Eastman on NDC: Why TMCs Must Adapt to Distribution Change

This is part one of a two-part interview with travel technology consultant Richard Eastman on what NDC means for the travel agency industry.

Ever since IATA blew the airline distribution world out of a slumber last October with its New Distribution Capability plan, currently awaiting approval from the U.S. Department of Transportation, there was been a frenzy of reaction throughout the travel industry.

(See NDC Debate Heats Up as IATA Seeks DOT Approval and IATA Distribution Plan Unleashes War of Words)

The two sides don’t even agree on what they disagree about.

ASTA and the Business Travel Coalition launched a campaign to scuttle NDC before it ever goes into effect, while GBTA expressed its own reservations about NDC.

IATA calls its New Distribution Capability a new electronic messaging standard. The new language standard, XML, will bring airline distribution out of the GDS age into the Internet age. IATA says the XML-based standard will exist alongside the current EDIFACT data exchange standard to provide full price and schedule transparency.
    
ASTA and the Business Travel Coalition portray NDC as a new business model for pricing and selling airline tickets that requires authenticated shopping.

They say the  travel buyer, be it agency, TMC, or the traveler directly, must disclose the traveler’s identity with frequent flier numbers and other identifiers, travel history and purpose of the trip to access schedule and fare information. The carrier would make its product offer based on knowing who is making the request.

That could mean airlines making ticket offers rather than third parties such as travel agencies or TMCs. One agency group exec said the loss of overrides and GDS fees would mean an 80% decline in profits for commercial agency members.

For its part, IATA vehemently denies that anyone will be forced to provide personal data. It maintains that anonymous shopping will continue.

Eastman: a needed development
While acknowledging that “there will be agents and portions of the GDS offerings that will not survive the reconstruction of the travel distribution solution,” airline data insider Richard Eastman, president of The Eastman Group, said NDC is an inevitable and much-needed development.

Eastman, whose company has been designing data systems for airlines, GDSs and travel management companies since the days of mainframe computers and blinking green cursors, talked with Travel Market Report about ways NDC could change distribution and what it means to travel managers, TMCs and business travel agencies.

What role does NDC leave for existing distribution channels?
Eastman: The world we’re moving toward at an increasingly rapid pace is one driven by open access to digital information from multiple sources. Travel vendors will digitally package “tailored travel” itineraries from managed, customer-focused offerings that become available as a function of demand.

The travel agent of today will be real-time digital packagers tomorrow – using diverse web-based tools to search and build real-time integrated total travel solutions.

There are very narrow margins in producing any commodity – strawberries, microchips, electricity, cloth, airline seats. Virtually all commodities must be packaged in one value-add way or another to increase margins.

The value-add airline products are upgraded business and first class seats, which represent about 20% of the available seats and 80% of the profit margin. The only way to increase margins on the other 80% of the commodity airline seats is to enable them to be cheaply (i.e. digitally) distributed to an ever-increasingly diverse group of niche-market packagers. Hence, NDC.

TMCs and travel managers will need to learn to use new e-commerce tools, including customized search engines with business rules tailored to their own clients’/corporations’ needs. But once the transition is completed, they will wonder why it took so long.

Where do the GDSs fit into NDC?
Eastman: The biggest and most obvious alternative is for the GDSs to become wholesalers. That is no different from a wholesaler in most other distribution channels. The GDSs would have to take some risk, commit to volume purchases for the airlines on behalf of their collective agent group. But the GDSs already know how much each agency produces. That’s what the incentive programs are all about.

Concurrently, the GDSs now have a margin to play with, too. They can digitally package on behalf of their agents or in competition with them, as most wholesale operations do today. It’s a matter of mindset. The GDSs won’t go away, in part because they have the infrastructure in place to distribute digital product. It’s the pricing or payment model that must change.

Where does that leave companies with managed travel programs?
Eastman: They will not be able to optimize travel to best meet company and traveler needs across the increasingly necessary digital communication mediums without NDC. It’s as simple that.

NDC is not a threat to today’s travel-channel dependent distribution model; it is a necessary basis for integrating the airline commodity seat into the value-added packaged travel product of the future.

Without NDC, digital packagers will be dependent on antiquated legacy distribution channels controlled by the GDSs, which mold travel around airline seats. Most travel today is driven by business or personal needs and involves far more than just getting from A to B.  

The world changes and we must either change with it or hang it up. You can’t go back, you can’t even sit still. While hotels and other travel vendors marched ahead with alternative distribution solutions, airlines hunkered down behind their legacy technology walls. The airline industry is just waking up to what bypassed them while they depended on their legacy business processes and structures.