The International Air Transport Association (IATA) is on a new campaign to get airlines and travel agents to buy into its New Distribution Capability, which will fundamentally alter the way airlines are booked.
Last Tuesday, two IATA executives engaged in a “debate” with Chris Kroeger, senior vice president-marketing for Sabre Travel Network, over the merits of NDC or if it was needed at all. IATA says NDC is being created as a new standard so it can better sell a new generation of airline products.
Then on Thursday, Sept. 18, Tony Tyler, IATA director general and CEO, addressing the Wings Club in New York, urged governments to re-commit themselves to the ideals of airline deregulation and the free market – and pointed to NDC as one way they could do so.
“Airlines are the transit system for the global economy, and they have transformed commerce every bit as thoroughly as the automobile transformed America,” said Tyler. “But our ability to meet the growing demand for connectivity is at risk…Our biggest challenge comes from governments that are engaging in what I would broadly describe as regulatory backtracking.”
Tyler said it was particularly distressing to find that the United States, where the airline industry was born and which has led the world in liberalizing domestic and international air transport, seems to be moving forward into the past. “Apparently policy makers in Washington no longer trust the invisible hand of the marketplace to maintain a vibrant, competitive industry—despite overwhelming evidence that the market is working. The net result is not just bad for airlines, but for air travelers and the economy,” he said.
Tyler cited four areas where the market is not being permitted to operate efficiently – regulation, distribution, consolidation and taxation.
Tyler said the airline industry may be deregulated to the extent that carriers are permitted to set their fares according to demand. But he said regulators aim to design the details of competition in a manner that is wholly at odds with how other industries are treated and with the workings of the free market. In particular, he said, they appear determined to hold commercial aviation to a different business standard than they impose on any other form of transportation—or consumer facing activities.
“It is totally appropriate to set simple minimum customer service standards,” Tyler said. “But that’s not what’s happening. Regulators are micro-managing our businesses, telling us how we may advertise our services, how long we must hold a reservation that has not been paid for and how we are to manage operational disruptions regardless of the cause. These regulations impose a huge penalty on the economy and ultimately raise the cost of air travel for all consumers.”
Tyler said airlines are committed to ensuring the safety and comfort of passengers and recognize the need for passengers to have access to basic protections during their journey. To that end, IATA members recently affirmed a set of core principles on consumer protection that aim to strike a balance between protecting passengers while maintaining industry competitiveness and recognizing the power of the marketplace.
Tyler said the threat of a new U.S. Department of Transportation regulation that would mandate how and where airline ancillary products are displayed continues to overhang the industry. But he said the market is already moving to give consumers a more transparent air travel shopping experience through NDC.
“NDC is about bringing the same level of capability to display and sell additional products and services through the travel agent channel that already exists on airline websites,” Tyler said. “That’s not the case today. On an airline website, you may have access to a wide range of add-ons and fare packages that are not offered elsewhere.”
IATA is working with other industry stakeholders to develop an XML-based messaging standard for electronic exchanges between airlines and travel agents. “Standards enable innovation and efficiency and make it possible for incumbents and new entrants to work from the same blueprint,” Tyler said. “We believe an NDC standard will enhance the air travel shopping experience for passengers. But, let me assure you of a few things: NDC will operate within the same privacy laws that govern every other business. That is no change from today. But by giving travel agents more information, there will be greater transparency. The NDC standard will enable much richer comparison shopping for travel products, not just the base fare, but the entire spectrum of offerings.” For a short video on what IATA’s NDC will create, click on New Distribution Capability.
Tyler also argued that aviation needs to be treated like other industries when it comes to consolidation. “It is a fact that consolidation has resulted in a healthier, more profitable industry and that is good news for travelers as well, because it means airlines have the financial wherewithal to invest in their products and services,” he said. “And U.S. government data show that service is improving on the things that matter most to customers such as punctuality and baggage delivery. Yet airlines face higher hurdles than other businesses when it comes to mergers and acquisition.”
Tyler said airlines were recently reminded of this when the U.S. Department of Justice (DOJ) said it would file an antitrust lawsuit to prevent the merger of American Airlines and US Airways. “I am not an expert on U.S. antitrust policy, but I do know something about the airline industry and I have to agree with those in the investment community and elsewhere who have found DOJ’s arguments to be faulty and unpersuasive,” Tyler said.
The IATA director general also noted that aviation is taxed at levels far exceeding those of most other activities, but too little of that money finds its way into infrastructure investment. “Fees and taxes represent around 20 percent of the average U.S. domestic ticket and totaled $18.9 billion last year, according to data from Airlines for America,” Tyler said. “And Administration proposals for the 2014 fiscal year include a slew of tax increases and new fees adding further billions to the cost of air travel.”
Tyler observed that in a less than 100 years, commercial aviation has transformed the world. This year airlines are expected to carry more than three billion passengers –equivalent to around 44 percent of the Earth’s population and representing $2.2 trillion worth of economic activity. By value, over 35 percent of the goods traded internationally are transported by air. Within the United States, aviation contributes some $669.5 billion of gross value added (GVA) annually, equivalent to 4.9 percent of GDP, and supports 9.3 million jobs. “Our message is: Let us make the second century of air transport even more remarkable than the first,” Tyler said.