New Distribution Capability promises to offer real choices for flight booking, but progress has been slow
No doubt you’ve heard the acronym NDC being bandied about over the last few years – but do you know what it really means for your air programme and how it may change the way your travellers book their flights over the next few years? If you don’t already know, you’re far from alone.
For the uninitiated – or the so far unconcerned – NDC (New Distribution Capability) is a project headed up by airline association IATA (International Air Transport Association) with the stated aim of creating a set of new technological standards that “enhances the capability of communications between airlines and travel agents”, as well as reducing the cost of distribution.
Basically, when you move away from the seemingly impenetrable terminology, the airlines want to be able to sell all their numerous ancillaries (seat allocation, hold baggage, fast track boarding, onboard meals, etc) through intermediaries (mostly TMCs in the business travel context). In other words, all the things they have been able to sell directly through their websites and other direct portals for years.
Doing this through B2B channels has been difficult because most bookings go through the traditional GDSs (global distribution systems), which is fine for the airfares themselves but not so good (at least according to the airlines) for all the ancillaries that airlines have now stripped out of the headline fare and are selling separately – as part of the ‘unbundling’ revolution spreading throughout the airline industry.
IATA first started talking about NDC back in 2012 when senior vice-president Aleks Popovich told BBT that it “could revolutionise distribution capabilities by bringing us up to date with online retailers” and offering a more personalised shopping experience to these indirect bookings.
Five years on, we are starting to see several NDC projects beginning to reach fruition with airlines such as Lufthansa and British Airways starting to sign a few NDC-based distribution deals with TMCs. And this looks likely to be the start of a trend towards more such deals as the advantages of NDC become apparent.
IATA’s director general Alexandre de Juniac explains: “NDC will help airlines deliver much richer information to customers through travel agents. The challenge is to realise NDC’s full potential by driving up NDC transaction volume and overcoming the obstacles to achieving that vitally important objective. Already 36 airlines are using IATA’s standards for NDC, and 80 more will be on board in the near term.”
Most buyers’ reaction to the slow progress of NDC over the last few years has been: “Why is it taking so long?” Even now, we are still only in the “early days” of NDC, according to Greeley Koch, executive director of ACTE (Association of Corporate Travel Executives).
He adds: “There aren’t many channels for using NDC within the corporate booking environment as travel managers continue to use existing platforms – GDS, online booking tools, etc – to buy ancillary services.
“We recently polled our member base on how they’re handling ancillaries in their corporate travel policies, and the general thrust of their responses is that there’s no coherent policy nor strong inclination towards changing policies.”
Koch also identifies one “huge obstacle” to NDC adoption, which is the fact that many airline ancillaries are not covered in corporate airline deals. It’s this, he says, that is responsible for “creating significant un-negotiated costs for those travellers who can’t use their frequent flyer status to get many ancillaries for free”.
John Bukowski, director of global supplier relations at American Express GBT, agrees that NDC is currently making “very little difference” to the way that flights and ancillaries are being booked within managed corporate travel. “The value NDC could add to existing processes remains unclear, particularly to the buyer community,” he adds. “It’s possible NDC could facilitate richer content, branding and enhanced ancillaries or premium products. Beyond that, it’s difficult to see how distribution could be improved by NDC as things stand.”
The airline business is a brutally competitive market and it’s not surprising that airlines want to use NDC-based distribution channels as a way to reduce costs – particularly by encouraging sales to be made away from the traditional GDS.
We have had Lufthansa’s €16 fee for GDS bookings in place for a couple of years, which is now being expanded to include an additional £4 charge for short-haul hold luggage. British Airways and Iberia, both part of IAG (International Airlines Group), are also due to start charging £8/€9.50 from November on bookings not made either through NDC-enabled channels or their own websites and call centres.
BA’s move did not go down well with the GTMC (Guild of Travel Management Companies), which described the fee as “disappointing” because the GDS remains “by far the most reliable and valuable” distribution channel. Outgoing GTMC CEO Paul Wait adds: “These customer surcharges could be thought of in a number of ways: either as an attempt to force the customer to change the way it does business, or a blunt increase in the customer’s budget, or even as a potential price increase that suppresses travel. Feedback we have received from corporate travellers suggests overwhelmingly that this is not a charge they will willingly accept.”
It’s surely no coincidence that airlines start talking about introducing GDS fees in the run-up to negotiations with the GDS owners (Amadeus, Sabre and Travelport), leading some in the travel industry to surmise that IAG’s stance is effectively a negotiating tactic.
HRG chief information officer Bill Brindle points out that BA’s proposed GDS fee is “pending negotiations” and may not be introduced. He adds: “We hope it gets sorted out as we know there are discussions going on. We will start worrying about it in November if things haven’t changed by then.”
Even IAG’s usually forthright CEO Willie Walsh was non-committal on the charges when the airline group announced its half-year results in July. He said: “We are engaged with the major GDSs and we are engaging in a constructive way. We believe there is a role for them and we want to have a constructive relationship with them, but we want it to be different to the relationship of the past.”
But not all airlines are following IAG and Lufthansa’s ‘stick rather than carrot’ approach to distribution – American Airlines is instead offering TMCs a US$2 incentive to use its NDC channels; a move that has been more widely welcomed within the business travel industry.
Decius Valmorbida, senior VP for Amadeus Travel Channels, says: “American Airlines’ introduction of a financial incentive for travel agencies to use NDC channels underlines how critical it is to secure adoption. Implementing the technology is only one step; securing adoption of any technical solution is what determines its success. The US$2 incentive also recognises that travel agencies will have a cost when adopting NDC.”
But Amex GBT’s Bukowski says the US$2 incentive from AA is not high enough. “This amount would not come close to covering the additional cost needed to implement a fragmented, single airline channel in the travel ecosystem,” he adds.
So what should travel buyers make of these developments? NDC could have profound effects on how air travel is booked and marketed to travellers in the next few years. And there’s the thorny question of how the costs of developing NDC-based connections are being paid for – or, more importantly, who ends up footing the bill. Carlson Wagonlit Travel has already hinted it may add charges to pay for the cost of having to introduce new airline booking channels. And ATPI’s UK managing director Adam Knights says: “If the airlines look to reduce or cut out their cost of distribution via the GDS then the client will either pay more for non-GDS booked content – via a third-party aggregator like Travelfusion – or accept a higher fee for booking via the GDS.”
And while HRG’s Brindle is “excited” about NDC, saying: “Change needs to happen – people say the existing model isn’t broken, but I think it is a little bit broken,” he also warns: “Any change requires cost and you cannot just do something for nothing.”
A dynamic platform
Another enthusiast for NDC is technology-based Click Travel, which has already launched NDC connections with both British Airways and Lufthansa.
Click executive chairman Simon McLean says: “In the NDC model, retail partners are effectively buying directly from the airline. This not only dramatically reduces the cost of distribution, but also provides airlines with much greater flexibility in their ability to bring new innovative products and pricing to market at speed.
“Think of it as a change from an indirect relationship to a direct relationship between the airline and retail partners, and from a static sales platform to a dynamic one.”
McLean is predicting that “all major airlines” will have an NDC-based booking system by 2020 and that these carriers will not renew their current GDS contracts on a “full content” basis when they do. “As NDC matures, the consumer is going to be the winner,” predicts McLean. “We’re going to be able to deliver a better user experience on the back of the proliferation of NDC.”
Of course, the big GDS owners are also working with airlines on NDC projects that will be introduced over the next few years. “We have managed several successful NDC implementations and are actively working on others,” says Amadeus’s Valmorbida.
ACTE’s Greeley Koch agrees that there is “tremendous potential to see disruption in distribution”. But this will only happen if NDC connections offer travel buyers a “more customised experience for corporate booking”, which could eventually “supplant” traditional GDS bookings.
But we are certainly not there yet and part of the problem is that the airline industry has not sufficiently explained what NDC is and what it will mean for travel buyers.
“There is still a lot of confusion in the buyer community about what NDC really is,” adds Koch. “In my conversations with travel managers, many are unclear as to whether it’s a new booking tool or a sales protocol for airlines. Without clarity, buyers are going to resist implementation, and no one wins.
“Airline industry associations really need to step up their game when it comes to education about NDC. How NDC is understood by the corporate travel community and what it actually is are not the same. Education is important to overcoming any perceived stigma and resistance to change,” he explains.
So while the airline and managed travel industries sort through the technical and commercial challenges thrown up by NDC, they also need to provide a more coherent overall message to buyers themselves – and that’s clearly not been delivered yet.