Last updated: 07:59 PM ET, Thu April 04 2013

Business Travel Groups Ask DOT to Reject IATA on New Distribution Capability

Features & Advice Global Business Travel Association (GBTA) James Shillinglaw April 04, 2013

The International Air Transport Association (IATA), the group representing major global airlines, seems intent on developing a so-called New Distribution Capability (NDC) for airline tickets and services, but some of the airlines’ best customers aren’t supporting IATA’s move, namely the Global Business Travel Association (GBTA), which represents global corporate travel professionals, and the Business Travel Coalition (BTC), which represents the business travel interests of 16 major corporations.

GBTA on April 4 filed comments with the U.S. Department of Transportation (DOT) asking the DOT not to approve IATA’s filing for Resolution 787, which would set up a new programming language that would be used to develop the NDC. The DOT last week extended its deadline for comments on IATA’s filing until May 1, 2013.

“GBTA believes an ill-advised shift in distribution dynamics will have negative consequences across the industry,” said Michael McCormick, GBTA’s executive director and COO. “Any changes made to the current, well established airfare distribution system may have huge cost implications and potentially harm downstream buyers.”

In his comments to the DOT, McCormick said GBTA is very concerned that planned airline “profiling” created through NDC could disadvantage the business traveler and result in differentiated pricing for travelers that will drive those travelers to unknowingly violate a company's travel policy and raise airfare costs for companies without their knowledge or consent.

McCormick added that there are too many questions without answers involving NDC. For example, will NDC create any real benefit for the corporation that is paying for travel? Or is this just another attempt to reduce airline distribution costs at the expense of the buyer in the form of reduced price transparency and more complexity in the distribution process itself? GBTA said it asked the DOT to not approve IATA's Resolution 787 because there is not enough clarity is available at this time and the consequences of a wrong decision “cannot be overstated.”

GBTA’s filing comes a day after Kevin Mitchell, chairman of BTC, released a sample letter that travel groups could send to DOT Secretary Ray LaHood in order to object to IATA’s Resolution 797, which Mitchell said would lead to a new worldwide business model for the pricing and sale of airline tickets that could structurally change the industry in unalterable ways. In the letter, Mitchell, who has been a strong critic of IATA’s NDC plan since it was introduced last summer, said DOT should reject “Resolution 787, and the included New Distribution Capability (NDC), as it contravenes the public interest. NDC represents a new, worldwide business model for the pricing and sale of airline tickets that could structurally change the industry in unalterable ways adversely impacting all supply-chain participants. We, and the industry groups who represent us around the world, were excluded from IATA proceedings that led to the creation of Resolution 787. We therefore rely on the Department to protect our interests.”

Mitchell’s letter continued: A single firm, if not dominant, is usually free under national competition laws to endeavor to change an industry’s economic and operational models. It is a horse of a different color, however, when 240 horizontal competitors strategize behind closed doors and agree upon a  new business model for the pricing and sale of their products. We firmly believe that horizontal airline competitors (and indeed nearly the entire industry) banding together to jointly adopt such a new business model by express agreement crosses the line. NDC is an agreement that has the purpose and would have the effect of stabilizing or raising prices charged to all consumers because it would end the air fare transparency that, as the airlines themselves have confirmed, has checked their ability to raise prices. It thus likely violates U.S. and other countries’ antitrust laws.”  

Mitchell’s letter also suggests NDC could violate privacy rights. “Resolution 787 explicitly says that, before fares are quoted, airlines have the right to demand from consumers personal information that ‘includes but is not limited to’ the customer’s name, age, marital status, nationality, contact details, frequent-flyer numbers (on all carriers), prior shopping, purchase and travel history and whether the purpose of the trip is business or leisure,” the letter reads. “There can be no legitimate justification for charging a traveler more or less based on a number of these items of personal information (such as marital status or nationality), and many of them by design can be used to pinpoint and extract higher prices from those travelers who are likely to be less price sensitive, such as business travelers.

“Importantly, IATA has been silent on required industry investments to implement NDC, or which participants would be responsible for such costs, i.e. airlines, global distribution systems, travel agencies or organizations with managed-travel programs,” the letter continues. “However, most observers believe the NDC-associated costs to be substantial and that these costs would be passed on to the customer in the form of higher TMC transaction fees, or surcharges. Process costs and inefficiencies related to NDC complexities would also be externalized to TMCs and their clients. 

“Given the potential anti-competitive and anti-consumer effects of Resolution 787, the unprecedented invasion of privacy for consumers and the added implementation and ongoing NDC-related costs to the industry and its customers, DOT should deny its approval.”