Distribution turning point?

At the heart of the airline’s business, distribution strategy remains a hot topic in air transport.

Ian Tunnacliffe, SITA’s Passenger Solutions Portfolio Management Team.

Passenger Services

Ian TunnacliffeAirline distribution is in the headlines again as Lufthansa introduces a €16 charge for each of its tickets booked by a travel agent using a GDS.

This appears to be a simple attempt to offset GDS fees and reduce the cost of distribution but it will have other effects. If it is successful travel agents will book flights directly at Lufthansa.com where the airline may boost revenue by selling ancillary services.

Conversely, the revenue management industry has long understood that yield from GDS bookings is higher than that for direct bookings in part because business travelers book later than leisure travelers, who typically book direct.

This is why Ryanair and easyJet have recently been so keen to make their services available in the GDSs.

Add to this the strong reaction the Lufthansa move has provoked from travel agents, with talk of boycotts, lawsuits and a policy of booking via codeshare partners on Lufthansa flights, and it is clear that the initiative carries significant risk as well as potential rewards.

NDC

IATA’s New Distribution Capability (NDC) continues to be controversial although peace seems to have broken out between the airlines’ trade group and the GDSs which opposed it so vehemently.

As originally conceived, NDC would create a direct relationship with travel agents in which airlines create offers and agents convert the preferred offers into orders on behalf of customers.

A world in which all airlines distributed via NDC would not need GDSs. Nor would it need schedules and fares filing agencies like OAG and ATPCO.

On the other hand it would require huge investments in technology on the part of airlines and travel agencies. The case for it being a cost-saving measure is far from proven.

Modified

The rapprochement reported between IATA and the GDSs late in 2014 was based a modified  vision of NDC in which the technology will be used to enhance existing GDS business processes.

The benefits of rich product information, personalized offers and truly dynamic pricing have real value to airlines but they will be delivered via the GDS and consequently be subject to GDS booking fees.

The idea of a direct relationship between airlines and agents has been substantially downplayed. This was what Svend Leirvaag, a Vice President of Amadeus, meant when he said that NDC was “dead and buried” in an interview with Travolution.

Which vision?

SITA’s view of NDC is a little more nuanced. It is far from clear which, if any, vision of NDC will prevail. A world in which airlines manage direct relationships with their distribution partners requires huge investment in technology and business process change.

On the other hand the GDS vision, in which the NDC standard permits incremental improvements to the existing distribution landscape, has the merit of being clearly achievable.

Whatever the outcome SITA will implement technology to allow our hosted customers to participate fully. Where there are opportunities to facilitate change for the whole of the air transport community, SITA will seize them enthusiastically. It’s what we do after all.

(*) Ian Tunnacliffe has more than 30 years experience of the application of IT to the needs of the airline industry. He has worked directly for airlines, for two of the major GDS companies and for several technology suppliers. His role today is as a member of SITA’s Passenger Solutions Portfolio Management Team.

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