With all the recent activities and on-going debates around NDC, such as American Airlines’ milestone earlier this month, we may want to take a step back and look at the bigger picture of the modernization of airline distribution – called airline retailing.

What is NDC?

If I had received one pound each time I heard this question I would be rich. Bref. Fortunately ChatGPT can answer the question for us now.

NDC: is it a data exchange format? Is it a technical standard? Is it an advocacy program for the modernization of airline distribution?

It is the latter. A change program at industry level. While recognizing the achievements of the current capability – called Global Distribution System or GDS, the program set out to enable a new distribution capability for airlines. Hence the program name.

One of the first program deliverables was a technical standard adopted by the IATA Standards Conference in 2012.

After a few clarifications with key stakeholders, including the approval of the standard by the US Department of Transport in 2014, the development of the data format began. The data exchange format is known as NDC XML, which was first released in 2015 and has been updated several times per year until now.

So NDC is a change program – built on three pillars.

Distribution

Historically “distribution” was the first pillar, or feature, to be demonstrated. It brought rich content and pictures similar to what airlines were displaying on their own websites. The contrast between the GDS green screen and the web pages was visual and impactful. The ability to differentiate brand and content resonated the most with airlines having a superior product and customer experience, and the least with airlines competing only on low fares. By the way the real low fare airlines were selling only direct to save distribution costs entirely.

Offers and orders

NDC introduced a concept well known to retailers but unused by airlines at the time. “Offers” and “orders”, as in “Order to Cash” or “Purchase Order”.

With these concepts in mind the current processes (fare quote, availability check, post booking ancillary, PNR, ticketing, EMD) became simpler: offer creation and order management. The offer includes a price for a seat and additional services and guarantees an availability. The order is the confirmation of the payment and what will be delivered.

Four decades ago, when computing power was limited, the number of fares available for one flight was set to 26… as in the number of letters in the alphabet, using one letter to code one fare. Today, in a world of unlimited computing power, there is no reason to set any limits, pricing can be continuous.

Four decades ago, post World War Two, when international air travel was regulated and airlines were all state owned, all fares were regulated and filed for international coordination. With the liberalization of air travel, today’s airlines are free to price their product dynamically and competitively, without any requirement to go through a centralized structure.

Four decades ago, in the early days of IT, data was exchanged using private networks and UN protocols for Electronic Data Interchange. Since internet and the web were invented three decades ago, data can circulate on open networks with industry owned protocols (W3C).

All these changes are much broader than aviation. They underpin the transformation of the processes and systems that airlines relied on to distribute their products. They are the foundation of modern airline distribution.

Delivery and finance

The simplification of the order process also has benefits downstream.

With NDC,  the rules to add or remove an item from an order can be included in the order, which enables automation and self-service. This is helpful for example in case of flight disruption – a pandemic being the extreme case of disruption.

The value to settle to each travel partner can also be included in each order, which enables for example to calculate the profitability of a flight as soon as the aircraft door is closed.

Eventually the simplicity and efficiency of the NDC processes removes the need for legacy processes and underlying systems, which reduces costs.

Key changes

NDC became a synonym for the modernization of airline distribution, also called airline retailing.

While NDC focused on processes, systems and data, it enabled innovative players to propose solutions that challenged existing business models. Namely the technology made it affordable for an airline and a travel agent to connect directly, without paying for the service of a GDS.

The debate about distribution business models pre-dated NDC and could be summarized as: although companies usually buy IT services from vendors, shouldn’t travel agents pay for the tools that enable them to select, compare, book, pay and service travel products? Or when travel agents are indeed paid by vendors to use their technology, instead of paying for it, what are they really giving away? Interestingly some travel agents that are paid to use a GDS will pay an aggregator of non-GDS content, for example LCC content.

Conclusion

The evolution of technology led to an evolution in customer expectations and in air travel processes and systems.

Each airline has a different business case for their transition to airline retailing, including revenue generation, cost reduction and customer satisfaction elements.

Likewise each travel agent has a different approach to sourcing content and a different business case to modernize their processes and systems.

Hundreds of airlines are likely to transition to retailing in this decade. Thousands of travel agents are likely to source content and technology more effectively in this decade.

They will need a trusted partner for this journey. This is why Threedot was created in 2021.