Creating value for airlines through retailing

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The COVID-19 pandemic has caused a catastrophic downturn in air travel, revenues, and profitability that has continued through the 2021 first quarter. Perhaps surprisingly, over the same period, the industry’s drive toward airline retailing, enabled by initiatives such as the New Distribution Capability (NDC), has accelerated.

“There was strong momentum toward NDC across the entire value chain before COVID-19,” says Yanik Hoyles, IATA’s Director Distribution. “Since then, many airlines, technology providers, and travel sellers have intensified this drive and maintained retailing as part of their core strategic priorities.”

In the early days of the crisis, the Distribution Advisory Council (DAC), one of nine Councils that are part of IATA’s governance structure, recognized the importance that airline retailing would play in the industry’s post-COVID recovery, says Hoyles. In April 2020, the DAC strongly agreed that NDC needed to continue to be supported and moved forward, even as IATA rapidly shifted priorities and resources to focus on the industry’s survival.

Based on developments over the past 12 months, the wisdom of the DAC’s decision is clear. For example:

  • Between March 2020 and April 2021, the number of NDC certifications (airlines, IT providers, sellers) grew to 193 players, an increase of 18%
  • In June 2020, the NDC Leaderboard airlines collectively hit the target of having 20% of their indirect sales coming from their NDC API, albeit on a very low number of bookings and with a favorable passenger mix (short haul & leisure).
  • Several third-party distribution agreements have been announced among airlines, GDSs, and IT providers, some of which incorporate new commercial models reflecting landmark changes facilitated by NDC.

“The post-Covid19 world will be different,” says Hoyles. “It will take a while for travel volumes to get back to 2019 levels and in the meantimevalue creation will be critical to profitability, and that’s driving airline retailing.

He continues: “You will see us putting more focus on aspects around value creation, rather than on transaction volumes and individual programs.”

As part of this new approach, the Leaderboard strategy will be coming to an end. “The intent of the Leaderboard was to support the drive toward a critical mass of NDC transactions and to serve as a kind of pathfinder for the industry. Now that NDC is mainstream, we are focused on moving to an inclusive approach that encompasses all IATA members, and that focuses not only on volume but also on value creation.”

It also means embracing a more recent standard as the industry’s baseline. Hoyles explains that most implementers of enhanced distribution standards are on the 17.2 release of the NDC standard. The significant improvements in capability that the later releases contain (particularly servicing capabilities) are therefore not being widely adopted.

The industry governance groups around NDC, comprised of airlines and value chain partners, agreed on the need to identify a new version to which the industry could migrate. On 10 March 2021, the Shop Order Standards Board (composed of airlines) selected the 21.3 release as the version around which the industry can converge. Further, releases subsequent to 21.3 will be backwards compatible to 21.3. This means that implementers may now choose to upgrade to this version knowing that future releases can be implemented in a simpler and more cost-effective way. The 21.3 release will be published in September 2021.

The NDC Certification program also will be evolving, says Hoyles, with an added component of value creation guidance and tracking. The new model which, will be called the Airline Retailing Maturity Index looks to the broader scope of airline retailing with an increased focus on value chain partnerships and value creation. It will be rolled out during 2021.

The stakes are enormous. According to a report from McKinsey, airline retailing has an industry average value creation potential of up to $7 per passenger, the equivalent of approximately 4% of revenue.

“In a digital world, airline customers’ expectations for personalized offers, real-time information, and seamless transactions are growing,” says Hoyles. “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.”

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