The B2B PR Agency Take: New Distribution Capability and the Future of Airline Retail

One way for a PR and communications firm to “take the pulse” of a client’s industry is to follow the storylines – what are people talking about that they weren’t talking about before, and why now?

We’re seeing this in the airline industry as New Distribution Capability (NDC) – an industry standard that has been evolving for most of this decade – has become a “hot topic” for trade media and at industry conferences. Like most things to do with change at airlines, many carriers (not all) are only now paying attention to NDC. The International Air Transport Association (IATA) has devoted significant resources to help inform and educate airlines about NDC and what it can do for their retail and revenue strategies.

New Distribution Capability (NDC) is replacing the ancient EDIFACT messaging standard that governs (and limits) how airlines distribute and sell air products. To the layperson, this means that travelers will have more options and information when booking a flight, and airlines can use personal data (like loyalty program membership) to create better offers on every travel search.

NDC originally started as an OpenXML group pushing for more transparency and access to publish and distribute travel content. If that doesn’t sound like such an important topic, it certainly is for our travel sector clients and their peers at airline industry conferences – who are building the technology that airlines and other travel operators and merchants will use for years to come to drive revenue.

Together, Let’s Build Airline Retailing

While NDC isn’t a “perfect” solution for airlines – it doesn’t miraculously solve all their legacy problems – consider the big picture: more airlines are coming to grips with major changes in travel technology and ecommerce, and they don’t want to be left behind. In fact, they can’t afford not to be embracing new technologies that allow them to take ownership of passenger data and use it effectively to increase bookings, revenue and loyalty. IATA has advocated for NDC implementation as a business and revenue opportunity and not just as an IT solution – the organization’s official NDC tagline is: Together, let’s build airline retailing.

When booking a trip, most people start with the flight rather than the hotel or car rental – airlines can own that selling window on their own websites and apps, but they need to become more like online travel agencies (and they know it). They need travel technology that can support new capabilities like dynamic packaging, personalized fares, post-booking ancillaries, loyalty program integration and ongoing innovation in areas such as artificial intelligence or virtual reality. More than anything, airlines need a better digital and mobile user experience – all the data in the world won’t fix a bad or outdated mobile app for today’s connected traveler.

NDC will help airlines tackle some – not all – of these challenges, but it’s a start for an industry that tends to move at a snail’s pace when it comes to technology.

What is NDC or New Distribution Capability?

To keep it simple, New Distribution Capability means exactly what it says: airlines now have new capabilities to control and distribute their own inventory through digital channels. The premise of NDC is to help airlines cut out the supply chain middleman that controls “the offer” (GDS companies such as Amadeus and Sabre) and instead distribute rich content directly to online travel agencies and the end customers themselves.

Traditionally, airlines have been in an unsolvable predicament: they own all the inventory for air travel but control hardly any of the distribution. Their only function in creating “the offer” was to provide schedules and seat availability to third parties such as online travel agencies, who created and controlled the actual offer to end customers, including pricing and ancillary up-selling and cross-selling.

On the back end, this exchange of information between airlines and third parties was routed through the global distribution system (GDS), which collects fees from airlines on every transaction. By adopting the NDC messaging standard, airlines and travel agencies can cut the GDS companies (and their fees) out of the supply chain, and deal with each other directly. With NDC, airlines are able to supply travel agencies with much more than just price and availability – they can create rich content that is personalized, customized and packaged with ancillary merchandise before it even gets to the travel agency. NDC presents a major opportunity not only for airlines but also airports, retail partners, loyalty marketers, payment providers and so many others inside and outside the travel industry.

Should Airlines Implement NDC?

NDC is the result of a long-running industry conversation about the best approaches to travel distribution in a digital age. Not surprisingly, it’s provoked a lot of discussion and even controversy throughout the airline and travel technology ecosystems. Aside from being an obscure new data standard, what’s really at stake with NDC implementation?

These are few of the issues we see from a PR firm’s perspective…

• As more airlines implement NDC and invest in their own booking engines, how will it change the relationship between airlines and online travel agencies, or between OTAs themselves?
• With more sophisticated capabilities for ancillary merchandising, who will “own” customer relationships across the travel ecosystem, suppliers or distributors? Can anyone?
• Can travel suppliers and distributors work together to solve common problems and share common revenue opportunities?
• How will NDC improve or change frequent flyer and other loyalty programs?

Some airlines have been implementing NDC in varying stages for close to a decade. American Airlines, for example, is Level 3-certified for NDC, drives 10 percent of U.S.-point-of-sale travel agency volume through NDC connectors and offers an incentive program for travel agents and content distributors to connect via NDC. American’s VP of Sales & Distribution says the airline is focused on making progress rather than getting over on GDS companies: “We view this as a journey, not a GDS negotiation strategy,” he said. American Airlines has a long-term vision for NDC that other airlines will be able to learn from as they implement their own strategies.

The Connection between NDC & Travel Technology

More travel agencies are also becoming NDC connectors (American Airlines works with about 50 globally), but nobody is quite sure where these new NDC relationships will lead. Rather than looking at NDC implementation solely from the airlines’ or travel agencies’ perspectives, our clients want to understand the “big picture” for travel technology, ancillary revenue and loyalty – and how their own work with NDC potentially fits in to that story.

One of our travel technology clients, Switchfly, released a report earlier this year on the future of travel and loyalty by 2020 (you can read the report here). Among the topics for discussion were virtual reality booking and artificial intelligence – topics that may seem remote from NDC, but in fact, these broader topics illustrate the range of new opportunities that NDC is preparing for. NDC is one piece of a revenue puzzle that airlines – and our clients like Switchfly – are solving for.

B2B Communications for Travel Technology Companies Serving Airlines

As a communications partner, it’s our job to help clients formulate a unified position on topics like NDC, and then make sure they are seen and heard across their industry. Does your company serve airlines with travel technology? Contact us to learn how ThinkInk can help communicate your B2B offering across the airline and travel technology sectors.

And for more B2B analysis, check out our airline industry brief where we discuss how one flight ignited a passenger revolt, and what it means for airlines going forward.