IATA says ‘New Distribution Capability’ is a win-win for airlines, travel agencies

It’s not a GDS or travel agency bypass, says Eric Leopold

Eric Leopold photoIATA’s New Distribution Capability has been threatening to become the airline distribution controversy of the year, and in the wake of concerns expressed by travel agency groups, IATA is taking steps to clarify what NDC will and will not do.

In an interview with TTU, .Eric Leopold, director-passenger for the airline trade group, said NDC will help close the gap between the merchandising offers available on airline websites and the offers that travel agents are able to book.

“NDC allows airlines to manage retailing of their products via indirect sales channels, using travel agents, in the same way as selling through their own websites,” he said.

Carriers that participate today in the GDSs will still be there in five years, he said. NDC will coexist with the ways in which travel agencies work today, he said, and there will be no sudden upending of the current distribution model.

In fact, he said, “I see a win-win because the offers [provided to agency customers] will be more relevant” because they will be tailored to customer preferences and demographics.

An example of this dual-system approach exists today in Agencia, Travelport’s Canada-specific agency desktop that allows agents to access Air Canada’s merchandising efforts, including its a la carte products and its Flight Passes.

NDC would expand that concept to any airline that adopts the technical standards IATA is developing.

Several large airlines yearn to adopt the selling techniques of Amazon, Target and other large retailers that base offers on customers’ past purchases. Consumers have become accustomed to ads on their Facebook pages that take cues from the user’s “likes,” Leopold said.

These airlines are developing ways to make similar offers to customers. The point of NDC is to enable airlines to connect with distributors without reinventing the wheel for every connection.

IATA wants to avoid the sort of situation that arose when the airlines each developed their own electronic tickets; it took a decade to untangle the technical mess to enable their interlining.

When IATA passed Resolution 787, which mandates the development of the framework and messaging standards for NDC, in October, the diagram showing the flow of information between customers and airlines did not include an aggregator, GDS or otherwise. At a recent media event at IATA’s executive offices in Geneva, Leopold displayed a new diagram that clarifies the aggregator role in IATA’s vision.

He said NDC will be developed as an open Application Program Interface (API) to connect systems with each other. (APIs have been described as “a website without the user interface.)

“With an open API, anyone can use it to develop applications, as opposed to today’s GDS, which are proprietary solutions,” Leopold said. “This is similar to what Apple did by allowing developers to create applications for the iPhone and iPad.

“But let me be clear,” he added. “NDC is not a GDS bypass and is not a travel agent bypass. Quite the opposite: It gives GDS and travel agents the ability to access the same product offers when airlines sell their products directly to consumers via their websites.”

The idea of connecting via API is not revolutionary. All three GDSs have APIs that third parties can use to develop new applications that interact with the systems. Southwest Airlines connects with Travelport’s systems via the Travelport Universal API.

IATA is planning a “road show” in 2013 for travel management companies to learn about NDC. Leopold said he believes that once TMC executives see how it will work – and it is still very much a work in progress – they will be more comfortable with the concept.

“There is always anxiety when change happens,” he said.

But he acknowledged that not all organizations are happy with the direction IATA is taking. “We intend to change the industry,” he said. “There’s a lot at stake here.”

One item that is at stake is the economic model currently in place, whereby airlines pay GDS companies for each segment booked and GDS companies pay travel agencies “productivity incentives.”

Those incentives, which at one time were icing on the cake, became essential to agencies after airlines stopped paying base commissions.

If a significant number of bookings are made through another pipeline, the payments could be substantially reduced.

The model has been a bone of contention for years between airlines and GDS companies. It’s no secret that GDS companies would like to see a move to a new model, but they say the industry is too competitive to drop them.

It’s not clear whether any airlines plan to provide any inducements to attract TMCs to a new way of transacting business.

In the much-publicized attempt by American Airlines to convince TMCs to adopt its Direct Connect product, agents who were deposed before the carrier’s antitrust lawsuit against Sabre and Travelport said American offered no financial inducements.

A major concern expressed by travel agents and their representatives is whether NDC will enable comparison shopping. Leopold said multiple shopping requests could be sent out simultaneously.

Requests, however, may be “much more elaborate than just a city pair,” he said. A request may include various passenger preferences, which some airlines may be able to satisfy better than others. Airlines that can’t meet the requirements may not respond at all.

Comparisons may involve more than price. Depending on the customer’s identity – elite status, history with the airline, whether she is traveling with her family, etc. -- airline offerings may call for a comparison of their relative value to the customer.

Read about Sabre’s new defense in US Airways’ antitrust lawsuit in the Jan. 7 issue of TTU.

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