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New Distribution Capability: Friend or foe?

NDC is supposed to be a revolution for the good, making content-access easier for all – but some believe it may limit, rather than, widen choice. Martin Cowen reports

‘DISTRIBUTION’ IS CONVENIENT shorthand for, arguably, the most complicated aspect of the business travel world. What is the most effective way for you – the buyer, the travel management company (TMC), the corporate, the supplier, the global distribution system (GDS) – to distribute the most appropriate content (the air ticket, the transfer, the hotel, the train) to the end-user – the business traveller?

Or, what is the best way for the supplier (the airline, the hotel chain, the train company) to distribute its content to the re-seller of that content (the TMC, the corporate, the GDS) who then sells it on to the end-user – the business traveller?

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Or how does the supplier (see above) sell its content (see above) directly to the corporate or the travellers directly without incurring a cost from the re-sellers (see above)?

So when the IATA announced at its 2012 World Passenger Symposium last October that it was developing its New Distribution Capability (NDC), some thought that it signalled a paradigm shift in how air content will be sold in the future. The reality, five months after the IATA announcement, is a lot more complicated than it first might appear.

WHAT IS NDC?
In simple terms, NDC is a set of technology standards which will give airlines the ability to distribute all their content through third parties. All airlines will use the same IATA-verified standards, which means that third parties – GDSs, TMCs, procurement departments, plus new entrants – can access the same content that airlines are selling directly, and redistribute them on the airlines’ behalf.

The NDC project is being led by Eric Leopold, IATA director passenger. He says: “Today, airlines are offering a wide variety of products and services on their websites to appeal to the business traveller – early boarding, preferred seating, a day pass for an airline lounge and so forth. But TMCs using GDSs may not be aware of the entire airline products on offer, and airlines cannot customise the offer based on who is making the request.”

With the road warrior in mind, he also points out that airlines are investing hundreds of millions of dollars in upgrading their products, with lie-flat seats, wifi on international services, new aircraft and so on. “Yet the legacy indirect-distribution model does not support product differentiation – one business class seat looks like every other,” he says.

While IATA might insist it is not trying to bypass anyone – GDSs, travel agents, TMCs – with NDC, clearly there are significant opportunities to do so. One TMC circumvention that has been noted is the possibility that a big corporate could avoid the TMCs and/or the GDSs and deal directly with the airline, now that the airline is using a standard application programming interface (API) that the corporate’s own in-house tech guys could access.

“Let’s take a step back,” suggests Leopold. “Regardless of NDC, are airlines approaching corporates directly for business? If the answer is yes, it is a commercial decision between the airline and the corporate that does not have anything to do with IATA. But wherever a TMC is involved, NDC offers a standard that improves TMCs’ access to airline content, for the benefit of the TMC and the corporate.”

UNIFORM SYSTEMS
The TMC bypass is something that Carlson Wagonlit Travel (CWT) notes. Director of programme management, Nigel Turner, says: “It’s inevitable that there will be new routes to market in any industry, and to an extent it’s already happening. We are aware of the danger, but ultimately our customers want systems to be uniform. CWT is behind NDC in principle – we welcome any technology which helps us to sell air and, importantly ancillaries, in a standard way.”

Elsewhere, Tony Berry, director of industry and fare distribution for HRG, says: “From an HRG perspective, we welcome this. IATA has taken on the responsibility to deliver global standards, and airline members see it as an opportunity to clarify the future of distribution. We have around 300 developers working for us, so the possibilities of introducing NDC standards to enhance a mature booking process are exciting.”

Click Travel also welcomes the theory behind NDC, and feels there are opportunities for smaller, tech-based TMCs to profit from any change. Managing director Simon McLean says: “I think the change will be more painful for established TMCs who have grown up with a model based around a commercial relationship with the GDSs. A new and open way for TMCs to connect with all airlines means we can think of new ways to deliver air content to our clients.”

IATA agrees with this sentiment. “TMCs will have more information about the travel offers that are out there than they currently can access in the indirect channel,” Leopold says. “This, in turn, increases the potential value agents can provide their customers. TMCs will be able to offer more service options to customers while, in conjunction with the Electronic Miscellaneous Document [EMD], being able to document and manage non-ticket expenditures.”

Managing non-ticket expenditures is one caveat CWT’s Turner suggests when backing NDC in principle. “The ability to connect into the back office is as important as being able to access the air content,” he says.

Another of IATA’s reasons for bringing in NDC is that it will open up competition, not only for technology providers but also for airlines to enter the corporate space. “There exists today a number of carriers that do not participate, or have very limited participation, in the indirect channel,” Leopold says. “Take the example of a low-cost carrier with no GDS presence. NDC will enable such a carrier, which today only sells direct to the customer, to sell via travel agents and TMCs, using a technology compatible with their website. Does that mean low-cost carriers will choose to participate and adopt the standard? That is up to them. The standard is open and will be available to anyone in the industry that wishes to implement it.”

An insider at one of the leading travel tech firms disagreed, telling Buying Business Travel that NDC had the potential to drive out competition in the airline sector. “There will be a cost attached to those airlines which want to use the NDC, and until we have some idea about what that cost will be, there is a danger the initiative favours airlines with the room for big systems investments and which have market power.”

RESERVING JUDGEMENT
The GDSs are in a tricky position, reflected by the relative wall of silence from Amadeus, Sabre and Travelport. It is understood that all three are reluctant to comment on the record about what each sees as a work-in-progress; once more is known about how NDC will work in practice, we can expect a barrage of releases, white papers and conference appearances.

Sabre was the most vocal protestor before the shutters came down. Its party-line remains: “Our observations are based on a detailed analysis of everything IATA has said, and put simply, we don’t see how it would work without sacrificing fare transparency, limiting comparison shopping and compromising data privacy rights.”

One aspect of NDC which Amadeus was prepared to comment on is the potential increase in pressure on airlines’ websites. It noted: “If TMCs, online travel agencies and aggregators are all polling airlines’ websites for price and availability data, some smaller sites may not be robust enough to take the additional traffic.”

Travelport also says that it is waiting for more details. However, it pointed out that it is working on products which address IATA’s concerns. It is working with Easyjet, accessing Easyjet’s API and integrating all Easyjet content into its systems so that its seats and ancillaries show up alongside the traditional GDS content when agents are searching.

Air Canada and KLM are other airlines which are working with Travelport to create specific APIs that connect the airlines’ websites with the GDS. Other deals are in the pipeline.

EXAMINING PROPOSALS
The response from airlines is similarly circumspect. British Airways has declined to comment, although it is understood that it was one of the carriers that led the project when it was being brewed up behind closed doors at IATA meetings.

Lufthansa Group did comment, telling BBT: “Lufthansa is one of the airlines actively involved in the working group set up to examine and discuss the proposed IATA initiative. It is important for Lufthansa that as a leading player in the airline industry we are closely involved with these discussions and have some influence in relation to the decisions being taken.”

So, despite IATA’s attempts to share and engage all stakeholders by making a wealth of information available online, there are concerned voices being heard. Our travel tech insider told BBT that “ultimately, it means that the airlines can charge more if there is less transparency with fares and the ability to compare is limited”.

The source also pointed out that for TMCs and agents, going directly to the airline could end up with more costs being passed on to the traveller, because the economics of NDC are still unsure. There was the possibility that airlines might start charging TMCs for queries as well as bookings.

NDC has taken the industry by storm – and Ken McLeod, corporate director with responsibility for airline relationships and business travel at Advantage Travel Centres, has seen a lot of similar storms in his many years in the travel business. He has also been involved in IATA working groups on NDC. “You can’t stop progress,” he says. “Airlines want to take control of their fares and yields, and there is new technology which is enabling them to distribute differently.

“GDSs have been investing hundreds of millions in this over the years, but no-one knows about the implementation costs for NDC yet. It is not pie in the sky, but it is a huge undertaking of enormous proportions.”

THE CAFGA FACTOR
IATA commissioned Atmosphere Research Group to look at the future of airline distribution to 2017. The report identified five familiar brands that airline executives should be aware of, which it dubbed ‘CAFGA’: Concur, Apple, Facebook, Google, and Amazon. The report didn’t make a specific link between these brands and NDC, but said these brands warrant “ongoing scrutiny”. Here are some of its comments on these five companies:

“Concur knows more about your passengers than you do”
After buying Trip It in 2011, Concur now sits on massive volumes of customer insight and data, and will leverage this by selling the data to airlines and through Trip It’s marketing solutions. Trip It can create a ‘super PNR’ (passenger name record), and Concur can integrate user-data into a comprehensive data warehouse.

“Apple’s Passbook may be a wolf in sheep’s clothing”
Passbook, Apple’s new mobile wallet, can store a traveller’s loyalty programme account information, boarding passes, coupons and more. Atmosphere believes Passbook has the potential to threaten the airline-passenger relationship and is Apple’s ‘Trojan horse’ into the travel space.

“Facebook knows how your passengers live their lives”
Facebook’s semantic data, search data and advertising insights, coupled with its ability to process reservations and its growing capabilities in mobile, make the site powerful due to the data it is aggregating.

“Google will do everything but fly your aircraft”
Google can use its power and reach to facilitate or interfere with the relationship an airline and passenger have with one another. Even if it chooses to facilitate the relationship, Google can make that access extremely expensive, or force an airline to use a certain product if the airline wants to reach passengers through a specific channel.

“Amazon is the world’s retail marketplace”
Amazon may not sell travel directly, but its Amazon Web Services division hosts various transactional websites. It is entering the mobile-wallet space. Amazon is a very powerful retailing hub, and is positioning itself to be a factor in how airlines sell, and how passengers buy, air travel.

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