What is NDC?
NDC is a new standard created to connect the different products airlines offer directly with travel providers. One of the significant changes that this entails is the ability for third parties to begin offering and comparing ancillaries (like meals and upgrades) easily.
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New Distribution Capability overview
What is IATA's NDC?
First, let’s talk about the acronyms.
Now, how do all these terms work together?
NDC is a program created by IATA to modernize airline distribution and encourage the adoption of a new XML-based communication standard, the NDC standard. It is a standard for API distribution, and its purpose is to improve content transmission and communication between airlines and players in the air travel industry. One of the significant changes that this entails is the ability for third parties to begin distributing ancillaries easily.
Ancillaries, in this context, refer to flight-related items such as seats and baggage fees, as well as travel insurance, wi-fi, meals, and special access or services. They are additional purchases to the flight itself.
NDC streamlines the process by which airline content, and its unique features are shared and accessed. The airline takes charge of creating offers and gets ownership of the orders.
The state of the industry
Global distribution systems and how everything works
Since the 1960s, the purchase and distribution of air products have centred around Global Distribution Systems - GDSs. GDSs receive content from airlines, collecting information from fares to inventory to flight schedules. Then, they provide it to traditional agencies, online travel agencies (OTAs), metasearches, consolidators, and many more.
The GDS retrieves fares, availability, and conditions from airlines and third parties and proceeds to create a ticket a customer can purchase. Then, during booking, the GDS creates PNRs - passenger name records that travel agencies own. A partial copy of the PNRs belong to the airline as well.
Although airlines - or full cost carriers - are restricted from direct selling in this system, there have been low cost carriers (LCCs) that have gone the non-GDS route.
Drawbacks of the legacy system
The time lag between available airline inventory and the content displayed by travel agencies is a flaw of the GDS-centric system. This lag also causes inefficiencies when customers want to modify orders. NDC emerges as a potential solution to this, particularly with the ONE Order initiative (more on this later).
Consumers are receptive to more personalized shopping with rich and targeted offers. When sellers better understand shoppers, they can offer products and deals that add greater value. This customer understanding may also include addressing preferred payment options to improve the overall experience. Currently, consumers are also looking for flexible payment options alongside overall speed, accuracy and transparency.
What airlines are doing
Today, airlines are coming out with more ancillaries as a way to make more money on trips; because of the middlemen that every transaction goes through, airlines often make slim margins on the flight itself. Ancillaries are a great opportunity for additional revenue, especially with the rise of CRMs and consumer intelligence; when the customer is well understood, the add-ons are extremely relevant and sales are likely to follow.
What exactly are the reasons that IATA undertook the challenge of implementing this ambitious and rigorous standard?
NDC aims to address some key shortcomings of air commerce, such as difficult airline differentiation, incomplete access to robust content, and unpredictable shopping experiences. NDC is a standard that can be referenced by all industry players and an alternative to proprietary GDS solutions for better modern merchandising. NDC wants to bring more opportunity for differentiation by making it easy for travel agents to compare different airline offerings, like meals offered and special corporate deals. The goal is to give airlines more autonomy and to kickstart an industry migration, from one that is indirect and commoditized, to one that resembles today’s direct eCommerce business.
IATA created NDC around a couple of key systems and programs. Here’s a brief overview:
Offer management is the process of airlines creating and proposing offers to travel agent requests. Broadly speaking, it is a pricing engine that allows airlines to distribute products, sell ancillaries and rich content, and price offers in real-time directly to travel agents.
An order is a record of an agreement for the exchange of a product or service. Besides managing offers, some participants are also investing in managing the orders that follow - creating, storing and organizing customer orders. Order management varies in complexity; it can simply involve identifying PNRs, electronic tickets (ETKTs or ETs) and Electronic Miscellaneous Documents (EMDs) using an Order ID, or it could encapsulate every facet and stage of the order.
ONE Order Program
To extend order management through the entire lifecycle, the ONE Order Program focuses additionally on capabilities in delivery and accounting.
Typically today, orders made have many IDs assigned to a number of systems. Airlines do not have the order (the PNR) and payment (the ET) of the same transaction tracked in the same place. Because of the divergent reservations and payment systems, records have to be reconciled by airlines. It gets even harder with the sale of ancillaries, as they are often purchased separately from the ticket and from different sources. It is complicated and inefficient for airlines to match ancillary purchases with orders and payments. In contrast, low cost carriers use single records, which means they can avoid the costly process of reconciliation.
ONE Order as a solution
The ONE Order Program aims to reconcile the fragmented order management methods being used, from booking to ticketing to accounting, into a single order management process.
It extends beyond NDC’s front-end; it simplifies back-end fulfillment, and stretches order management to delivery and accounting. At its core, ONE Order is about consolidating customer information into one place and making customers’ data accessible to and convenient for all relevant parties. These can include travel agents and re-sellers, but most notably, interline partners and ground transportation agents.
ONE Order combines order information into a single identifier with a clear owner; this makes the order simple to modify later on, with more efficient billing and real-time information.
How distribution works under NDC
With the introduction of NDC, there are four possible process flows for transactions. First, offers are created by the GDS (this is the legacy system). Second, the airline creates the offer and processes payments, and aggregators deliver information to and from travel providers. Third, the airline sells to travel agents directly through API connection. Fourth, airlines sell directly to travellers through their own website.
Following in the steps of LCCs, airlines are beginning to use a variety of APIs for shopping, flight searching, booking, and more. In fact, adopters are able to integrate existing legacy systems with NDC management systems and implement modular architecture through APIs. Integrating with NDC systems through internal APIs is one way to avoid having to get rid of legacy systems completely.
For more on APIs and how they work: Travel and booking APIs for online travel and tourism service providers
Implementing the NDC standard is no small feat; airlines, aggregators and travel agencies must revamp their distribution, sales, and marketing strategies, reconfigure communication, IT and legal procedures, and enact new business and organizational processes. Transitioning to and deploying NDC-guided practices can take anywhere from 6 months to many years. There’s no one way to implement NDC, in fact, IATA has set out certifications for the different possible degrees of adoption.
IATA NDC certification
The NDC Certification identifies and validates adopters of the standard. Currently, there are 5 different levels of certification.
Certification for levels 2 to 4 are available for:
- airlines that deploy an NDC API
- travel agents or aggregators that connect with these APIs
- providers of NDC products related to offer and order management.
Level 1 signifies the capability to offer ancillaries post-booking, Level 2 certifies the application of offer management, Level 3, the usage of offer and order management APIs, and Level 4, full offer and order management. In addition, IATA’s NDC@Scale certification, like its name implies, is centered around participants that have potential to greatly scale NDC volumes. The criteria for NDC@Scale is measured around 4 key areas: technical setup, organization setup, use cases, and capabilities. You can read more about it here: NDC@Scale: Roadmap to Critical Mass
Benefits and drawbacks of NDC
The power of NDC
NDC can bring a lot of benefits for many stakeholders in the air travel industry. It allows airlines to communicate its products and possibilities to those down the indirect distribution chain, and ensures that the customer can receive the benefits.
Airlines are able to differentiate their products and adapt to consumer trends, and reduce time-to-market. They offer fare families and bundling options which display many price points for an itinerary with different features and value.
Airlines also have the option to explore dynamic pricing in offer management, which involves generating personalized offers and flexible, market-adjusted pricing.
With airlines no longer reliant on GDSs to create and distribute offers, they are able to retain more on margins; the migration from a decades-old system to an internet-based system may also prove to be more cost-effective while setting them up to more easily integrate future innovations. Airlines would also see huge savings on redundant and costly ticketing, payment, revenue accounting and back office processes that they currently perform. NDC also hopes to improve revenue integrity, which would reduce costs and the need for fare auditing. Additionally, NDC can eliminate GDS restrictions such as the number of fare classes, and has promises of refined content and expanded capabilities.
Agencies could also benefit by receiving more transparent and consistent offers from airlines. At the same time, there are many risks associated with implementing NDC.
The downside of NDC
Transitioning from legacy system to an ambitious push for a customer-centric marketplace is tedious. It requires heavy investment and numerous reconfigurations. It will also take time and many iterations for airlines to truly iron out offer and order management, with no guarantee of sufficient return.
Despite being a standard, NDC in execution is proving to be very fragmented. Already, there are variances in execution; the standard itself is also continuing to evolve. Adopters are seeking to meet the standard but in different ways and using different methods.
As airlines are developing different systems and solutions to suit their individual needs, it may be difficult for standardization across the industry and wide-scale NDC adoption; discrepancies may arise and cause complications.
Airlines will need new systems to carry out offer/order management and advanced capabilities for delivering customized products to customers. This means costs for new technologies and new systems. Airlines need to outsource to third parties to gain better understanding of the end customer and invest in more agile back-end systems at the same time.
There are initial program costs to consider, which beyond implementation can include things such as software licenses, customizations, and integrations. There will also be training expenses, as well as marketing, communications, maintenance and support costs. There could also be hardware and network storage costs that come with running systems.
It is a lot to take on, but it’s what you’d expect for airlines now wanting to take on pricing, merchandising, scheduling, etc.
There are many challenges for implementing NDC; this includes deployment errors, inadequate system capacity, gaps in functionality, and availability for maintenance, troubleshooting and upgrades, just to name a few.
A lot of airlines are not intending to move to NDC at this time. Unfortunately, the benefits of NDC requires most players to be on board and in sync. As pioneers continue to dive into NDC and begin using XML, their success or failure and the importance of differentiation in the coming years are likely to determine the course of the industry.
NDC remains a small portion of sales, and “a premium option, rather than a necessity.”
The legacy infrastructure that has been in place for the past 4 decades makes it difficult to transition. To expect the industry to change everything and adopt the NDC standard is unrealistic; there will need to be transitional and flexible systems that work with both current and NDC processes. An example is nicely put by Triometric: ONE Order requires "an evolutionary rather than revolutionary approach...to transition from the multiple IDs and documents that exist today to the single customer PNR of the future."
It is hard for a risk-averse industry to innovate and adapt, and this is one of the biggest challenges to be overcome in this time.
Who NDC impacts
Global distribution systems
GDSs are global reservation systems for all of the primary travel services.
The role of the GDS has been concrete for decades, and it is a well-oiled platform suited for high volumes and complex processes. GDSs are facing a big challenge in the face of NDC. NDC is bypassing the GDS’s role in air retail, and they will need to find a way to remain relevant. In the NDC age, the GDS oligopoly and role in the value chain are being tested.
It appears that GDSs have lagged behind in their innovation, resulting in airlines now wanting to take matters into their own hands. As airlines are now capable of delivering newly elevated content without GDSs, NDC is placing pressure on GDSs to innovate or risk becoming obsolete.
This being said, GDSs will not be disappearing any time soon; their role may prove to be crucial in the form of aggregation. To date, all GDSs have achieved NDC certification as aggregators. The influence of GDSs is immense and will remain in the industry for the foreseeable future. This means that while airlines have found a way to take hold of the end customer, GDSs can still act as a barrier.
Kristen Pratt of TMC Travel and Transport says,
"Our belief is the Global Distribution System channel will likely prevail as the most effective place to source broad and aggregated content, beyond just air."
International Air Transport Association
IATA is an organization that establishes standards for the air travel industry to ensure safe and efficient practices. Standardized practices, including NDC, ensure that travellers can have familiar and consistent experiences when dealing with air travel and that industry players have guidelines for the best practices to follow. The NDC standard presents a major shift in the industry and represents the direction IATA pictures the future heading. IATA is responsible for ensuring every standard it creates is in the best interest of the industry at large; there are many stakeholders in each new standard established, so IATA must ensure it remains as neutral as possible.
IATA will continue to encourage NDC adoption, but it’s uncertain how successful they will be; NDC could revolutionize air travel, or it could end up being a forgotten standard.
Airlines face a great opportunity with the rise of NDC. They are able to differentiate themselves with unique product offerings, recognize and adapt to customer behaviors, and establish stronger relationships with partner agencies.
Airlines can become more independent and retain more ticket markups. They are able to better connect with the market and able to take full advantage of the power of real-time offers. They have more control over products, services, and prices that end customers will see.
This all sounds great in theory, but we also can’t forget about the time, money and resources it will take to implement and adopt these changes.
The aggregator is the intermediary between airlines and travel providers and it will play a significant role in the NDC landscape. It relays information to and from each party, first transmitting the request, and then the responding offer. More specifically, aggregators are responsible for determining which relevant airlines receive a travel agent request, transmitting the request, and finally returning consolidated offers to travel agents. With the traffic data they gather, aggregators could offer airlines data analytics solutions and insights related to consumer behaviour the performance of their chosen partners.
The number of aggregators today is growing. Amongst them, all three GDSs (Amadeus, Sabre and Travelport) have become NDC certified aggregators.
There are also established consolidators and new startups coming into the mix to play the role of the aggregator. It remains to be seen whether the GDS oligopoly will remain.
Travel agencies have the opportunity to provide their customers with more tailored and customized products, from a wider selection of content, and with the potential for greater earnings. NDC may be a great advantage for early adopters, but its impacts are still to be seen. In the future, if NDC becomes widely used, any advantage is likely to disappear. New entrants may also emerge as a result of NDC; this would intensify competition and spur innovation in the long term.
Most travel agencies are in limbo; whether they decide to use NDC in the future depends largely on the on-boarding and success of pioneering airlines and aggregators. Many travel agencies may wish to rely on GDSs to innovate as the market calls for it, and simply stick with the legacy distribution flows that have worked reliably for decades.
Corporate buyers & travellers
NDC seeks to translate airlines’ expanding offerings to travel agencies, who present the options to travellers, to give more choice to the customer and to provide more transparent booking. IATA has the goal of improving traveller experience with improved content. They hope that NDC will provide corporate buyers with better data, enable more dynamic policies, help improve decision-making, as well as save customers’ time. The transition, however, may harbor technical difficulties that buyers could encounter.
The Future of NDC
NDC Specific Information technology providers
With NDC comes the need for solutions to deliver the standard. Dozens of providers are coming into the picture to help airlines and agencies with merchandising and the management of rich content, pricing, and more. They are developing products, solutions, and APIs to go hand-in-hand with NDC. IT providers have identified obstacles that NDC brings and want to alleviate difficulties such as increased data volumes and the process of interlining.
Below are some NDC technologies that have emerged in the age of NDC:
Farelogix has developed an API that allows airline content to be transmitted through any direct or indirect channel.
IBS's product is a dynamic passenger services platform with an API portfolio that supports the NDC standard and its functions.
IATA looks to continue increasing NDC usage. By 2020, a cohort of airlines making up the “NDC Leaderboard Airlines” have set the goal of increasing NDC API transactions to 20% of NDC transactions. Interestingly enough, though, IATA wants to phase out the term “NDC” and replace it with the more straightforward phrase of “offers and orders” instead.
At the same time, travel retailers, intermediaries, and airlines must evaluate the extent to which they want to invest in NDC, if at all; while some may choose to take off at full throttle, others may only stick a toe in. The future of air travel and the impact of NDC is very much still up in the air!