Over the last year, the most important development in airline distribution is the introduction of yet another three-letter acronym - NDC - New Distribution Capability.
Detailed explanations are available elsewhere, as are the arguments for, against and those in neutrality. Put simply, NDC is a set of technology standards which will give airlines the ability to distribute all their content through third parties while retaining control over how it is presented. However, a number of technical and commercial factors need to be aligned for everything to work smoothly.
THE TRIGGER
The NDC initiative was officially announced in July 2012 and many stakeholders felt disenfranchised by the discussions which had taken place before the July announcement, with some thinking IATA and its airline members had already made the decision for the entire industry.
Since then, IATA has launched a determined effort to address concerns and myths surrounding NDC, however, some of the arguments have become quite heated on both sides.
At its recent AGM in Cape Town, IATA issued further documentation address some of the major concerns expressed by opponents of the initiative. Some parties think the latest change is insufficient, while others have been more forthcoming. The response from the global distribution systems (GDSs) is worth noting, as Travelport, Sabre and Amadeus are arguably the most exposed to the changes that NDC is trying to bring about.
Amadeus says in a short blog post that the update addresses "virtually all of the concerns raised by Amadeus in dialogue with IATA during the last year, specifically...the key issues of backward compatibility, data ownership, the binding nature of [the original proposal], and privacy issues".
"And while it still is not clear what this will mean in practice, we welcome this change in approach and position," it adds.
Travelport has also responded to the update saying: "Travelport is pleased that IATA seems to be taking into account industry feedback and the serious concerns that its original approach was anti-competitive, anti-consumer and did not enable transparency or comparison shopping."
"We hope IATA will in the very near future elaborate on the brief statement with a more concrete revised NDC proposal that is in everyone's best interest. We will continue to participate in the development of IATA NDC to the extent that we are allowed and invited to do so."
Sabre is equally neutral. "We would also like to see Resolution 787 amended to reflect comments made at the recent AGM," it says. It is also keen to point out that Sabre was already offering airlines many of the features promised by NDC.
"Our approach embraces what both travel suppliers and buyers want - for suppliers, the ability to differentiate products and deepen customer loyalty, and for buyers, transparency, choice and privacy. We blend existing technology standards with new and emerging ones that preserve anonymous shopping and fare transparency for travellers."
Live pilots using NDC will be up and running and on display at IATA's World Passenger Symposium in Dublin this October. The flow of white papers and conference appearances continue unabated and once the pilots have been analysed, there will be further debate.
Elsewhere, the GDSs have been busy with product launches, full content agreements and legal battles. Travelport has been working on its merchandising platform which allows carriers to connect to it using an application programming interface (API) enabling travel agents to compare and book all airlines on the same screen. EasyJet, Jet2.com and Norwegian have signed up so far.
Amadeus is also courting low-cost carriers and continues to work with top-tier airlines. Around 80% of Amadeus bookings worldwide are with airlines where a content agreement is in place, and the signing of a deal with IAG, parent of British Airways and Iberia, was heralded as a success.
Sabre has implemented the second tranche of its billion-dollar technology tie-up with Etihad Airways. The significance of its distribution deals with European train companies Trenitalia and SNCF will become clear in the medium term.
Another milestone this year for Sabre was the "settling" of its disputes with American Airlines. Again, speculation over the small print of how the deal was "settled" continues, driven by the admission in their joint statement that "American will receive a monetary payment from Sabre".
Another focus for the GDSs this year has been China. For some time its airline distribution market has been monopolised by Travelsky, essentially a state-owned GDS. In October, the Chinese authorities announced that foreign GDSs can work with Chinese travel agents who want to sell international flights. This relaxation of the rules will not extend to allowing airlines to use the GDS technology to distribute content for the domestic market.
Although commercial agreements as a result of this are still some way off, the GDSs are hopeful of getting a foothold with their core products in the market arguably with the biggest growth potential.
At the same time, Travelsky itself is also embracing overseas partners. OpenJaw Technology recently announced a strategic alliance with Travelsky, giving Chinese domestic airlines the chance to use its t-retailing platform to improve ancillary sales.
HRG, one of the four biggest travel management companies in the world, is now working closely with Travelsky, having struck a five-year deal which gives it access to BlueSky, the dedicated corporate platform within Travelsky.
Beyond the GDSs, a number of developments in consumer-facing distribution of airline inventory are worth noting. Arguably the biggest story here is a non-development, namely the slow and painful evolution of Google Flight Search. It remains a work in progress, even in the USA where, in theory at least, it should be much stronger than it is.
In Europe the development is even slower. This March, Google launched an international version of the product into the UK, France, Italy, Spain and the Netherlands. The first European version has been built using ITA Software, the tech business Google bought to power the US version of Google Flight Search. ITA has a limited presence in Europe, and speculation persists about whether Google needs to buy a strong European-focused vertical search business to deliver its European ambitions.
The $700 million paid by Google in 2010 for ITA Software was one of Google's largest ever purchases at the time. ITA, as well as having the proprietary search technology also had a passenger service system (PSS) business. It has one customer, Cape Air, a regional carrier in the USA with around 650,000 passengers a year which it signed up in 2012. This February the ITA Software by Google blog published a case study outlining the success of the first year of the deal.
However, around six weeks later, Google announced that it is pulling out of the PSS business in order to "focus on other travel solutions for users and partners such as Google Flight Search and Hotel Finder". It will continue to work with Cape Air but is not looking for new PSS clients. It is not known why Google made a decision to drop its interest in PSS just over a year after signing its first client, or how serious it was about PSS in the first place.
GAME RIVALRY
Google's $700 million ITA deal was put into perspective late last year when Priceline, the world's largest OTA (online travel agency), paid $1.8 billion for Kayak, the US-based internationally-active travel search business which has been a useful source of traffic for airline web sites since 2004. Kayak had been widely tipped as the ideal partner or purchase for Google Flight Search.
Priceline's success is mainly a result of its booking.com business. It is widely accepted in technology circles that booking.com established global leadership thanks to the way it was able to use Google's paid-for and natural search products better than its competitors. At the time of the Kayak purchase, Priceline insisted that it would run Kayak as an independent business unit while helping it to grow globally. If that help includes sharing booking.com's knowledge of how to use search, the next couple of years for flight comparison shopping will be interesting.
Kayak is also an example of a travel business using mobile in an innovative and profitable way. Other vertical search businesses such as Skyscanner are also using mobile and apps in particular, to generate leads for its airline advertisers. The Skyscanner app is one of the most popular in the App Store with well over 20 million downloads. Kayak itself has a number of apps and has even a dedicated app for Amazon's Kindle Fire.
Overall, the potential of mobile as a sales and distribution channel for airlines remains strong. There is still some reticence among travellers to use mobiles to buy higher-priced tickets, but short-haul bookings are gaining traction all the time. However, the primary function of mobile within the airline industry is for itinerary management functions - gate alerts, mobile check-in, seat selection.
The rise of the mobile, which now includes tablets and smart phones, is being driven in mature markets by corporate travellers. The higher-margin, big ticket, front-of-the-plane travellers are a significant revenue source for airlines, but the status quo here is changing too.
There has been a lot of talk on the conference circuit about unmanaged business travel. Allowing employees to book their travel independently of the travel management company or preferred corporate supplier might make sense for the travellers, but causes all sorts of headaches behind the scenes for finance and security departments in particular.
It is unclear to what extent this is a genuine shift in how business travel operates. In the leisure travel arena, a quiet announcement by Europe's second largest tour operator, Thomas Cook, needs amplifying. Last September it signed a deal with EasyJet which will result in Thomas Cook holidaymakers flying off for their two weeks in the sun on an EasyJet flight. Thomas Cook's reasoning makes perfect sense - if it can operate more profitably chartering seats on other carriers than operating its own flights it will.
Ancillary revenues continue to grow in importance for airlines, with full service carriers as dependent on these as the low-cost carriers. IdeaWorks' Review of Ancillary Revenue Results 2012 reveals that airlines earned $27bn from non-seat sales last year, nearly 20% higher than 2011 and more than double the amount reported in its 2009 report.
United Airlines, Delta Air Lines and American Airlines remain the top three carriers in terms of total ancillary revenues, with Air France-KLM and Korean Air entering the top 10 this year. Spirit Airways tops the league for ancillary revenue as a percentage of total revenue - 38% coming from extras, which is a big increase on last year when it topped this table with 32%.
The most successful airline in terms of ancillary revenue per passenger was Qantas. The Australian carrier however differs from most others in that its primary source of extra revenue is through its frequent flyer programme rather than assigned seats, extra bags or advance boarding.
The last 12 months in distribution may have been dominated by NDC, and it is likely that it will continue to be front-of-mind. It is controversial, dramatic, game-changing and global. When has a set of industry standards ever been this interesting?
A number of developments in consumer-facing distribution of airline inventory are worth noting.
Source: Airline Business
