IATA Touts New Distribution System to Bring “Greater Value” to Air Travel
By James Shillinglaw
October 16, 2012 10:37 PM
The International Air Transport Association (IATA), at its World Passenger Symposium in Abu Dhabi, called upon aviation stakeholders to work together to create greater value for customers across the travel experience while enabling greater efficiency for industry participants. Among the priority areas that IATA believes will bring “greater value,” however, are what it calls a New Distribution Capability that would completely change the way airlines are booked. Such a system, according to some observers, would alter dramatically the way travel agents, corporate travel professionals and global distribution systems (GDSs) currently interact to make airline reservations.
“Airlines expect to carry some three billion passengers in 2013. And that number will double by 2030,” said Tony Tyler, IATA’s director general and CEO, in his address to the Symposium. “Connectivity is a critical component of modern economies. Serving that growing demand will require innovation. We need to understand what consumers expect and what they value enough to pay for. Aviation is team effort. And that is a challenge for all industry stakeholders. Travel agents, airports, air navigation service providers, regulators, manufacturers, ground service providers, global distribution systems (GDSs) and many others must work together to make each passenger journey as safe, secure, seamless and convenient as possible.”
Tyler highlighted three priority areas for cooperation to create a more seamless and more interactive modern travel experience: Simplifying airport processes with Fast Travel; Implementing a Checkpoint of the Future (CoF) for passenger security; and developing a New Distribution Capability in line with what he called “modern retailing practices.”
Tyler cited the need for a New Distribution Capability (NDC) to enable the industry to offer more options to customers and to reach them seamlessly regardless of distribution channel. “The Internet economy has fundamentally reshaped the ways in which sellers and consumers interact,” he said. “Customers expect to be recognized when they shop online. And they are used to receiving tailored offerings based on their past purchasing behavior. Airlines are able to participate in this new model with those customers purchasing directly from their websites. They can recognize return visitors and make offers based on travel history, loyalty status, credit card brand or other metric. And customers have complete visibility of additional products and services on offer.”
IATA said 40 percent of ticket sales by value come through airline websites. The rest is sold indirectly via travel agents using GDSs. As a result, IATA said, it is impossible for the airline to tailor its offerings to these customers. Furthermore, IATA said this model is focused only on finding the lowest ticket price, which is commoditizing air travel even as airlines innovate their products.
“Airlines are trying to escape the commoditization trap through differentiation, and merchandizing,” Tyler said. “They are developing products and services, such as special meals, expedited boarding, roomier seats and access to airport lounges. But the travel agent sees only fare codes -- F, J, Y and their various derivatives -- which cannot fully describe options available. Customers expect more. The solution is the NDC powered by open XML standards. This will enable innovation in the way airline products are distributed. One key outcome will be closing of the gap between airlines and their customers so that customized offers can be made to travelers even through travel agents.”
Just where this leaves travel agents and GDSs remains to be seen, but some top travel agent and corporate travel executives believe any NDC would effectively tap into the GDS airline market share. Since most travel agents currently are tied to the GDSs to book airline tickets, it would also affect them in a major way as well. IATA also has told some travel agent and corporate travel executives that such an NDC could be quickly implemented, possibly within the next year. At a closed session on IATA’s NDC plan at ASTA’s Travel Retailing & Destination Expo, many top travel agents left feeling perplexed and confused at just what such an NDC would do to their business.
But that apparently hasn’t stopped IATA from forging ahead with its NDC plan. IATA says its role is to lead the industry to adopt a new, modern infrastructure that will accommodate more choices for personalized travel offers, provide the foundation for the development of efficient tools for agents and lower the overall cost of distribution. To this end, IATA will propose a roadmap and business case for the NDC.
“We expect to complete the Standards definition next year,” Tyler said. “Then competition and travelers’ needs will guide airlines, agents, system providers and new entrants with tremendous opportunities for innovation. Forty years after the birth of the current distribution paradigm, we have an opportunity for a revolution in airline retailing.” On the other hand, just how travel agents and GDSs will fit into that picture apparently remains to be seen.