What is new distribution capability (NDC)? A beginner's guide

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You've probably seen and used the term “NDC,” but do you know what it really means? Before jumping into the question of “what is new distribution capability?,” we first need to understand the landscape of airline ticket distribution.

During the 1960s and 1970s, airlines created computerized ticket reservation systems, known as Central Reservation Systems (CRS), to help their agents find, book, and confirm flights. Having proven to be an extremely efficient tool, the airline industry looked to use CRSs to reduce their booking workloads by allowing travel agents to make bookings directly on the systems.

However, each airline had its own unique CRS. To gain access to the flights of every airline, travel agents in the US demanded and received a single CRS. This remained the status quo for over 20 years. Customers called and travel agents booked their flights on the CRS.

However, in the 1990s, the major CRSs, Sabre, Amadeus, and Galileo (now Travelport) became independent from the airlines that had created them four decades earlier. This is considered the beginning of the Global Distribution System (GDS) era. In only a few years, these three major GDS companies emerged as formidable air travel distribution systems.

Then, the internet happened. With the advent of the internet came online travel agencies (OTAs). While these agencies wanted to offer their customers every possible flight, they didn’t necessarily want to go through the trouble of integrating with three GDSs. So, the GDS aggregators arrived and translated each GDS’s language into a single common format.

Airline Distribution System

What is new distribution capability (NDC)?

New Distribution Capability, NDC for short, is an XML-based data transmission standard (NDC Standard) that was launched by the International Air Transportation Association (IATA) to transform the way the travel industry sells its products and address the shortcomings of the existing airline distribution system.

More or less, NDC is a modern, more feature-rich way for airlines to share their product offerings. However, it should be noted that XML isn’t new. It’s already 20 years old. Still, that’s a big improvement over the legacy EDIFACT protocol that has been in use for the past 40 years.

Why was NDC created?

Two inter-related factors led to the creation of NDC.

The first arose relatively recently. In the 2000s, airlines wanted a way to share “rich content.”

Rich content would let airlines bundle ancillary services with their flights to help them differentiate themselves from their competitors, provide more personalized offers, and increase revenue. However, the existing GDSs weren’t technically able to handle this level of product differentiation using their old EDIFACT protocol. This resulted in airlines being forced to take the hit to one of their major profit sources.

Secondly, airlines were increasingly looking at ways to get around the GDS-centric distribution system and take control of their distribution channels. The existing system was complex, requiring multiple systems to publish a fare. For example, if an airline wanted to change their prices, they’d have to update them on a third-party system.

Airport Departure Board

What are the benefits of NDC?

NDC was developed to address some of these issues and provide airlines with the features they coveted.

Personalized offers and customer data

With GDSs and other third-party service providers fully ingrained in the distribution system, airlines’ customer data often ended up in the hands of others. The result was that the airlines didn’t fully own all of their data and subsequently faced greater challenges in offering personalized packages to travelers.

NDC aimed to give airlines the in-depth customer data that they needed to offer the level of personalization that many consumers have become accustomed to. With the proper data, ancillary products and services can be combined with flights to create personalized packages.

For example, let’s say that a business traveler prefers to sit in business class on a direct flight and often brings a second checked bag. With NDC, an airline can use their customer data to offer this passenger a package that includes a direct flight, extra checked bag, and a seat in business class immediately.

Share rich content and sell ancillary services

While traditional GDSs can only share prices and schedules, NDC supports rich content. Rich content can include a variety of extra details, optional ancillary services that can be added to a flight, and images and text that can catch the attention of customers. Furthermore, NDC allows airlines to directly bring this content to travel agencies and travel management companies (TMC) without necessarily requiring a GDS.

Tomorrow's Shopping InterfaceSource: IATA NDC Program Update, September 2019

Airlines can publish dynamic prices

Traditionally, the majority of airlines distributed their fares through a third-party provider called ATPCO. Since their prices were shared through an intermediary, airlines weren’t able to offer dynamic pricing to their customers.

What is dynamic pricing? It’s the ability to create ticket prices and packages based on a customer’s personal information and history. With NDC, airlines can change and adjust prices themselves, providing more personalization to their customers.

Airlines can bypass GDSs

One of the main benefits of NDC was its supposed ability to allow airlines to bypass the GDSs. NDC would allow airlines to directly share dynamic content with OTAs, travel search engines, and TMCs without the need for a GDS. As you’ll see, it hasn’t quite worked out like that.

The challenges with implementing NDC

While NDC provides a lot of benefits, it has also faced challenges that have put it on a different trajectory than some had envisioned a few years ago.

It’s not standardized

While some airlines have adopted NDC and its XML-based standard, the practical implementation is different for each airline. Nearly every airline has taken a unique approach to NDC and created custom APIs. If that trend continues, it means that OTAs, TMCs, and even GDSs would need to integrate with each airline, something that they won’t be willing or able to do. This has created a need for someone to standardize or aggregate the different NDC channels.

A fuzzy value proposition for OTAs and TMCs

While NDC provides clear benefits for airlines, the value proposition for travel agents, OTAs, and TMCs is less clear. The GDSs are already fully integrated into their systems and still work perfectly fine. Moving to NDC requires updating their current systems to handle the new communication protocols of each airline without any guarantees that NDC will bring any additional benefits.

GDSs are adopting NDC

In response to NDC’s potential to allow airlines to avoid GDSs, the GDSs have begun to adopt NDC themselves. What does this mean? Likely, we will see the continued spread of NDC but through the same GDSs that NDC sought to bypass.

Plane in the Sky

New Distribution Capability: Now and in the future

While NDC was created with the potential to allow airlines to circumvent GDSs, it doesn’t appear that this will come to fruition. By adopting NDC themselves, the GDSs have firmly entrenched their position in the distribution system.

Going forward, we may see the GDSs create a universal XML standard that will mitigate the possibility of having hundreds of unique NDC channels. However, the tricky part will take place over the coming years when some airlines shift to NDC while others continue using the old EDIFACT protocol. How airlines, GDSs, TCMs, and OTAs will handle this transition period is still to be seen.

In the end, NDC solutions will allow airlines to achieve their primary goal of selling their ancillary services. However, whether or not they’ll have direct access to their customers’ data to offer dynamic pricing is another emerging issue to keep your eye on in the coming years.

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