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From Disruption to Future Vision with NDC

Airline future NDC vision

In the previous 5 articles, we provided the framework for understanding XML, online travel’s adoption of XML and why it is the foundation for IATA’s NDC. To wrap up this series, we will take a quick glance at the future vision that IATA is pushing the industry towards. The NDC initiative has had more than a fair share of suspicion and opposition, and its path towards US Department of Transport (DOT) adoption in May 2014 was painstaking and slow. We believe that the NDC initiative is the disruptive technology that the airline industry desperately needs to be able to step into a more sustainable and profitable future. How? By having the technology pieces in place to think and act like an online retailer. The seat is no longer just a seat but has the potential to become part of a total travel experience. The opportunity to own the travel experience and the customer is there to grasp, NDC is the enabling technology to make it a reality.

The Internet and smart mobile phones, have ‘revolutionised’ the travel industry. Innovation and the spirit of entrepreneurialism thrives in the online travel world, turning start-ups very quickly into giants. Expedia, Booking.com, Kayak, Trivago, Skyscanner, HotelTonight were all start-ups not so long ago that have quickly become household names or even first point of call for accommodation and flight comparison and bookings. Airbnb and Uber are the new kids on the block disrupting the accommodation and taxi scene, albeit with strong resentment and regulatory challenges. Easyjet and Ryanair have similarly disrupted air travel with their low cost models, while turning in respectable profits – at a time when traditional airlines were struggling to survive, never mind about being profitable. These are all examples of powerful innovation that disrupts thinking, behaviour and markets. And yes, it’s the ability to book online that lies at the heart of their success. All these examples are using integrated platforms to connect people with the information they need to search and book their travel plans – often fuelled by XML APIs.

This disruptive innovation is what IATA wants to engender in the airline industry today. To unshackle the constraints of technology and unleash the opportunities to sell innovative ancillary products across direct and indirect distribution channels. It could be argued that the air travel market is particularly suited to a dose of disruption because the status quo is no longer meeting the needs of airlines, passengers or even the aggregators themselves in this internet self-service age.

Soaring Revenue from Ancillaries

Product innovation and differentiation expressed through ancillary sales accessible by all travellers via all channels is key to future airline profitability and the very reason why the NDC initiative came into being. For some years now IdeaWorks Company has been charting the growth of airline ancillary sales for those 50 or so airlines that report such sales separately. To truly understand the potential of ancillaries and the contribution to the bottom line they can make, we should recognise the growth trajectory, which is steady and significant. But in reality we are only seeing the tip of the iceberg of what is possible.

Seats are no longer just seats but should become part of a broader customer travel experience starting before the journey, throughout the journey and while at the destination. The experience can be packaged in a range of optional choices to unlock the latent value that ancillary sales can bring. If Airlines grasp the power of NDC they have the potential to become a one stop shop for the traveller. Technology combined with the NDC makes it possible for airlines to evolve from mere flight suppliers to being the manager of the entire travel experience, with hotels, cars, restaurants and entertainment – all thrown in for good measure, supported by partnerships across the supply chain all talking to each other in XML.

Travellers, many of them the digitally connected ‘Millennials’ are also driving change in distribution as they demand a shopping experience similar to what other online retail sectors already offer, across all devices. These future passengers will expect more personalisation and the ability to make comparisons of offers. This means airlines will need to learn how to better shape the travel experience by offering products or services in line with customer needs or desires, based on what is known.

It is worth pointing out that customer anonymity where desired is safeguarded under, DOT 727 Resolution. This goes some way to pacifying some of NDC’s staunchest objectors, by confirming that no traveller is required to supply personal information in order to receive an airfare offer. Ultimately many travel agencies operating through the GDSs have a keen sense of customer ownership. The adoption of the standard remains voluntary and each airline is free to choose its own data exchange methodologies. Ultimately market drivers, competition and maybe even a compelling need to go where the peers go, will fuel NDC adoption.

Integrated Shopping

When customers book tickets online, there is an opportunity to help them customise their entire travel plans. Personalised services can shape the future of the industry. Customers will be able to pick and choose the airlines own ancillary products and services as well as allied services based on their convenience and price. ‘Dynamic Packaging’ is a new technology which is now being used by a host of major airline operators to boost their ancillary revenues. Using dynamic packaging, airline operators can tap into a full ecosystem of suppliers (hotels, car, and entertainment) and built a full itinerary into a single reservation. If a customer travels from New York to Paris, and books a hotel and a car through the airline portal, the airline earns commissions from the hotel and the car agent. This gives the airline the opportunity to generate additional revenue from building that total travel experience.

To be able to do this successfully, the airline portal has to dynamically tap into separate inventory management systems, such those belonging to the selected hotel and car rental company. This offers a benefit to the customer who doesn’t have to trawl multiple websites to complete his trip plans and maintains control of his customised plans from a single point of entry.

For the airline operator, it is an opportunity to broaden their choice of offering to their customer while tapping into an additional source of revenue, without incurring additional costs.

E-Commerce Gateways

In such a new distribution environment, airlines need to become more customer centric. Instead of focusing simply on transactions, airlines must focus instead on interpreting data to better understand how, when, where and why travellers shop and book the way they do. To do this airlines will need a new breed of ecommerce platforms that can support:

  • Extensive fare and product transparency
  • Dynamic pricing to meet market needs
  • Rich ancillary merchandising and retailing
  • The ability to process massive volume of shopping sessions (look-to-book)
  • The building of loyalty schemes that incentivise customers
  • Secure and compliant financial processing

Atmosphere, an air travel consultancy led by industry guru Henry Harteveldt, coined the apt term “Value Creation Hub” (VCH) for such a Gateway in a report sponsored by IATA in 2012. The report “The Future of Airline Distribution – A Look Ahead To 2017” goes on to describe the VCH as the new-generation airline commerce technology infrastructure used to power airline CRS/PSS host systems, e-commerce solutions, and more, thus reducing the need for lengthy, costly disruption in a conversion. Like GDSs, VCHs will be designed to support high frequency, high-volume shopping”. A new breed of players such as Farelogix a leading provider of high value distribution and merchandising technology to the global travel industry have already developed air merchandising platforms that are ready to help airlines meet the challenges and opportunities of and NDC enabled world.

Getting there, but not yet

Even though the airline industry is fast paced, the market disruption unfolding in airline distribution is not likely to take place overnight. The IT infrastructure and investment needed and the time it takes to change processes that have been in place for decades, means that altering the current distribution model one way or another is a considerable effort that will take some time. Just planning and thinking about it and getting the potential catalyst of DOT acceptance has already taken several years. But as TNOOZ writer Sean O’Neil so elegantly suggested back in January 2013 when he ‘decoded the planned revolution in airline distribution’: “NDC is much bigger than the usual re-thinking of how information flows. If the NDC project succeeds, it will signal a multi-billion-dollar shift in the distribution balance of power from intermediaries to suppliers”.

NDC has an unmistakeable industry buzz, and as IATA gathers for its 2014 World Passenger Symposium (WPS), there will be many distribution experts interested to hear and share their perspectives on existing NDC pilots and future ambitions. There is evidence to suggest that the timetable is already accelerating, with some US airlines partially coming onstream by as early as 2015, rather than the 2017 originally envisaged.

Open Booking

Disruption, or perhaps more aptly evolution, is also taking place in the business travel world with the concept of ‘Open Booking’, a traveller-centric solution designed to open up the myriad of travel booking opportunities for the business travel. It’s a given today that travellers want to manage business bookings in the same way they do their leisure trips. The challenge for organisations is to combine control of their travel programme with the choices end-users expect.”

Again it’s the new millennial breed of traveller, now part of the workforce, that is challenging the status quo with his dislike of being told what to buy and where to buy it. They also point to the online apps, websites and promotions that are available that current corporate travel policy often does not let the traveller tap into. On the other hand, allowing corporate travellers loose to make their own arrangements is perceived by the travel managers of such policy to bring its own oversight management nightmares. Opponents point to the potential loss of negotiated discounts and expense control. When Open Booking is allowed, the traveller is free to make his own arrangement choosing whatever direct online channel or third party is preferred. This is clearly where the distribution system for corporate travel programs is fragmenting.The glue that could make open booking more acceptable is equipping corporate travel booking platforms with their own APIs direct to suppliers or intermediaries.

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