions are direct connects meaning there is intermediary technology and you are not connecting with the PSS (passenger service system) which adds additional cost.”
Ian Luck, head of airline distribution at travel tech specialist T2RL, endorses that view and highlights two other issues. First that “a lot of large airlines have done significant distribution deals with the GDSs and as part of those deals airlines connect the NDC pipe to the GDS”. In addition, he highlights the issue of dynamic or continuous pricing and the demand for fares to be calculated in real time. “It doesn’t work in the old technology, only in NDC,” he says.
Dynamic pricing is in demand but it is not new, as Yanik Hoyles, IATA’s distribution director, points out: “A lot of business travel takes place on LCCs so [corporates] are already using dynamic pricing.”
IATA acknowledged that many of its members were eager to sell content that could not be accommodated easily on the GDS. Distributing content via a means other than the GDS could also change the source and size of their distribution costs.
Carriers wanted a new, direct distribution option – for example through their own API – to distribute their new offers rather than be constrained by the historical categories ordained by the legacy GDS architecture. Lufthansa moved the dial in September 2018 when it announced that it would be withdrawing its most basic short-haul, point-to-point package from the GDS and distributing it as an NDC product. The reaction could be described only as a hullabaloo.
Paul Tilstone, managing partner of Festive Road, explains why: “Five years ago a distribution cost charge and an aggressive approach by Lufthansa pushed the European market faster than the American approach – of more of a carrot than a stick – because it created a business case for change for corporates. Once you bring potential cost into the system you need to bring action.”
Cost drives everything. No one denies that change and service will cost – it’s just a case of who pays and how much.
Tilstone reflects on the transition from an angry and frustrated corporate travel community to the “we’re all on a journey” atmosphere of today. “After lots and lots of discussion and pressure from buyers to engage in dialogue, we were making progress prior to the pandemic,” he says.
“During the pandemic there was almost a sort of ‘NDC’s going to be dead now’ view from quite a few people but NDC insight groups still operated.” In 2015 Tilstone’s Festive Road consultancy set up the TMAG, IATA’s travel manager advisory group which now numbers about 40 members and acts as a sounding board for IATA.
However, it seems that the pandemic – with the virtual stoppage of air traffic – provided an opportunity for airlines to double down and take stock. In Tilstone’s words, “the net effect of the pandemic won’t have slowed down roll-out in any way.”
There was no industry standard for NDC when it began. Content had to be made available to TMCs via aggregators who would provide API pipes from relevant carriers. NDC content had not been developed to conform to GDS constraints. Lufthansa’s NDC had some early corporate adopters such as Volvo and Siemens but their connection was not direct to Lufthansa but via an aggregator.
As Hoyles concedes, the majority of early usage was in leisure travel which was more straightforward journeys. He continues, “You’ve got to start somewhere and business travel is taking longer. Business journeys are more complex and TMCs are more dependent on GDSs and the time frame in which they can do things is dependent on their GDS’s readiness. It depends on a lot of mid and back-office integrations which is now beginning to happen.”
Like a number of his fellow interviewees for this piece, he is optimistic that IATA’s latest standard – version 21.3 – will move NDC significantly forward. Importantly, it will accommodate all updates made subsequently, an important facility which has been lacking in previous versions. It will also create an industry standard. This means airlines’ will be laying out their offer in similar formats which will make life much easier for distributors. “Having different versions has been difficult but now we have the more mature version,” says Hoyles. He says NDC is a journey that won’t happen overnight but will happen because of industry will and collaboration.
But this optimism is not universal. Chief executive and founder of Snowfall, Stefan Cars, which offers Junction, an aggregator of its own, says: “NDC has been around for more than 10 years and hasn’t transformed airline retailing in the way that everyone had hoped.”
Sam Abdou, executive vice president, air, rail and global online at Amadeus, is optimistic but agrees there has been a lot of frustration around the lack of consistency. “Things have calmed down because the industry – tech providers, the airline and the agency community – has come together. Airlines are moving from the EDIFACT world to the NDC world,” says Abdou.
There are three pillars to this NDC world. One ID in which the traveller is uniquely identified and holds the data which makes them fit for travel – passport, visa information etc. NDC, which is retailing with offers and dynamic pricing. And the third is One Order which links the whole process from initial order to fulfilment.
This is the vision of airline retailing but the journey will be long. There are many reminders in the air industry, from e-ticketing to biometrics, of how change management can be a slow process. From introduction to acceptance can take a decade.
But the explosion in the prominence of the word ‘retailing’ in all carriers’ vocabularies is telling. Airlines, like other businesses, want to own what they’re selling. “Airlines have their own freedom for commercials and to showcase their own products in a different way,” says Hoyles.
Just as businesses in other sectors historically had agents or outlets in different parts of the world to market and sell their products, carriers have used the GDS as a distributor. But all distributors have a cost for this service and airlines, just like other retailers, want control over how their wares are marketed and the timing of releases etc.
The airlines accept that they should pay their distributor but they increasingly see the TMCs and other resellers of their content as whom they would like to pay more directly rather than through the intermediary, ie the GDS. According to T2RL’s Luck, “Airlines say they are happy to pay something but they’d like more control over what they pay to agencies and be able to decide how much to pay to whom.”
Then there is the issue that the resellers (TMCs) make their money from the ultimate customer, ie the corporate. The corporate is willing to pay for a service – indeed it can be five per cent or even more of the total travel budget that goes to the TMC – but if income from the GDS drops, the TMC might very much need to get more from the corporate.
Mihai Dinu, global travel manager at UiPath, sums up the thinking of many of his fellow travel managers: “Will a TMC increase the service fee for NDC content? Some TMCs have a concept [of what should incur a higher fee], eg a low-cost carrier. You can imagine NDC in the same way because it’s not standard content. How do you position the fee?”
On one level, the issue is simple. Just as in many other industries the number of airline products is exploding. However, its legacy distribution system, the GDS, was built in the pre-digital age. To change the technology system is not going to happen in a day and it will be costly. It is an unspoken issue but an important one and was probably at the root of much of the discord and anxiety five years ago.
The need for time and collaboration is on everyone’s lips. In the words of Lufthansa’s Walter, “We’re on a journey, a change process. We need to make sure that we bring everyone along and have some sort of alignment of where we want to go. Change is never easy.”
NDC has gone through a complex journey as it matures to accommodate players from the different pillars of its eco-system. Agents, aggregators, tech companies and airlines have all sought NDC accreditation and many have achieved different layers of it.
The upshot is that some 60 airlines are now on NDC, including all the major passenger airlines which between them represent more than 50 per cent of IATA’s air passenger traffic.
Some of those carriers are moving very fast. Finnair is starting to move its content from GDS, EDIFACT pricing to NDC, continuous pricing. The plan is for it all to be on new channels by the end of 2025. Pushing the envelope across the Atlantic, meanwhile, is American Airlines, which has told agencies they need to be connected to the carrier’s NDC technology by April 2023 or risk losing access to 40 per cent of its fares. Airline distribution is undergoing a major transformation and it won’t necessarily be a smooth ride.