Costs of distribution remain key for airlines as NDC tipped for 2020

By Martin Cowen, following the OpenJaw t-Retailing Summit 2014

Arguments over the cost and value of distribution dominated the penultimate panel session at this week’s OpenJaw t-Retailing Summit in Dublin, in which an Iata representative said that NDC would benefit integration costs more than distribution costs.

Andrei Grintchenko, who is managing the NDC project for Iata, admitted that “there will be adoption and integration costs, but how significant will depend on the individual airlines.

“Carriers will have to do their own business case. Part of the pilot projects for NDC will assess the varying cost structures but there are as many answers as there are airlines.”

New distribution dynamics are an upfront cost for airlines, with the financial benefits coming later. Dmitry Chukyo, chief executive of S7 Tour, said: “Investing in distribution can be huge, but the technology costs are equal to the marketing costs.”

However, he also pointed out that “product and service are what drives the business, not the distribution. Good routes, new planes, service at the airport. Technology is not really the issue because it is available from our partners.”

Short-term pain for long-term gain was a concern for Bryan Porter, e-commerce manager for South African business Comair.

He is in charge of its BA franchise operation in southern Africa as well as, an online travel agency based around a low-cost airline of the same name.

“The ultimate outcome of a distribution strategy is to sell more, but there is a difficult balance when it come to estimating the costs and the return and then presenting that argument to the board.”

Airline finance departments should look beyond costs in isolation, according to Eric Dumas, chief executive of fares search specialist Vayant Technologies.

“Sure, there is a cost every time someone searches for a price, and often there has been a cost bringing that customer to the site, but the most important thing is the value of that customer – conversion, repeat visits, need to be considered.”

Back to NDC, each of the panellists was asked to give a year when NDC would be fully adopted by the airline – the consensus from the four panellists was that it will not happen until 2020 at the earliest.

In a later session Fergal Kelly from Travelport, the owner of the Galileo and Worldspan Global Distribution Systems which are dominant in the UK, said that this was “optimistic”.

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