Ai Editorial: Is NDC paving way for airlines to reassess commercial strategy?

First Published on 28th June, 2017

Ai Editorial: Established airlines have been working on the objective of letting sales partners connect to their IT systems directly based on the IATA NDC standard. Is this connectivity approach mature enough to let “big” airlines put a new spin to their commercial strategy, explores Ai’s Ritesh Gupta

 

IATA’s NDC standard is into its 5th year. The pace with which the standard has progressed has been slow and even the implementations haven’t been uniform. Objectives of airlines have been different, too, and from time to time, it has been mentioned that there isn’t any agenda against the “middlemen”.

Nevertheless, the standard has resulted in few peculiar moves from established carriers in the last couple of years.

The number of airlines opting to alter their respective commercial strategies has only been few till date. It is understandable considering the sort of contracts that have been signed over the years as well as the tightly integrated processes on which the whole chain functions. In this context, the recent decision of American Airlines to offer a commission of US$2 per flight segment is interesting as it being described as the “NDC commission”.

 

Moving on from cost differentiation?   

Prior to American’s latest move, there were a couple of components as far as the divergent take on the commercial strategy is concerned. First, cost differentiation. This is what Lufthansa, British Airways etc. have chosen - levying a surcharge for every ticket issued by a booking channel using GDS and the same not being applicable to airline.com, NDC-(IATA’s New Distribution Capability standard) connected channels and self-booking tools connected via NDC etc. Airlines assert that they aren’t complete users of services offered by GDS, and there are others, too, in the value chain that use them.

Second, although ongoing contracts can be inhibiting, airlines have been trying to work on an exclusive basis or in a tailored manner for their offerings with intermediaries. For instance, flight offers and bundled ancillaries for certain routes for a specific agency or a tour operator. There is also scope for integrating content (product descriptions, images etc.) here.

Whether American Airlines’s new move is a prudent for one or not from the perspective of its impact on various stakeholders it is being debated. But it does involve NDC. The airline is offering a commission on what is being termed as “AA NDC Net Tickets”. Yes, it is about commissions and incentives. It features NDC Incentive Program, for agencies. They need to book and ticket American flights through a “qualified NDC channel”.

According to an official statement from American Airlines, agencies will have access to the best published fares made generally available to the public (e.g., through AA.com or a GDS), and all schedule information and seat availability related to such fares.

Plus, they would have the ability to put up for sale particular ancillaries.

So in a way, American has gone forward and is offering a flexible alternative to agencies.

Concerns pertaining to NDC

As for concerns pertaining to what NDC might do, even though it plans to do away with commoditization of air travel, it is being suggested that it will put an end to comparison shopping. But there are industry executives, who are defending this part, too. “It (NDC) does pave way for a like-for-like comparison where the consumer can see exactly what is included in the offer price from one airline versus another airline’s offer,” a source stated. “The current pricing model is bizarre, any airline will tell you the current availability using RBD letters and single digit numbers, every step including ticketing, revenue accounting, reconciliation, interline billing, agency settlement, etc. has added and unnecessary complexity,” an executive told me previously, defending the plan to put an end to pre-filed fares, and putting in a request to the airline to come up with an offer for the indirect partner.

The debate around the utility of NDC, as a standard, has been going on since its inception.

Airlines have been working on the objective of letting sales partners connect to their IT systems directly based on the IATA data standard. Are these new connections, based on the NDC standard, going to trigger new commercial agreements? Are GDS going to amend the contracts and avoid any possible complexity related to interfacing and data flow?

There are still two points that need to be sorted out before NDC as a standard gains further traction and elicits better response from intermediaries: in case of IATA’s NDC XML standard there has been criticism in terms of too many versions, and too much flexibility meaning implementations haven’t been uniform. So with NDC version 17.2, what sort of work has IATA done to bring about stabilization? Also, airlines that already have API XML connectivity tend to have it in a proprietary way. The consequence is that implementations with new partners take time and are costly as they are all unique. For GDS, it can be extremely challenging as not all airlines choose to participate in and utilize the same standards. Also, they need to support standards for all suppliers of content – including hotel, car, rail and cruise content, for example.

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