Observers of the air travel distribution landscape have noticed an evolution in the past ten years since, in 2014, the NDC standard was approved by the US Department of Transportation. The destination of the changes is called Airline Retailing in reference to digital retailers that provide a seamless experience and personalize offers, among other benefits to consumers. What are the drivers of this evolution? What is the current state of the journey? What does the road ahead look like?
The drivers of airline retailing
The immediate, primary driver is the set of IATA standards, including process flows and data models, that describe the way to shop for air travel using modern technologies.
The root cause behind these standards is the airlines’ need to generate more revenue per seat or per passenger, to showcase the value of premium products and to better serve customers during their trip, among other benefits.
The real driver behind airlines’ needs is the evolving expectations of customers, combining the new generation of digital natives with the public who embraced digital services during the COVID pandemic. The cost to airlines of doing nothing is the lack of relevance to their customers.
Overall, the combination of consumer, airline and technology trends drives the evolution of air travel distribution into “retailing”. Low-cost carriers paved the way to digital retailing thanks to their simpler operating model: point-to-point flights, single cabin, no tickets, direct sales only, etc. Full-service carriers competed on their direct sales but had an additional challenge in their indirect channel, where travel agents sell air travel services using legacy third-party technology.
The state of airline retailing
Airlines, travel sellers, technology providers and corporate buyers are in the same boat for this transition.
On the corporate customer side, the most sophisticated buyers look for innovations that meet their needs. For example, they value tailored offers that include benefits for their travelers, or specific information about CO2 emission per flight. Most buyers are waiting for their travel management company to upgrade their solutions and are not curious about the technology used to source content.
On the airline side, the most advanced airlines have set their own deadline for 100% offers and orders, which happens between 2025 and 2028. The majority of airlines (by volume) has embarked into the journey, started by creating a new distribution channel based on an API. Interestingly 2024 is the year when starting a new airline does not require to implement any legacy process or system for global distribution.
On the travel seller side, the most advanced companies have built their sourcing technology to consumer air travel APIs. Most travel sellers are waiting for their technology provider to upgrade their solutions and source rich and dynamic content.
On the technology provider side, the three Western GDSs have implemented and are rolling out API connectivity, while new entrants, known as NDC aggregators, provide rich and dynamic content combined to innovative commercial models. The traditional corporate booking tools may be the last piece to embrace new technologies regardless of the potential benefits for corporate users, which opens the door to new solution providers.
There are many more facets of the retailing transition that deserve attention: loyalty, payment, settlement, identity management, revenue management, airport operations, etc. There is merit in covering them in a longer version of this article.
Overall, the air travel distribution value chain is about half-way through the journey to airline retailing, which started in 2014 and may end around 2030. Does this mean that the previous journey, known as automation of travel distribution (CRS, PSS, GDS, ET, EMD, etc.), will have lasted from 1960 to 2030? The next question is: what to expect at the end of this journey?
The road ahead
The simple vision is that an old protocol, EDIFACT, is replaced by a modern technology, API. Whether technology providers invent smarter proprietary APIs or default to a standard one, called NDC, is secondary. What matters is connectivity and reach.
A broader ambition is to phase out all legacy processes and systems: PNR, tickets, EMD, booking classes (RBD), fare filing, etc. They are replaced by Offers and Orders accessible via API. Airlines will compete in providing a better customer value proposition by dynamically creating relevant offers and in consistently fulfilling orders.
The real success, however, is that the “digital airlines” become customer-centric retailers. The guiding principle should be: design a smooth customer experience and build efficient processes behind it, rather than: build convenient processes from an airline perspective and find out how to get customers around them.
A vivid and visual example of this approach is the Apple Store, where customers stand in the middle of the store while Apple staff gravitate around them for advice, for product demos, for payment and for delivery. This customer-centric experience contrasts with the regular experience whereby the passenger moves around and find their way to check-in, drop a bag, verify their travel document or else.
Ultimately, airlines will aggregate demand and build dynamic supply, like Uber, rather than building supply (namely airport to airport capacity) and looking for demand.
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Disclaimer: the author of this article worked at IATA between 2005 and 2020 and launched the NDC program, now known as Modern Airline Retailing.
