Airlines are now moving to a new retailing era with the introduction of the New Distribution Capability (NDC) standard, in line with online shopping habits of consumers. NDC, says Jerrin Jos , founder and CEO of Verteil Technologies, has the potential to end the ‘either or’ choice in aviation’s direct booking versus third-party distribution. Founded by four airline IT industry veterans, the Kochi-based company has the support of the Kerala State Industrial Development Corporation Ltd. and is one of the few aviation start-ups in India. Excerpts:
The indirect distribution of airline sales is estimated to be about 80% of the business. How does NDC fit in this space?
There are two fundamental issues plaguing airline e-commerce today: the high cost of airline content distribution and a lack of innovation. Travel agents still subscribe to services that the global distribution system (GDS) offers, which is built on 40-year-old legacy technologies.
They miss out on the wide array of products and services that airlines sell on their direct channels today. GDS technology generally lacks innovation in offering “enhanced shopping capabilities” that go beyond a simple cryptic fare or rate display due to its technology limitations. Therefore, it is obvious that airlines have no control over how they would like their own products to be branded in the indirect sales channels as they are represented as “commodities” in travel agency displays. The legacy distribution systems also use age-old teletype messaging protocols for data communications with airlines, typically using the communication networks provided by SITA and ARINC. In short, while most other e-commerce industries use the Internet for content distribution, airline distribution is still dependent on legacy communication channels. As consumer expectations increase in the retail sector to include more choices, frictionless purchasing, inspirational shopping and other personalised services, these expectations are beginning to spill over into the travel market.
Over the last two decades or so, there has been growing pressure on airlines to reduce distribution costs which contribute to around 6%-8% of their overall expenses, largely the result of significant transaction fees that airlines pay the distribution service provider, the GDS and other intermediaries. There is also the fixed fee per message exchanged to the network providers (SITA/ARINC) due to the legacy nature.
NDC enhances the communication channel between airlines and agents. It is a ‘travel industry-supported programme launched by the International Air Transport Association (IATA) for the development and market adoption of a new, XML-based data transmission standard’. With NDC-based direct connect technology, travellers will finally have access, in the indirect sales channels, to personalised offers, real-time fares, ancillary products and services such as priority check-in and a variety of meal options offered by an airline.
How does NDC work? What are the benefits?
The lack of innovation and increased cost factors in the distribution sector have made airlines think about the following: how to enable in indirect channels the same shopping experience a traveller experiences today on an airline website; how to control content and differentiate the airline brand in the indirect channel; how to sell the complete portfolio of products including ancillary products through indirect channels, as around 10% of airline revenues is from the sale of ancillary products through airline websites today which is increasing by the day, and, finally, how to reduce the cost of distribution in indirect channels. With a clear need for change, IATA, the parent body of airlines, then decided to come up with a new distribution standard, NDC, which is ‘an open Internet-based data exchange standard to support current and enhanced airline distribution capability’. The NDC standard was formally approved in October 2014 when the U.S. Department of Transportation passed Resolution 787 (Enhanced Airline Distribution). NDC allows IT providers such as Verteil to [enable] travel service providers and travellers to connect directly with airlines and get access to their full and rich content. In today’s distribution ecosystem, the NDC Standard ‘enables the travel industry to transform the way air products are retailed to corporations, leisure and business travellers. It also offers a transparent shopping experience’. Agents get more options to offer to travellers and step up their quality of service.
They also get an opportunity to increase their topline, selling ancillary products. Many airlines are also contemplating introducing differential price points for NDC-based sales whereby agents have access to much cheaper fares.
How many airlines are NDC certified? What markets are you eyeing?
There are 55 airlines which are certified, including British Airways, Emirates, Lufthansa, Qatar Airways and American Airlines. IATA expects about 120 airlines to be certified before 2020.
For Verteil, which has IATA NDC Level 3 certification, a lot of focus is on our home market, India. We know how the travel agency landscape works here and are visualising a future distribution environment on their behalf. We are also focussing on Asia-Pacific by working with our partners in these regions. The major benefit is that our product is 100% aligned to run on public cloud infrastructures over the Internet. It is currently on Amazon public cloud and can be accessed anywhere in the world.
You claim to have facilitated the first such NDC sale in India, for a British Airways ticket in the Chennai-London sector in early December 2017. How certain are you about this? How did the tie-up with this airline come about?
We have been following NDC ever since its inception and not come across any report on live ticket issuance using NDC in India.
The fact that several challenges have had to be overcome at various points in the NDC value chain during our launch also points to no one having done this in India so far.
British Airways has been a frontrunner when it comes to innovation, so the airline was an obvious choice for us as launch partner. Our experience in designing mission critical airline systems has helped us build an extremely secure and scalable system, which is reassuring to an airline. Connecting directly to airlines can be tricky if the right design principles are not followed as no airline wants any disruption in its day-to-day business. We understand this having worked from the airlines business side too.
How will you move forward in India vis-à-vis airlines and travel agents? Would travel agents have to scale up their systems considerably?
IAAI, one of the major IATA travel agency consortiums with around 1,400 agency members pan India, has signed a contract with us. Verteil is also in the process of “on-boarding” these agents to migrate a significant volume of indirect airline sales in India to its direct connect platform. We plan to open up our platform so that any interested party which wants to sell an airline ticket directly can be given access after the required authentication and authorisations are in place.
Travel agents can now issue tickets from anywhere and from any device, which has not been quite the case so far. The product itself is extremely user-friendly and training costs should be close to zero. These are sure to encourage agents to make the change and full use of our product.
How do you anticipate those controlling the GDS space to respond?
We are sure GDSs will also see the immense opportunities in direct connect although it would be a major shift for them. At the end of the day, we believe that whoever can strike the right balance between the most efficient business model and most optimum commercial model will stand to gain in this changing airline distribution scene.
