I keep hearing the same concerns about the perceived speed of the transition to airline digital retailing, whether I speak with airlines, sellers and travel tech companies who have embarked in the transition, or with other players who have chosen to wait and see.
Understanding the good and bad reasons for the lack of speed (compared to expectations) is helpful to find ways to accelerate the transition. It will be even more valuable to plan for the next transition, towards order management.
What are the expectations?
Having one airline implementing one distribution API is fast. Air Canada had a distribution API before NDC started. easyJet had an API connected with one GDS before NDC started. An airline group called Open Axis even had a standard for API distribution before NDC started. If this is all we know, NDC should be implemented globally in a couple of years, right?
On the other hand, airlines, travel agents and GDSs have been working hard for the past 50 years to build a global interconnected platform allowing any customer to find in real-time the best itinerary and best fare to get from A to B anywhere in the world. Even after 50 years of hard work, using pre-internet technologies, the platform does not support the latest innovations in dynamic pricing and ancillaries. Upgrading this entire platform, with new processes and technologies, should take at least 50 years, right?
A reasonable expectation lies probably in the middle. Implementing NDC worldwide has clearly not taken 2-3 years (this was only the time necessary to get the US DOT approval). But hopefully upgrading the distribution infrastructure of the air travel industry won’t take 50 years. For a program launched in 2011, the transition will be completed for the first players in 2025 and probably for the rest of the industry by 2030.
What are the key remaining challenges for implementation?
The initial challenges were typical of a major digital transformation program, except for contractual and business models issues, which are specific to the status of this industry. Challenges included: awareness, business case, funding, skilled resources, contractual restrictions, technical solution, innovative partners, incentives, on-boarding, and differentiated content.
Awareness: I’d be curious to see the results of an awareness survey, showing how many travel distribution professionals have heard about NDC and can define it.
Business case: While many airlines have figured out a business case, including revenue generation from ancillaries, cost reductions and enhanced customer experience, there are still many players still scratching their heads. Indeed, selling the same product, to the same customer, via the same channel, won’t create value even with a new technology.
Funding: Any project requiring investment in the current environment is a challenge. The pandemic crisis has cut the cash resources for most airlines and travel agents. Despite the crisis, some airlines and travel agents keep investing because the new distribution channels, enabled by NDC, are more profitable.
Skilled resources: The transition to digital retailing first required a mindset shift from the management. Then the training or recruitment of staff able to manage API distribution and create new offers across multiple distribution channels. Last but not least, sales teams briefed and equipped to engage the travel agencies about partnership and value creation.
Contractual restrictions: Airlines and travel agents have signed distribution contracts with GDSs, which may contain restrictions or incentives preventing the implementation of alternative channels. Although the European Commission recently closed their 2018 GDS investigation about “possible restrictions in competition in the market for airline ticket distribution services”, such restrictions may remain a challenge today.
Technical solution: With the most advanced airlines having shifted 50% of their indirect bookings on NDC, the technical questions (scalability, look-to-book, polling, caching, etc.) are identified and discussed within technical industry groups. There is still a lot of progress and improvement to be made, i.e. innovation opportunities.
Innovation partners: A key benefit of an open standard for air travel distribution is that it allows new entrants to enter the market, to innovate and partners with existing players. Today there are NDC API providers, NDC aggregators and other NDC service providers (post-booking, etc.).
Incentives: Airlines have designed various distribution strategies and travel agents have elaborated content sourcing strategies to take advantage of the new content and fares. The current transition shows a mix of incentives, ranging from carrots (commissions…) to sticks (surcharges…). After the transition, value creation should become the driver between partners.
On-boarding: Airlines who have built their “distribution platform” are on-boarding travel sellers, either directly or through aggregators. This process takes time and will accelerate over time.
Differentiated content: The purpose of NDC is to enable a new distribution channel, for airlines and travel agents, capable of supporting any kind of airline offers. This channel adds value to partners once content is differentiated, i.e. more than “airline code – origin-destination – date – fare”. Dynamic offers, where the product and the price are constructed dynamically, will leverage the channel and create even further value.
There are more challenges ahead. They reflect the ambition of the modernization of air travel distribution, the opportunities for new services and new entrants, and the reasons underpinning the time the transition takes.
Although I wish the transition moved faster, the current pace is probably right. NDC was launched as something that will and must happen, regardless of the timeline. Knowing that it would happen, the challenge was to make it happen as quickly as possible, but also as robustly as possible in case it lasts for another 50 years.
The next phase of the transition is about order management. The question is not “if” but “when”. The travel industry needs to accelerate the transition to order management if it wants to capture the full benefits of digital retailing. Or we may soon hear “Why is ONE Order taking so long?”.