NDC A Different Perspective

Posted on 02 April 2014 by Norm Rose

IATA NDC

There has been a great deal written about IATA’s New Distribution Capability (NDC). Essentially NDC is an XML standard designed to allow airlines to deliver dynamic content and price based on a traveler’s value. It shifts control over pricing from a traditional published process to a dynamic repsonse controlled by the airlines. NDC has created a lot of controversy.  Major concerns include a lack of fare transparency, customer privacy issues and the lack of collaboration with current distribution players. The Open Allies for Airfare Transparency (OAAT), a coalition of 400 independent distributors and sellers of air travel, corporate travel departments, travel trade associations and consumer organizations was formed specifically in response to NDC. Airlines want more control to deliver dynamic content (bundled and unbundled ancillary services) and even price targeted to their customers in a bid to differentiate their services and enhance the travel experience. Distributors are concerned about consumer’s ability to do comparison shopping, the misuse of their private information and about their role in this new distribution environment.

I am not going to debate the issues around NDC, but instead I wanted share a different perspective on why collaborative efforts, perhaps using NDC as a springboard could benefit airlines, distributors and ultimately customers!

At the heart of a personalization effort is insightful data. Merchandising is not just about presenting differentiated products, but matching those products with actionable intelligence about the customer. Airlines are investing in systems that go beyond loyalty to truly track customer behavior and value, but limited to direct channels. How can this be done through distribution?  Not only is it imperative that the industry technology providers address this issue through distribution, but airlines also need to recognize that distributors whether GDS, OTAs or TMCs have a unique and valuable perspective for the airline. Simply put, it is distributors that understand the full 360 degree view of the customer. Distributors can know when the business traveler deviates from their normal preferred carrier and takes a competitor due to price or schedule advantage. It is the distributor that understands the full breadth of shopping performed by the traveler.  Airlines need to find a way to incorporate this insight into their merchandising efforts.

Travel distribution is all about efficiency.  The reason why many travel agents continue to use cryptic GDS formats is a belief that it is simply more efficient. The GDS have worked hard to create GUI environments that maintain this efficiency while enhancing the user experience with multimedia to help sell enhanced product offerings.  What has not been done is to leverage information to deliver personalized offers to travelers through distribution. The major OTAs  are working on systems to deploy actionable intelligence. Metasearch engines are also capturing tremendous insight into customer shopping patterns. TMCs understand the balance between customer preferences and managed travel priorities. All these sources have deep customer insight, but no one has developed a solution to bring that insight back to the airlines to allow them to truly delivery customized offers though distribution.

As IATA launches NDC pilots with airlines and distributors, the next question that will arise will likely be whether distributors will be paid to sell airline ancillary products. This is the wrong question.  It is doubtful the airlines will be willing to share in this revenue. In fact, asking this question reinforces the old model that distributors should get a piece of every transaction.  We are in a new world where customer insight and actionable data is the most valued part of the travel planning, booking and purchase process.  This insight can be monetized.

NDC provides an opportunity to radically change airline distribution by putting a value on customer insight. Now is the time for a fresh approach to airline distribution that delivers value to all parts of the ecosystem, while providing new sources of revenue based on the value of each of the players. NDC can be a catalyst for this new ecosystem provided the players can adjust their perspectives, revenue models and use technology to deliver true customer insight. If we maintain the status quo and battle over bypass, the ultimate victor will be the company with the most rich customer data.  That may end up being Google, Apple, Amazon  or Facebook rather than an OTA, GDS or TMC.

 

  • ggruber66

    Norm, I really liked the post. I do have one question for you. In the post you say that travel agents or other parts of the distribution chain shouldn’t be paid to sell ancillary products. My question is why.

    If distributors use their knowledge of the traveller to suggest and sell different ancillary products why should they not be compensated for earning that incremental revenue for the airline?

    You say that they customer insight is the most valued commodity, so what other mechanism do you suggest for those in the distribution chain to monetize that insight…other than being compensated for the incremental revenue they drive?

  • ggruber66

    OK, a second question. If insight is in fact the most important commodity, doesn’t it stand to reason that he/she who has the best customer data and can divine customer intent and preferences most accurately and convert that to purchase be the “winner” (or at least the one who derives credit/compensation for the sale). And if it does turn out to be Facebook who can do this best, why should anyone care in a travel 2.0 (or 3.0) world?

    Frankly it might be neat if I was searching for a book on the beginning of the Civil War and Amazon suggested: “If you’re interested in this subject, why not go see where the first shot was fired” and provide an itinerary to visit Charleston, SC and see Ft. Sumter. If I bought the ticket via Amazon (with extra leg-room seats), why shouldn’t they be compensated in some way?

  • normrose

    Glenn,

    Thanks for your comments. I agree theoretically, if travel agents can sell a customer on buying an ancillary product that they normally would not buy, compensation sounds logical. My point is that based on history, airlines are skeptical that all ancillary sales would fall into this type of category and it would be difficult to measure. Originally commissions and especially overrides were designed to move market share, but with the growth of large mega-agencies these payments have simply become a required expense not always tied to direct incremental revenue. Customer insight on the other hand, particularly on competitive purchasing behavior is unique to distribution and thus really has more value to the airline. It would create a more symbiotic relationship between airlines and travel agents where both would benefit.

  • normrose

    I agree that Facebook, Amazon, Apple and especially Google may ultimately have the most insight so clearly for travel agents the need to invest in systems today that understand customer’s explicit and implicit preferences is critical and if not ,they may could ultimately be disintermediated by one of these tech titans rather than the airline direct channel. This is also an important role for the GDS to embrace. Clearly the disclosure that Google has licensed Room 77′s hotel booking technology should concern everyone in the current travel distribution ecosystem. Thanks for the great discussion!

    Norm

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