Covid19 - Evaluating the future of airline indirect distribution

27th July, 2020

Interview with Ann Cederhall


Airlines have struggled with the cash flow and liquidity-related issues over the past three-four months. As the entire industry focuses on recovery campaigns to stimulate and capitalize on travel demand for revenue generation, what to expect as far as indirect distribution is concerned?

What is going to happen in the following areas: the focus on pushing for more bookings via NDC content and cutting down on the “traditional” bookings;  NDC indirect sales and 21/20/20 target; the equation between full-service airlines and GDS etc.

Ai’s Ritesh Gupta spoke to experienced airline distribution and technology executive, Ann Cederhall. Excerpts:

Ai: How do you expect airline indirect distribution, especially for full-service airlines, to shape up post crisis?

Ann Cederhall:  Observing the response of certain entities in the traditional PSS/ GDS and the distribution landscape during the ongoing crisis, there are ample indications that these players are not agile enough. They are not able to adjust appropriately to a crisis.

Hats off to ATPCO for delivering a waiver in three months but will we yet one more time find it acceptable that the systems we work with require this type of lead time?

In the other corner are those fighting for the old tried solutions and who keep reiterating that NDC does not work. 

So, this crisis has made the divide wider and to each side proved their points.  But the crisis has most likely required airlines to look into and question their processes and the cost associated. The biggest problem for traditional airlines is that they never change processes, functionality and the way they do stuff meaning that they endlessly build on top of legacy processes instead of asking questions such as what can be removed. I have rarely come across airlines who look into what is the profit versus cost of codeshare, complexity in fare rules and fares distribution, one example that I often mention is the need to benchmark lowest fare on the Internet, is that worth the cost when 70-80% of all corporate fares are private anyway? 

The low-cost airlines with relatively simple structure are not impacted by distribution in any different way than before the crisis, on the other hand they are probably well prepared to create products that match the needs of customers like refund value going into travel banks, they are not hindered by the traditional distribution landscape and can focus on loyalty and new functionality attracting customers. An example is Wizzair who offer a higher refund value if the refund goes into its travel bank. 

Ai: Considering that airlines are trying to chart recovery plans and, in this context, they would be ready to take as many as bookings as they can from any channel, what sort of impact it will have on focus on differentiation, cost of distribution etc. that is essentially associated with NDC content/ distribution?

Ann Cederhall:  Airlines are focused on getting bookings and not going to initially care where that booking is coming from. Airlines are also constrained by their reduced workforce and the main focus is not going to be on the cost of the booking. Those airlines who are more mature will be trying to create content that is unique and fits the context of the new world they are selling into. Reducing risk for COVID19,  adjusting where/ how they sell their solutions based on the channel.  I can't stress enough how airlines have failed to understand the total ecosystem and have focused on their own channel; this is a mistake. I find it remarkable that you still have mid and back office solution designed based on a GDS PNR. The times are gone when the GDS is the single source of truth, this is not possible in a digital world where content must be aggregated irrespective of how it is sold.

My personal view is that so much time has been wasted in NDC initiative by not focusing on what does matter such as:

Airlines must be able to provide their data for free or at a low cost via a modern API that the airline owns and controls together with airline partners to enable tech developers to drive innovation, cost should not be an encumbrance. 

·         NDC should have focused on Corporate Customers and TMCs and drive innovation in the mid and back office space, if these agencies and tools are GDS centric it clashes with the customer requirements.

·         NDC should have lobbied and worked for mandating communications between systems, they should have from the start been looking into how can an airline sell its content to e.g. another airline at a reasonable cost, you should be free to sell your content from your PSS in a cost-efficient way. 

Ai: GDSs are critical to the adoption of NDC. What sort of response do you expect from them when it comes to tech and commercial aspects of working with full-service carriers?

Ann Cederhall:  GDSs have their own business model and it often conflicts with what the airlines want.  In the end it is the distribution network that suffers.  Solutions from the airlines have to plug into existing solutions/ paths with the GDSs.  More and more everyone is going online - so TMCs and OTAs who have a single interface going to multiple systems are more aligned to accept other channels. 

However, they have been somewhat reticent and lack some of the expertise to do this effectively.  Those that do succeed, will no doubt find additional content and pricing being made available to them. The question is whether changes can be made to the very traditional GDS business model to find a meaningful way forward? Then I think there will be a paradigm shift especially if newer 3rd party solutions begin to mature and plug into these channels as well complimenting and eventually building its own self-sufficient ecosystem to manage bookings and deliver true Door to Door servicing for a frictionless traveler journey.

Ai: Going back by six months or so, it was being highlighted that 21 airlines had committed that by the end of 2020, 20% of their indirect sales will be made using NDC i. e. 21/20/20 target. What to expect on this count?

Ann Cederhall:

Being able to service, provide more revenue opportunities and meet the needs better of the travelers across all channels is where we are lacking. Volume will of course put more money and attention here, but true vision is what is needed.  There are those who still discount NDC altogether.  They are not wrong with their comments about where it has failed to meet expectation, but I think they are wrong about their conclusions that it will never work. I don't think it is the right time to even have a target, the need for a better customer experience should be the focus instead rather than setting goals. 

I am a firm believer though that a direct connect should be a booking made through your host system and visibility of that booking in your host, or maybe we will see the day where the whole concept of PSS changes, for what is it more than reservation and inventory, couldn't the rest just be systems operating services? 

Ai: Talking of the power balance, considering the role of GDS in distribution, how do you expect the equation between full-service airlines and GDS evolving in the next 18 months or so? What will happen to the focus on distribution featuring NDC content via one API?

Ann Cederhall:  The NDC concept was alive before NDC even with ITA and G2.  The GDSs however fought back, and only now are adopting it a bit more readily.  However, they are in this to make money too.  Those who can find a way to update their solutions to accommodate NDC and existing pathways, will find they that will continue to stay relevant.  As we see more and more business shift from one GDS to another, there will be a definitive change in the ecosystem.  Having said that, the real change I still predict will come from 3rd party solutions who are able to plug into the ecosystem.  To support this change, GDSs SHOULD, ensure that they have platforms that can successfully manage NDC content along with other APIs to 3rd parties as well.