BEHIND THE AIRLINES’ NDC PLANS Radical shake-up looms for agents, GDSs as airlines morph into retailers

Issues & Trends – December 2012 / January 2013

Radical shake-up looms for agents, GDSs as airlines morph into retailers

By Ian McMahon

IATA continues to maintain in the most emphatic terms that its planned New Distribution Capacity (NDC) will not be a travel agent bypass and will not be a GDS bypass.

Indeed the global airline body claims agents will benefit from greater access to products, some of which are currently available only on direct channels, and aggregators will be able to display a wider range of products and services.

But an IATA-commissioned special report paints a portrait of the future in which airlines have morphed into retailers and diverted the great majority of bookings to their own websites.

Over the next five years it envisages:
• Airline websites will increase their share of bookings from 35 per cent to 59 per cent;
• GDSs will be replaced by airline alliance-oriented value creation hubs (VCHs);
• Airlines will set up a buffer between agencies and their host systems rather than offer direct connect;
• Airlines will want much more information on passengers than they currently obtain from traditional distribution channels.
• Airlines will scrap “distribution” in favour of “commerce” with staff currently engaged in distribution activities likely to be absorbed into airline marketing departments.

The report The Future Of Airline Distribution – A Look Ahead to 2017 is an independent one, compiled by highly regarded aviation analyst and co-founder of Atmosphere Research Group Henry H Harteveldt.

Nevertheless its findings clearly reflect the broad thinking behind IATA’s controversial NDC push (travelBulletin October and November). Download the full 35-page report.

“Airlines have been increasingly successful generating direct sales via their websites and mobile applications – their lowest cost sales channels,” Harteveldt reports.

“The cost of third party distribution clearly frustrates airline executives. Airline executives worldwide consist-ently tell Atmosphere they need lower costs, especially from GDSs.”

The report highlights general airline dissatisfaction with yields from sales through both OTAs and bricks and mortar travel agencies although it says yields from travel management companies (TMCs) “placate” airline executives.

Harteveldt predicts: “By 2017 what airlines currently call ‘distribution’ will be replaced by a focus on channel-based, value-creating commerce.

“Organisationally, an airline’s ‘distri-bution’ team will become part of the ‘commerce’ department and will likely be part of an airline’s marketing department.”

He says airlines will look to busi-nesses outside their industry for inspiration and ideas, citing the example of Amazon which “knows its customers’ addresses, transaction histories, the items they view and buy, forms of payment used and more.”

Airlines’ intentions in this regard are a major concern for agent critics of the NDC proposal such as Mobile Travel Agents managing director Roy Merricks.

He says it “rings alarm bells regard-ing the airlines potential to use this increased capability and data and market directly to agency clients. Without the NDC an airline would not ordinarily have had access to this information.”

The outspoken Merricks, who says he has received support from industry heavyweights in Australia and over-seas, adds: “This leads me to believe part of the NDC standards involve the relocation of agency PNRs because these, while currently held by travel agents in their GDS, will also be held by the airlines under the new procedure.

“This also raises concerns re the future possibility of the elimination of pre-filed fares.”
Harteveldt foreshadows concerted airline moves to shift bookings away from agents, particularly OTAs, to their own websites. According to his report: “Pricing, marketing and business strategies that favour bookings made by an airline’s website … and investment by airlines into new front-end designs and functionality and back-end systems will help the world’s airlines produce 59 per cent of their booking volume through their websites by 2017, up from 35 per cent in 2012 – with much of this share shift coming from OTAs.”

In a section headed Direct And Alternative Distribution Yes, ‘Direct Connect’ No, the report states: “Few airlines show interest in true, ‘unfiltered’ direct links between their host systems and key travel agencies beyond what they have now.

“Instead, their interest lies in alter-native distribution options … (that) bypass the GDSs, but still consolidate content for agencies’ use and provide a buffer between agencies and the airlines’ host systems”.

Harteveldt predicts that the role of GDSs will be taken over by VCHs linked to the various airline alliances and a critical mass of low cost carriers.

He adds: “VCHs will account for just 30 per cent of airline reservations in 2017, the majority of which will be made by TMCs.”

He estimates that traditional GDSs will account for only seven per cent of bookings but also suggests the GDS companies will take the lead in developing VCHs.

“They will accept the need to canni-balise a part of their business – and perhaps even exit some areas,” he says.




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