Interview: How the original NDC concept was killed by consumer choice and market forces

Interview: How the original NDC concept was killed by consumer choice and market forces

Iata’s New Distribution Capability (NDC) as originally conceived is “dead and buried” having gained acceptance after its controversial emergence, a leading figure at Amadeus believes.

Svend Leirvaag, vice-president industry affairs and corporate social responsibility at Europe’s leading GDS, said market forces, particularly in fiercely competitive Europe, should dictate how NDC ultimately operates.

He said the new data distribution standard, touted by Iata as a way to bring Amazon-style tailored retailing into airline distribution and a greater array of ancillary products and services, was based on a flawed concept of personalisation that was ‘hijacked’ by airlines.

With the acrimony of the original announcement of NDC now put to one side an accord has been reached between the airlines, Iata and the traditional distribution model epitomised by the GDSs, which Leirvaag said could lead to a new relationship between airlines and agents.

Speaking to Travolution before Lufthansa launched its own attack on indirect distribution with its €16 GDS fee, Leirvaag gave his assessment of NDC today drawing on his 20 years experience in the airline, travel management and GDS sectors.

“There are too many people who try to simplify without trying to understand the complexity,” he said. “When that happens that’s potentially very, very dangerous. If you simplify in aviation and jump to conclusions it might be physically dangerous.

“If we as organisations based our decisions on superficial understandings and not profound understandings of the fundamentals of the business we are in, we are likely to make mistakes and waste energy and what we do it less effective and less efficient.

“Distribution is something that unfortunately too few airline executives understand. But we have definitely moved on. For all intents and purposes NDC is dead and buried as the conceptual idea that came out of Iata Resolution 787.

“We have moved on to what we are talking about today which is to standardise some of these systems to enable more dynamic and rich content in indirect distribution channels. In that sense we are all aligned in that we are all trying to make this the across-industry collaborative process it should have been in the beginning.

“We will develop standards and capabilities within a framework that’s open and transparent and non-discriminatory. Then it will be up to the marketplace or the regulator to decide who wins or what is allowed.

“It’s not up to the airlines to impose this on everyone else. The unfortunate thing was, as an industry, we wasted two years and many millions of dollars. But we move on.

“Some people may have been right in that we [GDSs] perhaps should have responded earlier, should have been more proactive in exploring these new types of developments.

“What’s easy to forget is this is an industry, at least on the airline side, which is based on standards that Iata have set since the beginning of time. The industry works on the basis of standards.

“We operate a marketplace and we are also regulated to make this natural and transparent. It has to be non-discriminatory. Bringing things to market that’s regulated to operate naturally will always be different to any one airline putting something on its own website.

“Every airline will try to function as profitably as possible in whatever environment it is in. What sometimes is also forgotten is there is no one global airline industry.

“The terms and conditions under which US carriers operate are so different from those that apply to airlines in Europe. Europe is extremely competitive and very, very consumer friendly, sometimes to the detriment of airline profitability.

“Because the market conditions are different the players operating within them are disciplined in different ways depending on how liberal or transparent the marketplace is.

“If a carrier in Europe on any give city pair lowers their fare, because there is significant competition, someone will match that fare. The market disciplines the players.

“They cannot maintain a competitive advantage for any period of time. This may not be the same in the US because the competitive situation is different.”

Leirvaag added there remains a clear requirement from the customer for choice, transparency and for the ability to compare different products and assess alternatives.

And he said this will force players in competitive marketplaces to offer comparable products rather than to become more opaque by tailoring offers to individuals.

“In a fiercely competitive market like Europe the market will discipline the players so we will return to this mainstream concept of products and services that are comparable and manageable across the value chain.

Conceptually, NDC was an attempt to redesign the business model of the distribution marketplace. You cannot have a trade association imposing on marketplaces how it should work.”

Leirvaag said the concept of personalisation had been hijacked by some airlines who took it to mean a form of “reverse marketing” in which the customer tells the airline who they are and the airline then decides whether to give them an offer.

“The concept of personalisation is very different if you see it from an airline’s point of view than if you see it from the point of view of the customer. If I’m a customer I might put my criteria in the market and then I want providers to come and compete for my custom.

“The old NDC perspective was the airline would receive all that information and opaquely design product and respond to you saying here is my best offer, but you would not be able to see any others.

“Now we are back to a common understanding that says the consumer is king at least in competitive marketplaces like Europe and personalisation needs to be on the terms of the consumer. He will share his information if he receives value.

“It’s then up to the marketplace to deliver a personalised offer based on the needs of the buyer, not on the wants of the provider.”

Leirvaag said even when technology enables new products and services to be available the extent to which different airlines and distributors actually adopt them, it is also dictated by local market conditions and having the right agreements in place.

“It will also be driven by the operational readiness to deliver these products and services. There is also some inherent slowness in adoption for operational reasons,” he added.

“The key barriers to adoption are not technology but operational readiness. How can you make sure that the key customer segments, for example the corporate market, are offered services they are likely to purchase and are consistent with the requirements of corporations?

“What are the incentives that the participants in that value chain have for searching for that service and will corporations allow travellers to buy them. How is it possible to marry up those often contradictory concerns?

“There needs to be a business model for how this is delivered through the value chain. Is it something that the corporate wants the TMC to do for them and they will remunerate the TMC?

“If it’s something that the airlines want then it’s up to them to incentivise the indirect channel. That’s up to individual carriers.

“From my point of view, based on experience, I think the airlines have alienated the travel agents for quite some time, ever since they pulled back the commission they have said you are no longer my extended distribution arm.

“I’m not sure that’s necessarily the best way for airlines to continue. Maybe there’s an argument for airlines to re-engage with the travel agency community to say we are all in this together.

“I’m not sure agencies would want to become airline agents again, but there is a case for the airlines to at least explore how they can engage with the travel agency community to facilitate a new type of behaviour on certain products and services.”

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