The New Distribution Capability (NDC), an XML-based data transmission standard promoted by the International Air Transport Association (IATA) that enhances the capability of communications between airlines and travel agents, is currently buzzword for the global airline industry. Although in nascent stage in many parts of the world, airlines are putting all their efforts to educate the travel agents and other stakeholders about the benefit of the NDC. Lufthansa Group, one of the pioneering advocates of the NDC, has been working on this since 2015 and currently received IATA’s level 4 certification on NDC.
Detailing about the benefits of the NDC for the industry and end customers, George Ettiyil, Senior Director, Lufthansa Group, said that NDC is bringing 3 main elements of travel to the fore: transparency, customization and a seamless shopping experience for the industry as well as air travellers. “Transparency is the key disruptive element of travel for the past 10 years which was not offered by the GDSs. Consumers do not know what is he paying and why is he paying the huge cost. Moreover, there are high technical limitations on the old technology to actually unbundle the services. Consumers have become very choosy because of customization which is the second very important disruptive element for travel. Transparency and high degree of customization has become need of the any airline and it is continuously increasing. Shopping experience was also not possible with old technology. New consumers are used to much more professional shopping experience and the old technology is not just fit for this,” Ettiyil said.
Replying to a question on the need of NDC while so many other distribution channels already exist in the market, he opined that GDSs could not scale up their technology and the distribution cost of the airlines went up. Going back to the history, Ettiyil detailed that airlines traditionally have always had a challenge of distributing their seats and making these available globally. “Looking 40 years back, there was no advanced IT technology like today. Starting from end 70s or early 80s, several airlines got together and created companies that could distribute their content or inventory. As a result, Sabre was started by several US carriers in the USA and several European carriers including Lufthansa started Amadeus in mid 80s. It was revolutionary on those days as GDSs were created by airlines to make a quantum leap. Looking 30-40 years later now, that technology still exists today. However, it is very expensive as it is based on old technology. From an airline point of view, the commercial agreements that were made on those days have become burden to the airlines. The distribution cost is very high when it is based on old technology and the cost is passed to the end consumer,” he said and added that the onset of low cost carriers showed the industry way that distribution cost can be lower down. “LCCS started delivering their content purely on their own direct platforms. LCCs in Europe started with internet only so there was no distribution cost. They were able to challenge the classic airlines because of their low cost in every way including distribution cost which was tremendously lower than classic IATA airline,” he briefed.
This is the reason that IATA started NDC which is providing standard for XML based APIs. “Now, every airline or any other travel service providers can actually follow the standard. IATA is also promoting ‘One Order’ offering shopping experience. Payment is also becoming future disruption which GDSs cannot be able to offer. Hence, there was a need for new technology. That’s why NDC has become so relevant,” he added.
Talking about Lufthansa’s adoption of NDC, he said that the Group has been creating an API based on NDC standard since the last 5 years. “Over the last years, our APIs have been developed to highest standard created by IATA. On old technology, our airline was not able to offer wifi. With new technology, it is offered now. So, there are developments which is possible with NDC today and are not possible with GDSs as it requires huge investment that does not justify the outcome,” he said adding the GDS system has restrictions of 26 booking classes.
Explaining it further, he said that when it comes to pricing it is limited by the number of alphabets that exits. The NDC is removing the cap from the 26-booking class restriction and by starting with the bid price or market fare generated in the system, pricing logic is applied earlier in the process and without the limitations of the 26-bucket problem. The airline then has more opportunity to fine-tune a customized offer, which can be further discounted, bundled, or promoted. This means that an airline-controlled Pricing Engine that can operate such a linear pricing model unlocks considerable more opportunity for airlines to earn more revenue and delight their customers. “NDC is opening up the whole new world. It is highly disruptive proposition in the airline and travel industry which will revolutionize the way end consumer experience the commercial aspects of aviation. Lufthansa is the first airline to go ahead with this kind of disruption and other airlines have also joined. More and more airlines are reaching to certain level standards,” he said and added that the GDS companies have actually also decided to participate in the new NDC space and we are happy they will also come with new solutions. “Other players are also coming,” he added.
Replying to a question over 80 per cent of content will come from non NDC channels for the next 4-5 years thus making the system more complex, he agreed and argued that airlines will try to bring the low cost cheap etc content through NDC. “They are forced to as they have no choice. Otherwise they cannot survive as competition is just too high. So, the more premium (premium classes of travel) the offer is, it will be probably on more traditional channels. Intermediaries will remain there. I do not think that a end consumer always going to get what he wants to on airline website. Many will get on airline websites but other will want the additional services which airlines do not offer and they will look for intermediaries who can package as per the customers need. Also, people do not want to spend much time on these. If they have trust on travel professionals, they will take their services,” he said and opined that either traditional intermediaries will change or transform or new players will also get added that are technically strong.
Coming to the complexity part, he said, I think complexity will increase. “I see complexities increasing in every domain. How these platforms are competing with each other will create further complexity. It is still to be seen that what will be the dynamics of the new space that is coming up,” he opined.
So, what should be the business model for NDC? “We as Lufthansa feel that we have the clear picture for the next few years to go forward. Because we have the clear picture, we started off a program called the NDC Partner program. In the NDC Partner program, we actually offer very clear spectrum of the commercial aspects. Our API is provided by Farelogix which provides front end known as SPRK. Through SPARK, any IATA agents can enroll and immediately access our NDC content which is not just 16 Euro cheaper but we even have price differential ranging between Rs 1500 to Rs 3000 for economy class and going upto 5000 for business class. SPRK is our entry offer. The next one we promote is our direct API that can feed the agents front end system like online booking tool. We have another model of using intermediaries that we call ‘travel tech provider’ which can be classic GDS and many of the new ones that are coming and let them provide you with the API because they have booked on our API and if you have an API with them they can also be already fed by the travel tech providers. Many travel agencies today are already selling LCC content. These models are existing and we are just providing our content over there. We have commercial offer for all these. We pay incentives for all models. For model II, we invest together with our partners in to the technological change that is required,” he said.