The narrative around innovation in distribution has often focused on the perceived battle lines between the airline industry – backed by IATA's NDC capability – and the legacy GDS providers.
The arguments are well rehearsed.
Airlines say that outdated GDS systems restrict their product and pricing options. At the same time, they receive frustratingly little information on customers, limiting their opportunities to personalise product offerings. This suboptimal service is delivered at a cost that many carriers consider too high.
Traditional GDS providers meanwhile argues that they give airlines instant access to millions of potential customers at a fair cost, through a system that offers a structured comparison of like-for-like products. They say customers often appreciate the simplicity created by the rules and structures that govern how products can be sold.
But that disagreement is starting to look anachronistic. A generation of people that grew up with the internet is now firmly established within the global workforce and travelling for business and pleasure. Airline customers are therefore only getting more tech-savvy, bringing with them certain expectations as to how companies should present, sell and deliver their services.
The imperative for airline distribution to change is therefore becoming irresistible as the demands of customers diverge further and further from the restricted and offer-centric – rather than customer-centric – products available through traditional GDS channels, which still account for the majority of sales at many airlines.
Whether stakeholders like it or not, IATA's New Distribution Capability (NDC) appears to be the chosen way forward for the airline industry. The XML-based data-transmission standard – which enables airlines to deliver the same dynamic content to travel agencies as they do via their own channels – is gaining traction at some of the industry's biggest names, with several operators, including American Airlines, IAG, JetBlue, Qatar Airways, Singapore Airlines and Lufthansa, aiming to power 20% of sales by NDC API by 2020.
Rather than continuing the fight against the concept of an airline-led distribution standard, the legacy GDS providers are now working to leverage their positions of strength in terms of market penetration and expertise to offer a service that is compatible with – and potentially augments – NDC offerings.
Speakers from several airline groups at January's European Aviation Symposium in Munich were unanimous on the inexorability of the shift towards NDC and the redundancy of the old "airlines versus GDSs" arguments.
Julio Rodriguez, head of group commercial planning at IAG, describes as "a lot of nonsense" the idea that NDC pitches airlines against the GDS providers. That debate has never really addressed the core issue, he suggests.
Rather, "distribution is rapidly evolving", he explains. "It's journeying from an order-centric legacy model to a customer-centric digital distribution model.
"It is all about our customers. Our customers have their experience and… their expectations are changing, and we need to be customer-centric. Today, we are not customer-centric."
It helps to compare the experience of shopping on Amazon, for example, versus a typical airline ticket purchase via legacy GDS systems.
"We all probably bought at Amazon last week," says Rodriguez. "If I ask you what is your order number, nobody will know. [The Amazon identification process] is customer centric – it's 'Klaus'.
"But if [an airline asks] you to identify yourself, we ask you for your PNR [passenger name record]. That's not customer-centric and that obviously has a lot of implications."
That example only scratches the surface, and airlines cite a long list of frustrations that arise when selling via traditional GDSs – most of which are addressed by the adoption of NDC standards.
In the case of tickets, for example, the "pre-bucketed" fares mandated by GDSs are no more; instead, the airline has continuous control of pricing at whatever points it chooses. Meanwhile, fares are no longer categorised through opaque letter-based classes, meaning a whole suite of branded or themed fares and/or ancillaries can be offered.
Crucially, direct NDC channels give airlines a comprehensive set of customer data. For an industry that sees personalisation as one of the next major frontiers, this is transformative. Via traditional GDS channels, airlines receive no indication of whether a group booking is for a family holiday or a sports-club outing, for example.
Xavier Lagardere, head of distribution at Lufthansa Group, explains why having such information is important: "Across every touch-point I want to be able to deliver that shopping experience with simplicity, with informed choices. We're not market-makers here. It's the consumer's choice."
Lagardere believes consumers today expect businesses to known their customers: "I show you what I believe is the right product for you – and that, I believe, is something our customers are expecting more and more," he says.
Rodriguez concurs: "This is really about moving to a model where the customer drives everything. If you think about ancillaries, we are really struggling selling ancillaries through traditional channels. We need to improve that and NDC is clearly the solution to that… What you really want is to have a product catalogue where the right to fly is the basic product and everything else is a product. So, flexibility can be product, a bag is a product, lounge access is a product."
Legacy systems were, Lagardere points out, built at a time when customer expectations were different: "It's a contemporary problem, it's a marketing problem, where the retailing ecosystem that we had inherited from 30 years of legacy systems failed to deliver consumer value at the point of sale.
"When we talk about distribution and NDC, we are actually looking at the future with our customers at the centre [and] with our sales partners at the centre."
Lufthansa is in the vanguard of the direct-selling movement via NDC and has been more openly sceptical than peers regarding the traditional GDS providers.
That prompted it to introduce a surcharge on bookings made via traditional GDS routes in 2015 – a move that has been copied elsewhere by operators such as Air France-KLM and IAG, despite protestations from the GDS providers and the TMCs and travel agencies they serve.
Lufthansa Group now counts more than 2,500 travel-agency partners selling its products via a direct NDC connection which addresses "the core deficiencies of the historical value chain with new solutions, with technology and innovation", says Lagardere.
As he explains, the restrictions of selling via traditional GDSs are increasingly apparent and problematic in a world where businesses such as booking.com, for example, have created an offering that shows how customers can be at the forefront of everything.
"I would love users to be able to compare [flights] on the basis of pictures, ratings and scores," he says. "Even customer feedback. Very much like you and I choose hotel rooms every day. So why is it that we cannot offer the same at the point of sale for airline tickets?"
It is this kind of thinking that prompts Peter Baumgartner, senior strategic adviser to the group chief executive of Etihad Aviation Group, to describe NDC as a "paradigm shift in distribution for all of us".
He asserts: "The reason NDC is so valuable to the airline industry is because it has the market power to change the existing world order of distribution systems to the benefits of the producer and the customer, while quickly establishing a standard that keeps everyone comparable within our complex ecosystem."
This, Baumgartner believes, "will have an incredible democratising effect on offers [and] on distribution".
In his view, the "decisive difference" is "that the airline retains control over the creation and presentation of the offer, which is presented in a user-friendly and increasingly personalised way". He adds: "Another strength is that the airlines' coding is done in real time, ensuring full consistency across all the channels, and once again control over the content of the quote is in the hands of the producer."
Peter Glade, commercial director at European leisure operator SunExpress, sees the shift towards NDC as bringing big advantages in terms of ensuring that airlines are selling their services in the right places.
"I have a clear target to have 20% of my direct sales through NDC this year," says Glade. "We are going to WhatsApp, we are going to Facebook, we are the first airline to be bookable through [Amazon smart speaker] Alexa through NDC.
"So if my community… spend their entire day on Instagram, if they are chatting with their friends on Instagram and they say 'I am going to visit you', that's where I need to be with my SunExpress offer. But if I go to Instagram to build that and I'm not NDC-capable and I've got some native interface, that's not going to work."
On the latter point, Glade is clear that the future of airline distribution is not going to be focused on selling via carrier's own channels, such as single-airline apps. Indeed, he describes airlines' channels as mostly "completely irrelevant" within the distribution world.
"We are relevant when people fly," he says. "And how often do you fly in a year? SunExpress is 1.2 times a year. So do I expect them go into my app when they are looking for a flight?" he asks rhetorically.
His message is simple: "Be there where the people are… The nice thing about NDC is that it allows us into far more channels."
As airlines plot an NDC-focused future, the biggest GDS players – Amadeus and Sabre – have taken different tacks.
Sabre has prioritised the acquisition of an NDC-focused industry distruptor, in November announcing that it was purchasing direct-distribution specialist Farelogix for $360 million.
The acquisition would allow the company "to accelerate delivery of its end-to-end NDC-enabled retailing, distribution and fulfillment solutions", Sabre said at the time.
Based in Miami, Farelogix provides a suite of products aimed at delivering "personalised and differentiated" offers across sales channels – firmly the territory coveted by many airlines.
Indeed, Farelogix's customer list includes Air Canada, American Airlines, Delta Air Lines, Emirates, Etihad Airways, Lufthansa, Norwegian, Qantas, Qatar Airways and United Airlines, among others.
Speaking in Munich, Sabre's director for strategic sales for the EMEA region Tom Fecke acknowledged the transformation of the business.
"I think we are at a stage where we are evolving and we are also transforming," says Fecke. "The GDSs were built in the 1950s… There were one or two airlines that built GDSs in order to do their distribution."
Today, Fecke contends, GDSs such as Sabre have a role to play in ensuring that customer-centric approach is central to airline thinking – partly through embracing NDC and ensuring that the mixture of direct and indirect channels does not create a confusing distribution ecosystem.
"We as a GDS should not compromise on content," he says. "So I think it's not attractive to customers on a B2B level if they have to look at two different sources in order to figure out the content. So, we have to make sure that all of our customers get 100% of the content.... We are all in good debate with all the airlines."
He stresses: "In all of this discussion, we really should not forget about the customer… Everybody is trying to differentiate their products, not just by price but also by brand."
NDC "is an enabler for that", he suggests, adding: "We really should make sure we are aligned with how we want to distribute ourselves."
In his view, Sabre can help everyone in the distribution chain – from the airline, to the customer, through to the TMCs – by offering a single portal through which to compare airline product offerings side by side.
"GDS is still sexy, and we are evolving," Fecke says.
Amadeus Germany general manager Monika Wiederhold agrees that the basic GDS value proposition still carries weight.
"We're connecting a lot of airlines with a lot of points of sales, which gives an enormous value and created enormous efficiency in the industry," she says.
Travel agencies are able to bring travellers to airlines at "zero cost and zero risk", she adds, while also acknowledging that "of course [GDS] has to be modernised and it has to be changed.
"We live now in a world of multiple business models. From very traditional GDS, to GDS private channel models, to the agency paying for content, so this is the present. My prediction will be that we will see even more variety in the future."
For Amadeus, this means adopting a collaborative approach via its NDC-X programme – focused on achieving the "true standardisation" of NDC content –and the introduction of systems to aggregate NDC and non-NDC offerings.
"The future is connected ecosystems," says Wiederhold. "We see a big role in enabling globally these kind of connections."
She also cites other areas such as payment solutions and the management of digital identity as becoming increasingly important parts of the Amadeus portfolio.
Airlines welcome a collaborative approach to NDC from the GDS providers.
"Well, all partners are good," Lufthansa's Lagardere allows. "They make their own choices. Some of them choose to compete in some ways, some in other ways. A growing minority start to say: 'Look, I need to invest at the core into technology, and I need to enable that value-selling at the point of sale.'"
IAG's Rodriguez is more explicit in his belief that the traditional GDS players are central to the group's future strategy.
"[Change] might be driven by airlines, but we need [travel] agencies, we need technology providers, we need engineers, and at IAG we are very much taking collaborative approach with agencies and we are in talks with a lot of technology providers, including Sabre," he says. "It is about jointly disrupting the industry – jointly transforming the industry from the inside. There are not many industries that have disrupted themselves from the inside. But it's either that or being disrupted from the outside."
It is SunExpress's Glade, however, who makes the most intriguing forecast about the near-term future.
"The company that dominates the distribution world over the next 10 years hasn't been founded as of today," he predicts.
Source: Cirium Dashboard