Travel Analytics Blog
NDC IATA’s New Distribution Capability – What is it and Why it is Needed?
Posted by Sonja Woodman on Tuesday, May 24, 2016
In What is XML, we presented a simple description of XML, the language that will become the framework for IATA's New Distribution Capability (NDC). So what is NDC and why it is so desperately needed now?
NDC is a collaborative initiative created by the global airline association IATA to bring airline distribution technology up to date and deliver an environment to stimulate airline profitability. Hold on to that word – as it is one of the main thrusts behind NDC, the other being the ability to innovate products and services while understanding customer (e.g. the passengers) needs better.
So you could say the objective of IATA's New Distribution Capability is to help airlines get more sophisticated and personal in the way they are able to sell their products and services through intermediary agents such as the GDSs. In other words offer their customers who buy through travel agents and travel management companies (usually via the GDS) the same kind of ancillary choices that they are able to offer and sell through their own brand.com websites. Since corporates still largely go through travel management companies (TMCs) this is where some of the airlines most lucrative customers make their purchases. TMCs serve the useful function of not only managing employee travel bookings, but also provide rate negotiations, expense management and corporate travel policy compliance – and they remain entrenched customers of the GDS. However, legacy technology used by the intermediaries is constraining airlines in achieving this versatile way of selling through them. When you consider that most of IATA’s members still sell 60% of their tickets via intermediaries you can see that this is a bit of a problem.
The next article will talk more about the mechanics of NDC and its potential for those airlines embracing it. Here we want to look at why the disruptive influence of NDC is needed, especially now that the bitter controversy around NDC among industry stakeholders has been set aside, following the US Department of Transport’s (DOT’s) final approval of Resolution 787 in August 2014.
Let’ take a look at the commercial context. Although by no means the only reason the word ‘profitability’ does spring to mind here. IATA, which represents about 240 airlines or 84% of total air traffic, recognizes that selling ancillaries holds the key to its members becoming more profitable. Ancillaries is the revenue that can be made from non-ticket sales such as speedy boarding, baggage items, seating choices and a whole bunch of services that can be delivered to make the flying experience more enticing such as catering choices, Wi-Fi or flight entertainment.
So NDC is really IATA’s initiative to set a level playing field across the industry and enable airlines to get better at retailing and to grow their ancillary revenues through third party channels. This is really the crux as to why NDC is needed today. Low Cost Carriers or the LCCs as they have become known, apart from stripping their costs to the bare bones in order to reduce prices, have also been making nice profits out of ancillary sales for years. Indeed it is ancillary revenues that the LCCs have mastered well to boost their profits.
NDC based on XML will be the enabling platform to help airlines differentiate and embrace customer personalisation as part of a retail strategy. It’s rising ancillary sales that are making a difference to airline profitability. And although the GDSs objected loudly to NDC, even they are now getting on-board and finding ways to incorporate XML technology into their operations. That is why the recent recent press announcements of United Airlines adopting Airline Solution’s first NDC version 1.0 - XML connectivity to sell its economy plus seat upgrades through travel agents is so significant and hopefully the first of many similar announcements.
IATA's New Distribution Capability represents a shift from the way airlines sell today by loosening the constraints of legacy architecture. NDC is an XML standard that enables airlines to deliver richer and dynamic content where price is ultimately related to a traveller’s value. It shifts control over pricing from a traditional published process to a dynamic response controlled by the airlines. To achieve that in a rich merchandising environment XML is needed.