To NDC or not NDC, that is the question

AeroTime is excited to welcome Ann Cederhall as our columnist. An instructor with IATA on Airline Distribution Strategy and with Aeroclass on Airline Retailing, Ann is a frequent speaker and panelist at industry events. She has authored numerous highly regarded articles and white papers in the travel industry press. As one of the owners of the consulting firm LeapShift, Ann brings an extensive track record of delivering business value in project and product management roles worldwide.  

The views and opinions expressed in this column are solely those of the author and do not necessarily reflect the official policy or position of AeroTime.    

In the mid-2000s low-cost carriers (LCCs) proved that they were able to lower distribution costs dramatically. They did not sell through the Global Distribution System (GDS), an intermediary used by traditional airlines, and they also unbundled baggage and seats selling them as ancillaries instead. This is what I call a direct connect, airlines selling directly and not through an intermediary.   

Some TMCs (Travel Management Companies) and OTAs (Online Travel Agents) started adding content from direct channels, although this did come at a high cost, but the majority chose to sell GDS content only.   

Traditional network airlines quickly realized that not only was their cost for distribution astronomical, but they were also unable to unbundle ancillaries. They simply didn’t have an Application Programming Interface (API) system and technology to sell ancillaries.  

As a response to the LCC revolution network airlines turned to the International Air Transport Association (IATA) to introduce a new messaging standard that was named NDC, New Distribution Capability, in 2012. The idea was to create a standard that could manage large-scale messaging and that could replace the old EDIFACT standard that had been used since the 60s. Working groups for airlines were established to create these new standards based on Extensible Markup Language (XML).  

Travel agent distribution was (and still is) primarily structured on the GDS. Historically the GDS provided agents with all the products they needed for invoicing, accounting, reporting, and selling. As a result, most systems used today by agents are still very GDS-centric and this is the reason why we end up with challenging workarounds, such as passive segments to make it a “GDS look-alike”.  

NDC is not used on any airline websites. It is a standard for travel sellers such as OTAs and TMCs. To explain it in a simplistic way, NDC is an XML standard that the airline can choose to use for its direct connect (API).  

Sadly, a lot of important topics were lost on the standards journey, like how vital it is for an airline to control its API (this can be managed internally or by outsourcing to companies that provide this service). Controlling your API allows you to implement your direct connect.  

Personally, I think that the biggest mistake in the history of NDC (and don’t get me wrong, I believe in standards) was that the working groups were not open to all and there were entry barriers for startups. I think that the best way to drive real change for global standards is to make it publicly available and open for all to contribute.  

The majority of LCCs have not converted their APIs into an NDC standard. They find that the large OTAs and TMC integrate their content anyway or they use aggregators. Aggregators gather all the content from GDSs, from LCCs, from literally any source. It is an easy way for a seller to get hold of all the content that they want to sell without taking on the challenge of integration themselves.  

To counter aggregators, GDSs have started to offer their own NDC API connections. You can say that they are in essence competing with their own GDS business. But of course, it is an expected move if you wish to control airline distribution. What is interesting, however, is that we are not seeing the GDSs particularly interested in integrating LCCs direct connects. Confusing? You bet! 

Why is it that many TMCs have stated that they are unwilling to integrate NDC connections? The easy answer is that if your entire operation is set up to use the GDS, i.e., invoicing, reporting, accounting, duty of care is automatically linked to the GDS, meaning it is no easy task to modernize your infrastructure and processes.  

On top of that, travel agents receive incentives to book in the GDS and various conditions apply to their contracts should they not meet volume expectations. If a seller wants to sell content outside the GDS it requires effort. As well as having to implement APIs or use aggregators they also need to adjust their internal systems.  

Is NDC content any different than LCC content? The answer is no. But traditionally TMCs have not integrated many LCCs until now. LCC content is typically more lucrative for the OTA and TMC than NDC content. You can argue that many corporates do not fly LCCs, but that is changing. Four out of 10 of the world’s largest airlines are LCCs (Ryanair, Southwest, IndiGo and easyJet).  

But should a travel seller sell the content the customer is asking for? And if they don’t, is their competitor selling that content?  

During the past 12 years that NDCs have been utilized, LCCs have plodded along and become the drivers of all the cool stuff and development we have seen so far. They started offering products like “cancel for any reason”. Essentially, they were the drivers behind customer experience and showed everyone that there are many ways for an airline to make money.  

A few network airlines decided to just get on with it and move away from Passenger Name Record (PNR) centricity and use Order Management Systems (OMS) just like any other retailer. Typically, an OMS offers an agency portal, an NDC API, a corporate SME portal, or any type of portal for any channel you wish to sell to. For more information about this, you can read my previous AeroTime column ‘Airline Retailing – where to begin’.  

As a sideline discussion I am often asked what benefits an LCC has by integrating their API to sellers and, to me, it is a no brainer. They can grow sales and control who the sellers are (unlike GDS sales where they don’t have control). It has been interesting to follow the battle between Ryanair and agents where we are seeing the Irish LCC taking control of the distribution.  

So, this brings us to the important question, should you opt for an NDC or not? The short answer is – it depends. 

Here is a checklist of things you’ll need to consider when it comes to an NDC strategy. 

If you are in a full-content agreement you need to exit 
Do you control your own API?  
Is there a cost involved with using your API?  
Who are your travel sellers?  
Are your travel sellers on GDS?  
What is the percentage of GDS sales? 
What are your competitors doing in this space, are you a follower or a leader?  
Do you need to convert your API to an NDC standard? Are the agents asking you to do that or will it be good enough with just an API?  
Once you have figured this out you are ready for your business case. If you have an API, you should only convert it to NDC if your important sellers are asking you to do so. If you are implementing an API, then why not follow the standard anyway. 

NDC is not a magic wand. It is only a very small part of the distribution puzzle. Your retail strategy is far more important as well as how you can improve the customer experience.  

Hopefully, I have helped to clear up some of the misconceptions when it comes to NDCs and made you think about whether you need to convert your API to an NDC standard or not. There are companies out there that can help you with this or help you with an API without the need to convert it. The post To NDC or not NDC, that is the question appeared first on AeroTime.

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