American Airlines will pay participating travel agencies $2 per net segment booked and ticketed using certified NDC connections at all points of sale on AA-marketed flights. The program requires agencies to cover distribution costs, but comes with a near-term content parity commitment. It also enables new possibilities for corporate bundles, waiver-and-favor management and risk management data.
They’re not up and running yet but the first agency participants are Frosch and HRG, according to American. The airline this week is hosting an NDC meeting near its Dallas headquarters with industry constituents.
Approved “Level 3-certified” New Distribution Capability connections include AA’s application programming interface and Sprk web application. Both are furnished by Farelogix. Some online travel agencies already use both. The airline said Concur would connect to its NDC API. The compensation program is the same whether agencies go direct or use aggregators including, perhaps ultimately, global distribution systems.
The program supports traditional settlement through ARC and International Air Transport Association BSPs. The NDC connection supports the same post-ticket servicing and change capabilities as GDSs offer, according to AA. Corporate clients can configure the content to include negotiated rates or block basic economy. A translation layer makes existing travel agency scripts compatible.
Among the possible NDC carrots are intriguing new features, largely subject to corporate client buy-in:
Fare bundles: Packages of services and amenities customized at the corporate level but also at the sub-corporate level — for example, just for the C-suite.
Flex funds/waivers and favors: Allows travel agents, or travelers using corporate booking tools, to access and apply waivers.
Enhanced duty of care: New types of data returned to clients about day-of-travel flight changes, whether booked travelers actually boarded and overwater flight position.
The optional program could spark the biggest changes to relationships between airlines and distributors since standard travel agency commissions disappeared. It follows the airline’s legal win over Sabre, which is under appeal.
“We’re not announcing any changes in how we work with GDSs,” said AA vice president of sales and distribution strategy Cory Garner. “NDC is too important to let it get confused with a GDS distribution strategy.”
It’s clear the airline wants out of the “full content” provisions in its participating carrier agreements with GDSs. How the economics of GDS bookings look after it comes to terms with them is anyone’s guess.
AA has been using NDC and its predecessor XML protocol since 2008 “and will be doing it for decades more,” Garner said. “Last year, we did 4 million transactions, or about 10 percent of U.S. point of sale travel agency volume, through NDC. That doesn’t account for NDC work we have done [for paid seats] with GDSs. Taking all that into account, about 50 percent of U.S. point of sale agency bookings are being effected by NDC in some form. We now have NDC in over 30 countries. We’re certified to expand to over 150 more.”
AA’s NDC program started with online travel agencies and until recently did not address corporate travel providers. The program, Garner said, unlocks great potential for TMCs to enhance their value to clients:
“We see agencies playing a bigger role in all aspects of the journey, including on day of departure. We’re moving in a direction that uses NDC not just to sell more, but also to provide a level of high-touch and seamless service that no airline has provided before through a travel agency.
“NDC in all honesty has always had a cost savings component to it. But AA’s NDC strategy is so mature at this point that we believe the costs we set out to save have already been saved. That frees us to focus on other high-priority things like how the NDC strategy combines with our overall commercial strategy. NDC from this point forward is a competitive strategy, a way for AA to differentiate itself from its competitors, to offer more compelling products and offer provide a high-level, seamless service that we don’t think other carriers will be able to match anytime soon.
“What we’re interested in is the trajectory. As long as we’re making progress towards a fully realized, end-to-end NDC model, AA will be more competitive than the rest of the airlines out there and that’s the prize we’re after.”
There are no volume commitments and no deadlines for agencies to decide on participation. To be published as part of AA’s ARC contracts with agencies, the incentive and content agreements are subject to change. Any partners who join the program and issue a ticket through it by the end of next year would be guaranteed those benefits through 2020.
AA is using the wholesale distribution model for the new program. That means it is choosing to pay only for “its own costs associated with operating the NDC connection and for any internal development undertaken by American to facilitate integration.” Assuming GDSs offer an NDC connection, this puts TMCs in the position of negotiating with GDSs the fees they would pay rather than receive from them (offset more or less, by the new $2 per segment incentive.)
If they decide to book off-GDS, said Garner, the “financial consequence” will be “top of mind” for TMCs.
Shifting their AA transactions could threaten agencies’ contractual volume commitments to GDSs. “The GDS-agency agreement is between that agency and its GDS, and American cannot become involved in that discussion,” according to AA documentation.
The new AA program adds to recently heightened activity in airline distribution. The industry already was grappling with IAG’s program to surcharge British Airways and Iberia bookings through GDSs — itself following the Lufthansa program begun in 2015.
After IAG in May announced its program, which takes effect Nov. 1, AA was quick to point out that bookings with its code on BA and Iberia flights would not be subject to the surcharge. In revealing the new program today, AA made a few points to distinguish it from its partners:
• “Why don’t American and BA use the same NDC solution? Each airline has its own priorities for NDC and determines whether to ‘build in-house or buy from the market’ according to its own analysis. American chose to ‘buy’ its NDC solution by using a third party technology company called Farelogix. Since NDC is a technology standard, regardless of whether an airlines builds or buys its NDC solution, each airline’s NDC will be comparable so that travel agencies need not worry about connecting to airlines with wide variations in NDC technology.”
• “Why is American’s approach to NDC different from its Atlantic Joint Business partners? American and its AJB partners have their own distribution needs and considerations. Like American, British Airways and Iberia’s NDC solutions are built upon IATA industry technology standards.”
Some New Distribution Capability advocates thought it lamentable that British Airways and Iberia tied their surcharge announcement to the NDC program. IATA for years had been trying to say the connectivity standards were not part and parcel of airline cost reduction programs or GDS negotiations.
“For airlines, this isn’t just a transaction fee,” said ARC CEO Mike Premo. “It’s about aggregate revenue, customer loyalty and brand value.”
NDC is a messaging standard. Airline-GDS talks are a commercial issue. But all these dynamics are intertwined. Costs shifts to intermediaries and clients seem inevitable.
American Express Global Business Travel last year introduced a fee program to address similar situations. Carlson Wagonlit Travel today issued an updated statement on the topic: “Distribution dynamics or decisions by other parties that require us to access or book content via independent fare links or other inefficient means drive material non value-added costs. Accordingly, in order to continue to holistically meet the needs of our clients and partners, we may need to implement new/different types of charges in these types of circumstances.”
During an American Society of Travel Agents event in early June, World Travel Inc. president Dee Runyan said the IAG move “affects us, potentially our revenue streams, and for our corporate customer clients a price increase ultimately. For most of us, more than 50 percent of our business runs over an online booking tool. So we turn to them.”
Also speaking at the ASTA event, Deem chief commercial officer Tony D’Astolfo said, “We’re going to figure out a way to bring that content in. If they have an API available to us … it will look just like how we source Southwest today, which is next to everybody else.”
None of the companies listed in IATA’s NDC registry as having full capabilities is a major corporate booking tool developer. Aggregator Travelfusion is listed as such. Its corporate travel software clients include Concur.
“The evolution of NDC itself is probably the biggest challenge,” said Doug Anderson, SVP for the travel product at Concur, during a Wednesday interview.
“Every supplier seems to have their own flavor of the standard,” added Concur EVP for supplier and TMC services Michael Koetting. “Our preference, if possible, is for content to be made available via the GDS because we know it’s efficient for the rest of the managed corporate travel ecosystem, particularly our TMC partners. If that content is not available in the GDS and it is relevant and compelling to our travelers, then we’ll do what’s necessary to secure access to it. That includes if it’s NDC content not available in the GDS.”
The TripLink strategy, Koetting said, is in place because “we know that for whatever reason some travelers prefer to book with the supplier and we believe that when travelers do so they should have access to their corporate discount and those purchases should be every bit a part of the managed corporate travel program as a traditional GDS-based booking.”
Even if the content is the same as in another channel, such as NDC? “Even when [for example] there is full content in the GDS, we know — based on Concur, GBTA and TMC statistics — that there are a lot of travelers who book directly with the supplier. There is unique content, there is a perception of unique content or maybe it’s simply a convenience factor.”
AA signed up last year for TripLink. Garner said more on that would be announced soon.
Given AA’s program and IAG’s plan not to surcharge bookings through NDC connections, a burning question is how soon GDSs will hook up to NDC application programming interfaces. IAG told the industry it was “continuing to work with the GDSs on potential NDC connectivity.” None of the three major GDSs is listed by IATA as having full “offer and order” capability.
Travolution quoted an Amadeus official as saying the GDS does not expect to add BA’s NDC pipe until as late as 2019. He said this is because the next version of IATA’s standard is not expected until December.
17.2 And Corporate Travel, Too
Like BA’s last year, AA’s NDC summit is designed in part to increase understanding of and support for NDC in North America. The corporate travel community here lags its European equivalent. NDC supporters reported a lot of improvement in corporate travel awareness following the late May IATA Business Travel Summit in Geneva. Its agenda featured five buyers and there were many more in the crowd. AA managing director for strategic account sales Hank Benedetti spoke.
IAG didn’t show, raising some hackles.
Attendees declined to be quoted because IATA asked that what happened in Geneva stayed in Geneva. A few of them told The Company Dime that participating corporate buyers demonstrated an increased appreciation of NDC’s potential for improving the customer experience through dynamic bundles and other negotiated content.
Farelogix CEO Jim Davidson said he heard some rallying around NDC’s next version, 17.2. His favorite anecdote from the conference illustrated the increased awareness: “I heard corporate buyers talking about a schema version!” Davidson said that as a tech developer, Farelogix takes on the onus of keeping up with all the versions. Garner said AA’s API is compatible with multiple iterations.
By all accounts, the technical issues are the easy ones. More difficult is the question of how GDSs would be paid under new frameworks. Sources said multiple pricing models are under consideration, and they are likely to differ by market. Perhaps it’s based on full content versus non full content versus NDC. Perhaps it’s a more complex version of “home and away” segment pricing. Maybe airlines pay distributors next to nothing on basic economy.
As AA seeks to expand the wholesale model, sources said BA is looking at something very similar.
That NDC and airline-GDS negotiations can be considered separate matters offers little comfort for intermediaries that would rather not spend development dollars incorporating a new pipe when they’re perfectly happy with the GDSs. That is, unless the benefits outweigh the costs.
There are reports of custom fares and features enabled through direct connections, but the Europe-based carriers have not described any financial incentive program for booking in new ways (only a penalty for not).
“We’ll figure it out,” said Direct Travel senior vice president Mike MacNair at the ASTA event. “We have and we will. There are more opportunities for us to charge more for consulting and systems development up front. It’s impressive how this industry adapts and stays relevant.”
Some will emerge as bigger winners than others. Former CWT executive Martin Warner, now a consultant with MW Consultancy, offered his thoughts after the IAG announcement:
“The intermediaries (TMCs, OBTs and online travel agencies) are at different stages of readiness in integrating NDC solutions to ensure travelers and corporates can still see ‘full content’ choice across carriers in the booking/enquiry process. Will clients move if certain TMCs are not ready in time, or at all? Some who do not have independent layers above the GDS may have to simply pass on the [surcharge] to the client until such time that they have integrated capability to view and book using NDC content.”
He wonders how much room is left for cost increases to clients.
“What is the ‘tipping point’ of any increased premium of buying through a TMC rather than direct? If it becomes another $20 more expensive to book via a TMC, does the TMC value proposition get challenged sufficiently that their addressable market size reduces as some clients — both at the low end of managed/unmanaged, and those big enough to re-engineer their managed travel programs — re-examine the ‘prime contractor’ role of the TMC and find alternatives for online/untouched bookings where they consume less of the TMC’s services?”
Concur’s Anderson said another challenge “for most managed programs is in support. How do you support those bookings? That’s still kind of the big piece to work through.”
According to AA, its NDC connection offers full support capabilities for settlement and changes.
“With British Airways’ NDC connection, tickets are issued by British Airways,” AA noted. “American’s NDC issues tickets on neutral ticket stock to facilitate existing industry and agency processes.” Garner explained that when an airline sells a ticket on its own stock, that limits the agency’s capability to interact with the record post-ticketing. Some airlines have established processes to open up those tickets amid disruptions.
“From the beginning, we issue tickets on neutral stock like an agency is doing with a GDS, so the agent is in control at all times,” said Garner.
Additional info: The $2 incentive will result in back-end payments settled as an ARC/BSP agency credit memo. Agencies can combine the program with other AA incentive agreements unless they already are on the wholesale arrangement, as some OTAs are.
The content commitment: “Agent will have access to the best published fares for American-marketed flights made generally available to the public (e.g., through aa.com or a GDS), and all schedule information and seat availability related to such fares.”
Ancillary products currently available in AA’s NDC: paid load factor-based upgrades, same-day flight changes, same-day standby, paid seat assignments and pre-order meals. The airline indicated “plans to offer pre-paid baggage and is evaluating a variety of other enhanced functionality and ancillaries to make available via its NDC connection.”
More than 250 people from 20 countries representing about 120 travel agencies, 24 technology companies and seven industry organizations registered to attend AA’s NDC Summit, according to Garner. Speakers included AA personnel as well as AmTrav’s Jeff Klee, HRG’s Nigel Meyer and a representative of a year-old tech firm called AirGateway that offers “NDC-compliant real-time aggregation” to TMCs and others. It adopted BA’s NDC connection last year.
Disclosure: ASTA and The Company Dime have a research and events partnership.