Airline distribution and retailing is at a crossroads, as the industry comes to terms with the Internet revolution that has disrupted most industries, none more so than retailing and how to reach and sell to customers. The twin pressures of continuous growth in demand for air travel and the need to find ways to be profitable is propelling the industry towards a decisive and much needed overhaul of its systems and processes in selling its services to customers.
The tailwind is IATA’s New Distribution Capability (NDC). It is based on an open XML communication standard, designed to give travel agents acting on behalf of travellers the same access to content, choice and price as available to travellers going direct to airline websites. Currently GDS- reliant travel agents only have access to limited flight information that essentially commoditises an airline products to schedule and price offerings. This is not good for airlines wanting to build brands or differentiate, and not good for the traveller who would benefit from better, more appropriate offers.
This is the first in a series of four related articles that discuss how to get the most out of IATA’s New Distribution Capability (NDC) enabled merchandising environment using shopping analytics derived from XML data streams. The four topics covered are:
- Factors driving airlines to find new ways of developing the traveller-airline relationship.
- The data that help airlines understand the customer journey from search to conversion.
- How shopping analytics and the booking funnel work with the new merchandising platforms.
- A closer look at ancillary merchandising and how EMDs help the process.
Essentially NDC is a new technical standard for connecting airlines and their distribution partners (GDSs and Agents) and will help the industry evolve from simple flight distribution in the form of selling seats to sophisticated air travel retailing with the flexibility and customisation that this entails. After all how can airlines expect to maximise their return on investment in the enhancements they make to their planes and services — i.e.-flat seats in Business Class, inflight Wi-Fi, onboard entertainment, Economy Class seats with more leg room and more — if travellers, especially those high value business travellers booking through third-party channels, don’t know that these options are on offer?
NDC Shopping Analytics in forging new Traveller/Airline relationship
NDC can be described indeed as a brave but much needed initiative by the airlines to bring flight distribution into the 21st Century.
Currently airlines file fares and schedules with third parties, while Global Distribution Services (GDSs) package offers based on third party databases (e.g. ATPCO and SITA) in response to agent requests on behalf of travellers. Around 60% of ticket sales are still sold in this way via agents where the airline is the last to know who has purchased the ticket, and pays the channel a hefty commission for the sale. Although considered pioneering in the 1970’s and adequate in the pre-Internet era of the 1980’s – this distribution method is no longer fit for purpose today, when compared to the rich content and choices that airlines can offer from their own websites. There they can bundle offers clearly stating what is included in each and provide their customers with the ability to create their own offers – choosing meals, selecting and paying for preferred seating, paying for additional baggage and so on.
The traditional EDIFACT based messaging medium that conveys airline products from the GDSs to the agents is now considered too basic. So IATA has standardized on a sophisticated XML message set that will address today’s deficiencies – NDC.
IATA NDC Airline Distribution Landscape
Around 60% of the worlds’ billion tickets are still sold indirectly through the GDSs who levy booking fees equating to between 5 and 12% (depending on a number of factors such as domestic or international, etc), while own brand website selling is estimated to cost around 3%. Even if this is an under estimation, it gives airline pressure groups like ‘Take Travel Forward’ great ammunition to produce an infographic showing how GDSs (and the top 3 have 95% of the market) are collectively earning $7bn dollars per annum from the airline industry, with the message that ultimately it is the consumer that pays.
Today GDSs and many travel agents are publicly embracing the new standard, but some remain concerned that the boat is being rocked too much and they may end up falling off. It is fair to say that they are investing in technology to give their airline partners some of what they want, but are not getting there fast enough. The well documented Lufthansa initiative to encourage direct website bookings and by- pass GDSs by adding a €16 surcharge or “Distribution Cost Charge” (DCC) for tickets booked using these intermediaries is just the latest shift in an NDC inspired travel distribution picture. The airline is being mindful not to alienate corporate travellers or their TMCs who can expect to see a dedicated space on the lh.com websites or APIs where they can book travel and still access their corporate discounts without being subjected to this cost.
Although the benefits seem obvious, some airlines are concerned about the transition, in terms of impact on their existing business and potential costs associated with the new systems such as merchandising platforms and infrastructure that NDC ultimately requires. The longer term NDC vision has a number of components and bringing legacy systems (and not just those handling distribution) in line with modern air retailing is not going to happen overnight. NDC may be all about opening up the market and levelling the playing field between direct and indirect distribution, but it requires fundamental system, process and mindset shifts across whole organisations. Ultimately, NDC has the power to bring distinct benefits not only to distribution managers but also revenue managers and marketers.
Airlines still need to balance wanting to reduce distribution costs, with ensuring that their offers (seats and ancillaries) are available to all customers and across all channels. Travel agents remain an important channel, particularly for complex itineraries, so airlines will need to invest in NDC options, as well as continuing to work with intermediaries. The interesting question is how long will that remain the case?
NDC Time is Now
To increase adoption, IATA is encouraging pilot projects that help airlines and other stakeholders to gain experience with NDC. By the end of 2015, the number of companies involved is expected to reach 24. Online videos, workshops with solution providers, conferences and classroom training courses are all are all part of IATA’s arsenal to help airlines get over their anxieties and take the plunge. But the plunge initially doesn’t have to be that deep. It is possible for airlines to just encompass one area such as the Shopping Module and there are merchandising platforms such as NDC-Xpress offered by Farelogix that enable airlines to immediately begin generating new revenue streams from the sale of value-added services in the agency channel and conduct XML analysis for deeper customer insights. But we’ll take a closer look at this option in the third article when we discuss analytics for merchandising platforms.
With 3 billion passengers spread across 35 million flights every year globally the time is indeed ripe for airlines to pull out all the stops to capitalise on the opportunity offered by NDC for more favourable airline-traveller relationships based on more personalised offers and seamless interaction. The ability to better understand what is being searched for and be able to identify a consumer in initial phase of the buying journey or from an airline perspective the sale process across different sales channels will allow airlines to dynamically construct and offer personalised products. Indeed as part of embracing NDC, airlines need to get better at looking at a holistic data that includes search traffic and conversion processes and not just rear-view “sales by region” reports.
In other words it is important for airline executives responsible for the marketing, selling, distribution and yield management of their services to embrace what people are really looking for when searching as well as what they are actually buying. While airlines have granular visibility into booking transactions, the search world until now has been an opaque mystery. The traditional approach to selling seats and developing frequent flyer programs is being transformed into the merchandising of a customer experience based around pick and mix ancillaries. Ancillaries can cover not only the airline’s own differentiating offers, but also hotels, cars and increasingly local attractions. Getting the right supporting systems in place including an intelligence platform to analyse the XML search and reply flow will help to get the most out of NDC-enabled merchandising opportunities. This useful data that is captured anyway as part of a transaction flow can be analysed to extract useful customer search/buying behaviour insights. Using such insights can help an airline refine its merchandising approach and offers in response to market observations.
In summary, the three principal airline objectives behind NDC are:
- Reduce overall distribution costs by optimising and streamlining the process,
- Obtain / own more customer data earlier in the search / sale process
- Deliver product / pricing differentiation and transparency
To achieve these objectives, NDC is laying the foundations for updating the pre-Internet messaging standard (EDIFACT) used to deliver airline fare and schedule data to agents and intermediaries. By using XML it will be easier, faster and cheaper for airlines to provide customers information about fare alternatives, ancillary services, on-board amenities and graphics such as pictures or seat maps.
XML shopping analytics that can slice through big data, loads of requests and returned offers can help airlines get the next level of intelligence to really get insight into what’s happening at the beginning of their customer search and booking journeys.
In the next article we will take a deeper dive into the type of data that NDC based request and reply streams can carry, the types of analyses that can be directed at the raw data and how insights can be used to optimise distribution, pricing or marketing practices.