It has been a year since IATA's New Distribution Capability (NDC) program went public. The brainchild of another long-running IATA initiative, Simplifying The Business, NDC has been prepared by a joint workgroup composed of airlines, travel agents, airline IT providers and last but not least, GDS companies. It is important to distinguish between the last two, as while GDS companies like Amadeus and Sabre would like to pretend that it's just two sides of the same inseparable coin when it comes to providing Airline IT and GDS services together, these two business lines are actually incompatible. Or at least they should be in an ideal world.
An airline IT -especially Passenger Service System (PSS) - provider should have the best interests of its clients in mind, and that would certainly include minimizing their distribution costs while simultaneously allowing them the freedom to distribute on as many channels and with as much content, as possible. NDC is IATA's way of supporting and enabling this approach: An industry-wide, standardized method of distributing both core flight products as well as ancillary services, all done over an open and free Internet connection. No tightly closed off "walled garden" sales platforms, and no proprietary data links needed. So it is no wonder that any PSS provider would wholeheartedly support this much-needed and by some measures long overdue, initiative. Case in point: Hitit has been involved in the development of NDC standards since before it went public, and was among the first wave of PSS providers to become certified at the highest level afterwards.
The bread and butter of GDS companies is their near-monopolistic ability to restrict and govern airline distribution in certain areas and charge their airline clients an arm and leg for the privilege. Given that NDC was almost entirely poised to end such predatory business practices, the participation of GDS providers in the initiative initially raised some eyebrows and cast doubt on the viability of NDC going forward among concerns of Amadeus or Sabre torpedoing the program from within. Now that we are one year past NDC’s initial debut, how well is it doing and what has changed in the distribution landscape?
Let’s get a look at the basics:
IATA has spent considerable effort to nurture community awareness and engagement in NDC, and it seems to be paying off. From the moment when NDC went public in Q2 2016, there was an influx of different companies looking to adopt the standard. This growth trend seems to picking up speed in 2017 with more NDC registrations in the first quarter of the year when compared to preceding ones, bringing the total to almost 100 without counting the still-in-progress integrations.
We can see that certain patterns begin to emerge when we delve into further details:
As predicted, the vast majority of the interest in NDC stems from IT Providers and Airlines that are eager to leverage the “Internet era” benefits offered by the standard. It is telling that “Aggregator”, which is the category that GDS providers fall into, is at the last place trailing behind even individual travel companies. At the first glance this might be dismissed due to the relatively low number of aggregator / GDS companies out there, but taking a closer look at what exactly the big GDSs (Amadeus, Sabre and Travelport) are doing reveals a clearer picture:
All three companies have two separate lines of business: Airline IT and GDS services, which require certification under different “IT Provider” and “Aggregator” types respectively. And in every case, when we compare the certifications, these companies have either adopted NDC earlier as IT Providers, or have attained a higher tier of integration or a combination of both. It is especially telling that Amadeus, the market leader in both segments, was one of the earliest adopters of NDC at the highest tier for IT, but has yet to get certified for its GDS business after a year.
This goes to show that GDS companies are also aware of the possibilities that NDC brings to the industry, they are eager to harness it for their IT solutions while they are doing their best to drag their feet with their GDS business on the other end of the spectrum. Could it be because they can sense a potential existential threat to their lucrative distribution services?
Whether the airline industry will actually manage to rid themselves of GDSs, or if the GDS providers will mutate to adapt to the changing market dynamics while maintaining their hold on airline revenues is still undecided. But one thing that is evident is that battle lines are being drawn with NDC at the center. Lufthansa, which -in a very Frankenstein manner- is both the co-founder of Amadeus and now its most outspoken opponent, lit the fire back in 2015 when they started charging extra fees to GDS bookings. The support they hoped to garner from the rest of the industry was slow in coming, until NDC stepped in that is. With more airlines waking up to the advantages of having an open way to freely distribute their products to even traditionally “indirect” channels, another European giant, IAG, decided to start imposing surcharges for bookings made on non-NDC channels. Giving the unwillingness of GDSs to embrace NDC within their core platforms these developments are clear jabs at disrupting the old fashioned distribution model.
While not every airline is willing to make such bold moves they are still willing to nurture their NDC platforms over all other channels, perhaps in the hopes of one day severing their own bonds when they become sufficiently self-reliant. One such example is American Airlines, which went with the proverbial carrot instead of the stick: The US giant has now started to incentivize NDC sales for all of its agents regardless of whether the sale if made over GDS or not. This will allow them to keep a non-confrontational course while incrementally building up their NDC base, and might one day enable them to completely switch over to their own agent selling platform once everyone is familiar enough with working over NDC.
Another as-of-yet unknown factor is the increasing number of offerings from non-PSS IT providers. For all intents and purposes, airline IT has been a market with high barriers of entry where only a handful of specialized technology providers could operate. This still continues to be the case when compared to other software industries, but having a modern XML-based standard such as NDC has gone a long way to open up the industry to new entrants. There are currently more NDC-certified IT companies than there are PSS providers in the world, showing that non-traditional actors are starting to really engage in providing airline software solutions. As other industries have demonstrated time and again, something like a mobile startup has great potential to disrupt incumbent business models and air transport might finally be the next in line.
NDC certainly made things much more interesting for everybody involved, and we are sure to see even more changes when it reaches its second year in 2018. We will be watching closely!