Digital retailing is now critical to broaden the customer base of most consumer businesses—the key is to do so effectively. For the travel industry, New Distribution Capability (NDC) makes that possible.
Consumers' digital habits already trended in favor of digital sales channels before COVID-19. Lockdown further increased the number of consumers who now favor online shopping. Travel companies eager to recoup their losses need to capitalize on every advantage. The growth of ancillary revenue at airlines can be attributed to a refinement in digital retail practices and NDC adoption.
Ancillary revenue helped shore up distressed airline revenue during the pandemic, in some cases representing more than half of all revenue airlines earned last year, and generally contributing a higher share of revenue than previous years.
The International Air Transport Association’s (IATA) New Distribution Capability (NDC) had its share of skeptics early on, requiring a fundamental change in how airlines shared and distributed product data. With broader adoption, and introducing creative merchandising applications, NDC has proven an invaluable tool to increase airline bookings and revenue.
What is NDC?
NDC is an XML-based data transmission standard. It governs data structure on airline retail platforms and has spurred creativity in airline retailing. Many airlines have added rich content that lets travelers explore the onboard experience. Images and better product descriptions enhance product differentiation.
NDC also makes it easier for airlines to up-sell travelers—luring them closer to the front of the plane with a quick peek at product options. It allows airlines to sell ancillary products and services more effectively—like food and beverage, extra-legroom, visa applications, higher luggage allowance, hotel bookings, car rentals, insurance, and more.
The ease of data exchange supported by NDC allows other travel sellers—like Online Travel Agents (OTAs), aggregators, traditional travel agents and Travel Management Companies (TMCs)—to import and transmit this same rich content to their customers. So, regardless of the channel, they will benefit from better product information.
Global Distribution Systems (GDSs) found NDC a challenge at first because it meant re-working their proprietary distribution software, but even they have since adopted it.
NDC enhances airline merchandising
Effective merchandising—getting your product to put its best features forward and stand out in a crowd—is the best way to boost retail. Price alone is not always persuasive. That principle holds up in difficult economic times, when consumers may be hesitant to buy regardless of the price.
Airlines and their travel partners have embraced this notion during the pandemic.
“There was strong momentum toward NDC across the entire value chain before COVID-19,” Yanik Hoyles, IATA’s Director Distribution, said in a report on NDC progress for IATA’s Airlines magazine. “Since then, many airlines, technology providers, and travel sellers have intensified this drive and maintained retailing as part of their core strategic priorities.”
Between March 2020 and April 2021—at the height of pandemic slowdown—NDC certification of airlines, IT services providers and travel sellers increased by 18% (reaching 193 participants). In June 2020, NDC Leaderboard airlines reached their stated target of 20% of indirect sales coming from their NDC API.
And NDC adoption is ongoing.
“Airlines have used the pandemic to test, trial and introduce fundamental changes that would be tricky when everything is business as usual,” Adam Knights, Regional Managing Director, UK, Europe and Middle East, ATPI, wrote in a 2021 opinion piece on NDC for PhocusWire. “Similarly, TMCs have reviewed how different booking platforms work for them and made plans for areas of focus as travel resumes.”
NDC supports personalized offers
Merchandising opportunities increase with the broader adoption of technology in retail. It’s no longer enough to have your product reach a broad audience in a timely manner. Today, effective merchandising and retail depend on the relevance of the offer for the individual shopper.
“In a digital world, airline customers’ expectations for personalized offers, real-time information, and seamless transactions are growing,” Hoyles explained. “Retailing can move airline distribution to the future through de-commoditization, selling new products in new ways, and being closer to the customers. It will enable richer customer engagement and dynamic offer creation.”
A McKinsey study found that companies that are most effective at personalizing their offers see “5-15 percent increases in revenue and 10 to 30 percent increases in marketing-spend efficiency.” Sales increase and marketing costs are better managed.
That is also true of NDC, which powers airlines’ dynamic offers while making marketing spend more effective.
“The concept of Dynamic Offer Creation is crucial to airlines’ success in the digital age,” said Christian Popp—Vice President Distribution & Revenue Management Strategy, Lufthansa Group, in an IATA White Paper on the topic.
NDC is better airline retailing, for less
Another reason NDC has won over airlines is that it makes selling tickets cheaper. NDC allows airlines to make their own retail channel more effective, cutting down their dependence on GDSs, which charge airlines for the bookings made through their distribution systems.
Paul Byrne, Vice President of business development and strategic partnerships at OpenJaw Technologies points this out in his own analysis for PhocusWire of NDC’s potential to support airline recovery post-COVID.
“Airlines must pursue every effort to reduce costs. NDC enables the offer, ticketing, and settlement to move from the GDS to the airline. As a result, more control delivers cost savings in back-office processes built around the enforcement of product rules and settlement mechanics between the airline and its distribution partners,” Byrne wrote. “Indeed, British Airways and Lufthansa have begun to adopt a strategy of removing fares from the GDS or creating fares that are exclusive to their NDC channels to accelerate the adoption of the channel—and reduce the costs of GDS fees.”
The aim of NDC was always to optimize the effectiveness of all potential sales channels, including GDSs, allowing airline customers to see comparable product offerings no matter how they choose to book their ticket.
In the end, Lufthansa Group and Sabre agreed on this point. They signed a new, more flexible distribution agreement at the end of 2020, “enabling agencies to agree bilaterally on NDC with Lufthansa Group airlines.”
Tamur Goudarzi Pour, Senior Vice President Revenue Management and Distribution Lufthansa Group Network Airlines and Chief Commercial Officer SWISS said of the new agreement, “Through this new level of flexibility, we jointly enable a diverse distribution ecosystem, extend the reach of NDC and allow for differentiated commercial models.”
As Adam Knights pointed out, “Multichannel choice is a key theme as we emerge into a world living with Covid-19. And the need for ultimate flexibility and choice is not just about price, it’s about having the right travel content for sale in the different channels and platforms that work for wherever a corporate traveler is on their booking journey, at that moment in time.
“And no two trips are handled in the same way. While price will always dictate most booking decisions, it is no longer the heaviest influence on how decisions are made. The world has been changing for a while and the pandemic has accelerated interest in factors such as sustainability and wellbeing.”
NDC offers a winning strategy for airline recovery
Refining your retail strategy for better product differentiation and personalized offers is a solid plan for recovery and long-term profitability.
Some travel companies have examined the effectiveness of their sales channels and made necessary improvements during the downturn. With smaller volumes to manage, the effectiveness of various offers can be easier to track.
Travel volumes are returning against a challenging economic backdrop, IATA reported during the Association’s recent Annual General Meeting in Doha. Willie Walsh, IATA’s Director General, said of the industry’s latest reporting, “It is a time for optimism, even if there are still challenges on costs, particularly fuel, and some lingering restrictions in a few key markets.”
But ancillary revenue growth is essential to improving yields. As IATA’s Hoyles said, “Value creation will be critical to profitability, and that’s driving airline retailing.”
How will NDC adapt to the recovery marketplace? According to Hoyles, “You will see us putting more focus on aspects around value creation, rather than on transaction volumes and individual programs.”
How can you create value with NDC?
- Display tier fares including “bare-fares” options for those who want to add the ancillaries they value most. Then, offer attractive package fares for those who would want more included in the price of their ticket.
- Make product features easier for travelers to evaluate quickly. Include any restrictions on tiered fare offers such as change fees, luggage restrictions, and seat placement.
- Highlight any perks included in the fare like in-flight food and beverage, extra leg-room, early boarding and free Wi-Fi.
- Make your “best offer” stand out visually and include rich content, which gives travelers a view of what they’re getting.
- Offer those searching the economy cabin a peek at the front of the aircraft, and make relevant offers that might encourage travelers to book a higher fare.
- Consider adding flight sustainability into the fares displayed, highlighting greener flight options or adding carbon offset credits.
- Merchandise ancillaries more effectively during the sales flow, presenting offers when they are relevant. For example, add our travel requirement widgets, which help travelers understand and obtain travel document requirements at the beginning of their flight search. That way, customers can book with confidence.
The opportunities NDC creates for travel’s recovery are practically limitless. We look forward to seeing what arises next in this space.
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