14 percent of the airlines we surveyed said they expected to have 20 percent or more of their eligible transactions processed using NDC by the end of 2020. That's impressive,” says Henry Harteveldt.
“By 2021, airline distribution will evolve from its current passive, rigid, and technology-centric state to a more flexible, dynamic, and passenger-centric environment which we call Active Distribution,” wrote Atmosphere Research Group’s Henry Harteveldt in a wide-ranging study of IATA’s New Distribution Capability (NDC) standard, which is intended to simplify and unify the retail shopping experience across airlines, travel management companies, online travel agencies, corporate buyers, global distribution systems, and other technology players through the use of a single, XML-based data transmission format.
Atmosphere’s NDC study, which was commissioned by IATA, explores the changes and challenges that will impact airline retailing between 2016 and 2021.
Among the many issues airlines will have to come to terms with, according to Harteveldt in that report, is the increase in the number of people flying. Those new fliers will be both more geographically diverse as well as older.
Those two changes alone demand that airlines have a better sense of who their customers are, how they prefer to purchase airline products, and what other services they might want to buy on top of a booking.
While NDC was introduced by IATA in 2012, it has taken time for airlines to adapt. Meanwhile, the NDC tools have continued to evolve quickly. IATA’s year-old ONE Order program is a key addition. ONE Order is meant to allow travelers the choice of being able to synthesize and complete an order with several related bookings.
In a sense, the biggest issue for airlines is being more fully immersed in NDC. In a presentation at the World Aviation Festival in London last month, Harteveldt spoke to an overflow crowd about the state of NDC and ONE Order adoption.
Among the findings he shared at the conference:
- Almost 1 in 3 airlines are now live with NDC
- 34 percent of airlines have internally tested at least one NDC function
- 18 percent have at least one active NDC pilot program in place
- 54 percent have begun planning for ONE Order, but are not testing yet
- 23 percent have not started planning for ONE Order
We caught up with Harteveldt following his presentation in London.
Kambr Media: You said it's still “early innings for NDC.” Can you elaborate on that? What does early innings mean? What is it that airlines are doing now? Should be doing now? Should be thinking about?
Henry Harteveldt: What our research shows is most of the airlines are either testing or live with at least one NDC application. That’s a good sign. Each airline is approaching its use of NDC based on what its commercial and distribution needs will dictate.
There is no one right way to go about it. For example, the retailing behind seats and bags, because they are so large in terms of sales, and because they are the most purchased items, are where we see most of the initial focus.
It makes sense; you go where the money is. What is really interesting is you are hearing airlines like Lufthansa say, "NDC is real – now the funding is." That's what we heard Xavier Lagardere, vice president, head of Distribution at Lufthansa Group, say.
You're not hearing anybody question the need for NDC. What you are hearing – and this is unlike even two years ago – is, "We are working on it. We are doing tests." [Airlines] are being very, very strategic and perhaps very cautious about what they do. Again, that's okay. This is a new technology. There is an element of risk. You want to be sure you go to market in the right way. There are many players involved. An airline can do one thing, but how does that work with its distribution partners? Are the distribution partners able to work with the airline? Those are the big questions and that’s what early innings means.
It’s important to stress that NDC is a set of standards, but airlines can adjust how they implement the standards to meet their needs and their technologies.
Generally, speaking, in order for industry standards to work, there needs to be a balance between establishing a clear set of rules that must be adhered to, while also maintaining a certain flexibility, since as you said, there’s no “one right way” to chart a course on NDC. How do you see that balance being maintained?
It's like the design of a skyscraper or a wing. They are made out of steel, but they are designed to flex. NDC has to and is designed to, be adapted by an airline to suit its commercial and technology needs. So there's nothing wrong with Airline A using an NDC standard in one way and Airline B adapting it in a slightly different way for the same process, as long as they work.
What that means is there is complexity. It's not monolithic. And that adds to the amount of time it takes to get things developed, tested and implemented.
How actionable are NDC protocols now for airlines? Or is this about establishing a retailing process in the not-too-distant the future?
NDC is about enablement. NDC is about improving an airline's capability to retail through its choice of third party channels, to helping the airline better manage its offers. And so while it addresses a current problem, the challenges of selling through offline travel agencies, travel management companies, online travel companies, NDC definitely has a benefit for how airlines will choose to retail going forward.
Is NDC intended for legacy carriers, or is it intended for all airlines, regardless of size and how established they are? Is it strictly for IATA members?
The decision on how to distribute your product as an airline is a commercial decision based on individual airline strategies and business objectives. As I mentioned, what works for Airline A may not work for Airline B, whether Airline A is selling through offline and online direct channels, such as GDSs like Sabre, or online travel companies like Expedia. It could be entirely direct or is somewhere in the middle. At last count, and this may have changed, IATA told me they had 66 airlines participating in NDC, 57 of which were IATA members and nine which were not IATA members.
The option to use NDC is individual. An airline could say, "Look, we want to retail through third parties but through a direct connect, not necessarily a GDS." Or, "We know we have to retail through GDSs to reach corporate travelers." NDC can help that airline. And it's possible, NDC may even be useful for helping to clarify an airline's own direct retailing strategies.
What are your expectations for how quickly NDC will be fully adopted?
Unless the bottom drops out of the economy, which I don't foresee, I believe airlines will continue to invest in their technology infrastructures, and as a result, will continue to invest in the development and implementation of NDC.
What I find is interesting is 14 percent of the airlines we surveyed said they expected to have 20 percent or more of their eligible transactions processed using NDC by the end of 2020.
That's impressive to me. We can certainly state that it has taken too long to get to this point. But I am envisioning a possible hockey stick-like environment, where once we get through the initial stage of NDC development – the first few applications of it – it will become easier, and thus faster, for airlines to implement this process with their partners.
Their technology partners, such as GDSs and other travel technology firms, will be accustomed to this. As with everything, the more familiar you are with something, the easier it should become to use.
While you don’t expect the bottom to fall out, there are wide recessionary fears at the moment. Do these fears accelerate or hinder the adoption and development of NDC?
Adversity intensifies the need to innovate and to push for evolution and improvement. I believe airline CIOs, CEOs, and boards all recognize that even during economic slowdowns or recessions, doing massive cutbacks to IT can be counterproductive.
Maybe an airline can postpone upgrading its email system. But an airline can't postpone progress when it comes to solutions that can help it grow. It’s not only topline revenue, but remember, ancillary products are high margin items for airlines. They have a disproportionate impact on the bottom line.
I don't want to say that NDC or similar types of technologies are sacred cows, but I believe these are the types of projects that will be less susceptible to cutbacks during a slowdown than perhaps other types of technology applications.