Distribution is one of the many topics airline boardrooms are debating around the globe, and IATA has been on the case for some time. This year it launched what it thinks is the answer - the New Distribution Capability (NDC).

Work had been ongoing behind the scenes for a year or so, before the NDC was formally launched at the IATA World Passenger Symposium in October. Pilot airlines for the scheme are scheduled to be announced in early 2013.

"The NDC will enable airlines to offer more options to customers and to reach them seamlessly across all distribution channels," IATA says. "Airlines will be able to recognise these customers and therefore provide tailored offerings, as they already can for those customers who go directly to airline websites."

The NDC will use open XML standards, which means that airlines can present their product to third party distributors in a more efficient, accessible and open way than is currently possible, according to IATA.

Aleks Popovich, IATA's senior vice-president of industry and financial services, says: "NDC is about growing the revenues for airlines," he says. "It is not about reducing the costs of distribution.

"At its own website, the airline is in control of its own content. The challenge the industry faces is to extend this control across agency and other third-party channels. The basic goal of NDC is to open up merchandising to apply across all distribution channels."


IATA's relationship with global distribution system providers (GDSs) has been lukewarm at times, and many industry participants initially saw the NDC as a GDS bypass. However, Popovich insists that this is not the case: "We are aware that the GDSs are working hard to improve their merchandising products, but there are real limits as to what they can achieve. The GDSs have been designed for pricing and selling classes. They are not designed for the richer dialogue that is now commonplace in the industry and what travellers expect."

Nonetheless, the GDSs are concerned about NDC. Shelly Terry, vice-president of airline merchandising for Sabre Travel Network, is arguably the most vociferous in her concerns about NDC. "We have been involved with IATA on NDC since the outset. Our observations are based on a detailed analysis of everything IATA has said, and put simply, we don't see how it would work without sacrificing fare transparency, limiting comparison shopping and compromising data privacy rights."

Terry's biggest concern is in response to IATA's comments about the personalisation of offers: "Why do you need to tell an airline your marital status, what nationality you are, your purchase history, before they give you a price? This really does start to cross the line."

Amadeus is also concerned about personalisation, but from a different angle. Its group communications director, Stuart Brocklehurst, refers to the concept above as "total polling". He says: "If you are going to have to interpret data on every individual customer, there must be a reference back to the airlines' systems and one of the concerns we have is that there will be vast increase in hits and traffic onto the airlines' websites. It could impact smaller airlines harder as they might not have the infrastructure in place to take the additional traffic to their website."

The complexity of distribution, as well as the contradictions with NDC, become evident at this point. Amadeus and other technology providers that host airline websites will presumably see providing the additional IT capacity needed for NDC as a business opportunity.

IATA, while not referring specifically to Sabre's concerns above, insists that the regulatory and legal issues surrounding NDC, although difficult, are still manageable. "Whenever there is a big change in an industry, there needs to be a collaborative approach to tackle the technical and business adoption issues. But we also need to make sure that the facts are shared with the government, and the over-riding message we will deliver is that this is pro-consumer. To do this, we need a single voice for the industry which includes airlines, corporate buyers, travel agents," it says.

Corporate travel is still an important source of income for many airlines, says Tony Berry, director of industry and fare distribution for HRG - one of the big four global travel management companies that have been part of the preparatory discussions. "From an HRG perspective, we welcome this," he says. "IATA has taken on the responsibility to deliver global standards and airline members see it as an opportunity to clarify the future of distribution."

HRG is still proud of its roots as a business travel agency, but also sees itself as a technology provider in its own right. "We have around 300 developers working for us, so the possibilities of introducing NDC into a mature booking process are exciting," says Berry.

HRG works directly with big multinationals, and Berry says clients are increasingly after detailed management information about travellers' habits and patterns. A recurring challenge for both parties is capturing details of spending at all stages of the trip. "Some airlines sell ancillaries at the point of sale, while others are more interested in downstream sales," he says.

"From a TMC [travel management company] perspective, NDC looks like it will bring all ancillary sales into the time of purchase and the TMC can therefore make sure the ancillaries fit into company policy. The TMC therefore becomes a more efficient gatekeeper."

Another part of the project to be resolved is cost to IATA members and the cost to third parties wishing to use the IATA advance passenger information (API) to sell content on behalf of airlines. The finer details are still being worked out, but official statements indicate that "the costs will vary from one pilot to the other and depend upon each carrier's existing solution and there will be no cost to companies who do not wish to participate in NDC."


Some travel technology specialists wonder about the economics of developing a new set of standards. Brannon Winn, chief commercial officer of airfare search specialist Vayant, says: "What IATA is trying to do is put the content in a central place. It's been talked about before but no-one has agreed what that central space will be. IATA has stepped forward and made that decision for the industry, but the industry also includes the aggregators, third parties, tech companies who need to have access to the NDC data and have the ability to integrate it into existing products."

He was interested to hear more about the project, in particular the pricing element of what IATA appeared to be proposing. Vayant currently buys in prices from ATPCO and the GDSs "at a significant cost" to integrate fares into its shopping tool. "IATA is not a pricing engine," he says, and "I don't think it could do it on its own. There's a huge investment involved. ITA Software has spent a decade on it, we've spent five years, GDSs 20 years and more. IATA would need a partner."

Popovich insists that "generating revenue for IATA from this is not an objective", adding that "the business case for NDC is driven by the business case for the industry and the benefits it can deliver. With electronic miscellaneous document (EMD) and e-ticketing, IATA lost revenues, but this was over-ridden because of the obvious advantage to the industry.

Earlier this year, IATA identified "reducing IATA's service fees and charges to members by $6 million" as one of its 2012 priorities. Popovich says: "We understand that airlines are going through a tough time so there is no reason why we shouldn't too. The $6 million reduction comes through making our existing services more efficient, by keeping a grip on internal costs and by looking for additional sources of revenues. It is a separate issue from NDC."

NDC is not the only distribution issue at the moment; changes are afoot in other channels. Another third party distribution for airlines is tour operators. Europe's big two, Thomas Cook and TUI, are significant airlines in their own right. Thomas Cook's financial difficulties have been widely reported and it recently appointed Christoph Debus as head of airline strategy. Debus is tasked with looking not only at Thomas Cook's own airlines, but also its "purchasing of third party capacity in the tour operator and scheduled businesses."

The third-party capacity is relevant for airlines. Earlier this year, Thomas Cook announced a deal with EasyJet, paying up front for a number of seats - believed to be 80,000 - for its summer 2013 schedule. Although it only represents 3% of Thomas Cook UK's summer capacity, it could be a sign of things to come.

So much so that Thomas Cook's recently appointed chief executive Harriet Green confirmed: "When we think about filling demand, we look at the long queue of low-cost carriers and other airlines interested in our 23 million passengers a year. The EasyJet deal is us testing the water, at no huge impact, and it is likely to be a pilot which will be built upon."

Debus adds some colour to the EasyJet deal. Thomas Cook will use EasyJet not only to help it operate existing routes more effectively but also for incremental traffic. "We've taken a small allotment of seats on certain routes, particularly from regional airports where we cannot operate our own aircraft profitably. So EasyJet will replace in-house flying on some existing routes, but also operate new routes from airports where we have a presence."

Green is also looking with fresh eyes at the airline side of Thomas Cook. "One of the first big pieces of work we did was look at how much air capacity there is out there with other carriers." Her argument is that if Thomas Cook can operate a tour operator business more profitably by buying in seats on another carrier instead of operating its own fleet, it will.

Debus declines to comment on NDC, but says he is aware that GDS is an important distribution channel for Thomas Cook airline Condor.


Expedia is another well known brand that gives airlines another option for distribution. Expedia Affiliate Network (EAN) is a standalone unit of Expedia that provides partners, including airlines, with an API to connect to and sell Expedia negotiated inventory. EAN gives airlines the chance to become tour operators without a financial commitment to hotels.

Chris Wallis, EAN's director of partnerships for EMEA, says that EAN has a best-of-both-worlds relationship with its parent company. "The quality of the inventory and the rates we offer is better than the GDSs because we have Expedia behind us." But maybe more relevant is the "detailed knowledge of retailing science. It's not just about the tools and rates, it's the science behind how the product is best displayed in order to convert.

Barry Landes, airline partnership director for EAN North America, adds that airlines could capture loyalty from the hotels via offers and incentives. "We saw one client get an 80% hike in conversion rate when we offered bonus miles for travellers who booked a hotel at the same time as buying their seat."

Fuel, staff, maintenance are bigger costs for airlines than distribution, but do not generate revenues as such. One problem identified by Sabre about NDC is ironically, "that is just about distribution". Terry explains: "NDC doesn't appear to have any connection with how the airlines deliver to the traveller what they have sold. And there doesn't seem to be any mention in the NDC about disruption management and other operational concerns."

The word collaboration has been emphasised in NDC discussions between stakeholders. But Terry signs off with the observation: "Yes, we have collaborated, in that we have participated and been part of the discussions. But just because we collaborated doesn't mean that we agree with it."

However, IATA strongly disputes this characterisation, saying that travellers will have a choice: “Providing personal details is optional but by no means mandatory. Yet it will enable the airline to personalise the offer,” says the association.

The launch by IATA of its New Distribution Capability to improve airline product merchandising has set the cat among the pigeons, as GDSs voice concerns over privacy rights, systems integration and third-party costs.

Source: Airline Business