NDC’s Upshot: Altered TMCs, Evolved Air Deals

By | May 3, 2017

British Airways expects later this month to share more details about its distribution strategy. Possibly in conjunction with a surcharge on GDS bookings, BA will discuss use of IATA’s New Distribution Capability. Lufthansa made its big splash along these lines nearly two years ago. Last week the Germany-based airline group hyped NDC-enabled direct connections with a pair of U.K. travel management companies. While NDC’s potential impact on distribution chain economics remains fuzzy, corporate travel benefits are starting to come into focus.

Generally, those benefits fall into two buckets. One is accessing in the indirect channel (TMCs and self-booking tools) all the products and services sold through the direct channel (airline.com websites). Airlines say it’s important to differentiate themselves versus competitors in all sales channels. This should help travel program managers, too, by keeping travelers within designated systems. Working with the KDS self-booking tool, PwC secured such an arrangement with U.K. carrier Flybe.

The second is securing personalized products and services.

Airlines won’t be limited to the 26 letters of the alphabet when constructing fare types, said Festive Road managing partner Caroline Strachan. “In a future contract,” she explained during The Company Dime’s April Teleconference, “you might have 10 different types of an economy fare and 10 for business class, and you can personalize based on the kind of traveler.”

This would transform corporate airline relationships.

“Up until now we have been negotiating purely on costs — discounts, rebates, fixed fares and so forth,” said Ingersoll Rand global travel, fleet and meeting services director Pascal Struyve, also during the April Teleconference. “We’ll start talking way more about experience.”

Each organization would pick the product attributes that are important to them. Maybe last-seat availability comes into play, if an account is willing to pay a premium for it. A member of IATA’s travel manager advisory group in Europe, Struyve said he would evaluate the idea for certain routes. In other cases, it may not be worth it, just as last-room availability in the lodging world appeals to corporate buyers in some but not all situations.

Dave Weaver

Bechtel Corporation manager of travel procurement Dave Weaver

Bechtel Corporation manager of travel procurement Dave Weaver told Teleconference listeners that airlines today block off seats for preferred travelers, “but we don’t have the visibility into that today in all the systems we use.” He, too, pointed to hotel LRA to describe the considerations: “If you have LRA on your preferred rate, you are relying on the faith of the vendor to provide that and be transparent with the information. It is not really measurable and controllable.” If last-seat availability proves otherwise for airline contracts, “great, it’s on the table.”

What’s measurable also colors Struyve’s thinking. The more quantifiable, he said, the better the airline relationship. If airlines want to use NDC to personalize “the right offer,” the client should know how often the airline actually is delivering. “In today’s world, we are held accountable for marketshare or volume targets,” he said, but in the future it would work in both directions. That could mean new service-level agreements or key performance indicators embedded in corporate deals.

TMCs And ‘Service Intelligence’

One concern among travel buyers is the potential flood of product and service information going directly to travelers. Won’t program managers lose control? IATA NDC program director Yanik Hoyles addressed the concern during a Business Travel IQ webinar last week. “Whatever environment we are in tomorrow, the buyer still will be able to control what comes through that pipe with their travel policy,” he said. “It’s just that there will be more stuff to control and more opportunities to allow things to come through if they want to let them through.”

This is where TMCs can continue earning their stripes.

“Corporations still want to manage spend,” said Weaver, a member of IATA’s North American travel manager advisory group. “We still need to control the buy, so how do we do that in NDC? That’s going to put a lot more pressure and a lot more accountability and responsibility on the intermediaries going through this content to deliver the right corporate policy-driven price.”

This is part of what Weaver called “service intelligence.” For TMCs, that also includes understanding the value of client travelers’ time and moving away from strict transaction-oriented mindsets.

Struyve agreed, using the familiar refrain that TMCs must become “travel consultants in the true sense of the word.” Since his program spans the globe, requires consolidated reporting and considers duty of care, he saw no path forward that excludes the TMC as an essential element.

Though it’s not using NDC, Siemens is booking simple transactions on Lufthansa without a GDS. Officials there also talked about the need for the TMC to up its game on what’s left.

U.K.-based TMC Portman Clarity said it is testing with one client the Lufthansa direct connect using NDC. A Farelogix application programming interface connects Lufthansa’s res system with Portman Clarity’s point-of-sale systems. Those are white-labeled versions of booking technology developed by Atriis Technologies and other partners, according to Portman Clarity CEO Patrick McDonagh. GDS and non-GDS content is commingled in one spot for agents and for travelers using the self-service components.

McDonagh hoped GDSs and NDC-enabled channels would work together. Maybe when the dust settles, in some cases, functions including booking, ticket management and schedule changes stay in GDSs while rich content and additional products and services come in through an NDC channel. Portman Clarity embraced the Lufthansa direct connect to “influence change” rather than being left behind, McDonagh said.

He acknowledged that “lots of work” is needed for NDC to replicate everything GDSs do. The parties are in “discovery phase” on sorting out how much manual effort will be required to handle post-ticketing tasks like exchanges and refunds, he said.

McDonagh also said part of the challenge is the loss of GDS incentives and reduced profitability on bookings through the direct connect. “It depends on what we agree with the airline,” he said. “As an early adopter, we are in position to make sure commercially we are made whole.”

Click Travel is another U.K. TMC publicizing participation in the Lufthansa/Farelogix program. Executive chairman Simon McLean indicated in emailed statements that client fees are no different for Lufthansa direct connect bookings. He also discussed losing GDS incentives on relevant Lufthansa transactions and the impact on margins:

“We have anticipated losing such incentives anyway. The world of direct connects is going to change how TMCs work commercially. It’s time to get on board rather than burying one’s head in the sand. The revenue model of travel agencies/TMCs has to change, and the days of being paid to simply make bookings are numbered because travel suppliers don’t see that as adding value to their business anymore. We need to find new ways of providing value to travel suppliers.”

Lufthansa connects into Click Travel’s travel.cloud platform, used by agents and customers. For Lufthansa bookings, McLean said Click Travel also needs the Farelogix Sprk desktop system for “some processes” that are not yet available via the API, “but once they are this will change.”

BA On Tap

Several other carriers are pushing ahead on NDC initiatives. British Airways is among the more active. Asked about BA, McDonagh said Portman Clarity is “working actively on their next stage.” McLean wouldn’t confirm Click Travel’s involvement, saying only that the TMC has “a number of other direct connects under development.”

“BA seems to be focusing on expanding the capabilities offered by their NDC interface, with a (comparatively, at least) wide array of offer and order management features, including cancellations and changes of itineraries as well as the more commonplace ancillary merchandising support,” according to a January 2017 report from airline IT research firm T2RL. “With BA now being connected to various aggregators, agencies and both Skyscanner and Kayak, we feel British Airways has the broadest and most mature NDC rollout to date in the market.”

According to BA documentation, the airline’s NDC program will offer seat and bag purchases, improved product feature information, a lowest-fare finder, reduced debit memos and continued payment by “credit and debit card or IATA BSP (where available).” British Airways declined to make officials available for an interview.

A recent ARC presentation positioned British Airways at one end of a spectrum of airline approaches to NDC. Focused on a “direct distribution strategy with the agency channel … BA would issue the ticket/EMD and bill the credit card. All post-ticketing changes would go through the NDC process,” according to ARC.

On the other end of this spectrum were American and United, whose plans ARC summarized as implementing “one or more of the NDC standards” and making “little to no changes to their distribution strategy with the agency channel.” For those carriers, NDC-compliant distribution comes into play via GDS partners.

Additional info: IATA will discuss NDC at a business travel summit on May 30-31 in Geneva. It reported that more than 100 TMCs participated in its 2016 summit. After partner BA similarly hosted constituents last fall, AA has scheduled an NDC Summit for June 22-23 in Dallas.

Related:

Direct Airline Booking Isn’t Legit For Lufthansa’s Clients That Manage Travel

Airlines Diverging On Custom Corporate Bundles

Explainer: IATA’s One Order

Shelved US Airways Direct Connect Evokes Airline Distribution Aspirations

Explainer: IATA’s New Distribution Capability

Teleconference 8: NDC In Corporate Travel

Teleconference 1 (Beta): Airline Direct Distribution

Teleconference 5: Inside TMC Economics

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