Why airlines should use technology to stay ahead with distribution

In a movement that was well under way before 2020 but is accelerating as air travel demand recovers, airlines and distribution technologies companies are turning more to digitalization.

The way airlines are selling their products and services continues to change. By the end of 2020, almost two dozen airlines were making at least 20% of their indirect sales via the IATA New Distribution Capability (NDC) XML-based data transmission standard.

While IATA staff refocused early last year to prioritize helping airline members reduce their costs, NDC work did not come to a standstill. By the turn of the year, NDC was seeing “pretty good momentum,” IATA director-distribution systems Yanik Hoyles said. “The journey to NDC didn’t stop.”

By the end of 2020, 185 companies, including 62 airlines, were NDC certificated, 22 more than were certificated a year earlier. Seventeen of the airlines were certificated to the highest standard, known as @Scale, with Finnair and United Airlines the newest to achieve that rating. Other new NDC airlines include Japanese carriers All Nippon Airways (ANA) and Japan Airlines, Taiwanese carrier Eva Airways, Bahrain-based Gulf Air and US ultra-LCC Spirit Airlines.

Among its 21 Leaderboard airlines, the percentage of indirect sales via NDC grew from 11% to 21%, Hoyle said. This year, he added, IATA might create a new Leaderboard, but the focus will be on increasing NDC’s agility and its dynamic offerings.

A Digital Tranformation

NDC and digitalization are transforming how airlines are making sales, Travel in Motion managing director Daniel Friedli told ATW.  “If airlines start their digital transformation now, their chances of being part of the recovery become bigger,” he said.

Through NDC, airlines will own the offering process, be able to identify the actual customer early in the sales process, customize offers, while utilizing a lower cost sales channel, and mitigate legacy content aggregators like the global distribution systems (GDSs.)

But, as Swiss-based Travel in Motion explains in a white paper published in April, many airlines had lofty ambitions, but most would admit they have faced challenges growing their distribution volumes via NDC as quickly as they had hoped.

Part of the solution lies within airlines.

“Airlines have to change considerably,” Friedli said. “Did the coronavirus crises speed up the digitalization change? If we look at the market very neutrally, then we have to say, ‘yes and no.’ Some airlines stopped the process of investing, while others said, ‘This is the moment; we have the resources in-house’ and they rolled out NDC on a big scale.”

Based on a survey of aggregators and agencies, Travel in Motion expects that 70% of airlines will grow their NDC volumes faster as the crisis lessens.

“Travel is coming back in the second half of this year and that is when the change has to happen. The airlines that are working on digitalization now will have the advantage,” Friedli said.

Friedli believes there will be two groups of legacy airlines selling their offers via NDC. Some, like Lufthansa, are forward thinking and want to take a lead. Others have a “wait-and-see” approach.

“I think the ‘wait-and-sees’ will lose a lot of business quickly because the others are moving so fast. If you start the process of digitalization one-and-a-half years later than others, the competition will be already in their second phase,” he said.

Travel in Motion principal consultant and partner Boris Padovan agrees.

“If you start planning when the recovery starts, then you are too late. This should not be an issue of money. From the technology perspective, implementing NDC solutions and the basic processes costs an airline between $1 million and $3 million. That’s not a huge investment when you consider how it can increase revenue. It has to be seen as a business project, not a technology project,” Padovan said.

NDC Deals

Meanwhile, airlines and travel providers are making news on the NDC front. Emirates Airline announced that from July 1, its travel agent partners will have access to its NDC-enabled direct connect platform, Emirates Gateway, which the airline launched in October. As that access is enabled, Emirates will also place surcharges of between $14 and $25 per ticket on all bookings made via GDSs. Clearly, Emirates is pushing agencies toward using the distribution system in which it has invested, an effort the company describes as “empowering our trade partners to deliver even better customer experiences.”

But the biggest distribution headline so far in the pandemic era was the announcement of an agreement between Lufthansa Group and Sabre Corp. This will allow Sabre to continue to distribute Lufthansa Group airlines’ content via its GDS while also enabling the airlines’ NDC content to be accessed via Sabre’s marketplace. The deal appears to end a years-long and public power play by the two companies with a recognition that the move by airlines toward greater ownership of how their services are distributed cannot be reversed. But it also acknowledges that the GDSs will continue to have a significant role—albeit one that is being changed by technology that they were slow to develop.

“Through this new level of flexibility, we jointly enable a diverse distribution ecosystem, extend the reach of NDC and allow for differentiated commercial models,” Lufthansa Group SVP-revenue management and distribution Tamur Goudarzi Pour said.

The GDS providers may continue losing market share, but not on sufficient scale to be nervous, Friedli said.

Padovan agreed, saying that, ultimately, the winners will be passengers, especially business travelers.

“Airlines want them back, and they will roll out the red carpet by offering good corporate deals,” he said.