The reality behind NDC: Why NDC won’t break down the GDS oligopoly – yet

NDC is a standard to which airlines can build their API (Application Programming Interface). It is based on XML (I think, the 1st version was actually our XML), which is a language becoming widely successful around the year 2000, to replace an earlier communication language between airlines and providers called EDIFACT (from the 1980s). So, essentially a very old technology is replaced by an aged technology and that is considered “New Distribution Capabilities”. However, an API needs to have a robust schema and XML brings that to the table.

Along with NDC, airlines are also changing the shopping process: previously an offer was created by the GDS based on fare, schedule and availability, in NDC, the airline creates the offer and with that can also provide add-ons such as WiFi, lounge access, pre-boarding and other things. In other words, it also allows to personalize offer. It can also mean that a company negotiates with an airlines special business class seats which may only be available to the executives. Consequently, it may help with data collection as well.

In short: it is supposed to be the plumbing behind the supply chain that the enables a consumer like travel experience.

People may argue (including myself as a technology provider who regularly has to sign off on the time sheets our developers spend) that we have not been there as of 2018. As of 2018 NDC is widely not considered a standard. The XML schema may be a standard, but offerings vary from airline to airline. Some include interline, some not, the form of payment is always a fun part, and we definitely have fun with exchanges.

Since its introduction in 2012, there have been 18 different versions of NDC as of the beginning of 2018. NDC implementation of two airlines do not look the same – it appears each airline has their own customized API. Somebody said that airlines have a tendency to ignore what IATA put into place. Airlines are at an all-time high. Load factor is at an all-time high. They publicly claimed they will never lose money again. How do you get them to respect and play like a team player? This fact doesn’t make life for those trying to consume the XML schemas easy. In fact, there might be higher cost than using the traditional channels. Aggregators want to make money as well – and add more complexity. In order to proceed we need to have IATA publishing clear guidelines, documentation, tutorials and examples how NDC schemas should be used – besides making sure that any new version provides backward compatibility. A source from IATA told me that with early adopters there is always chaos, but with 17.2 (2nd version of 2017), three GDSs and other IT companies are ready for industrialization. There will be two new versions per year in future, however, these will be just evolution. Let’s keep our fingers crossed that this is the case. Makes adoption easier and for those using the schemas it will mean that once they can talk to 1 airline, it will work with most others.

NDC implementation requires fundamental changes on how airlines, GDSs, TMCs and booking tools interact with each other. Big changes to the technology but also to the commercial model. The financial relationship between GDSs and TMCs for example is a multi-billion Dollar relationship. There are many who do not like change and definitely not when the change costs money and we do not know who is going to pay for it. There is also concerns about cutting out the middlemen. Reporting as well as duty of care is something, no airline has figured out yet and hence the TMCs are always in the mix and so is a central database where all the PNRs are stored which pretty much sounds like a GDS. And this suggests GDSs will stay in the mix. So, the question becomes what will actually change? IATA said, NDC is about replicating the agility, airlines have on their website, through the travel agent channel and the overall generic business case for NDC is about incremental revenues through more sales via travel agents (Meta-search, OTAs, TMCs, etc.) – so, is it just a vehicle to force the agency channel to speed up innovation? The commercial model should not hold back what we all want; however, uncertainty may limit progress and the idea of a new standard was to reduce complexity, but is this really the case?

I do believe NDC is here to stay from a technical perspective. Indeed, the uptake is not high, and the reasons are mentioned in this blogpost. Now with a GDS (Sabre) taking over a major airline NDC provider (Farelogix), it becomes even more likely, that GDSs just unplug the EDIFACT pipe and connect the NDC pipe. The same source at IATA told me, that 2018 has been a year of plumbing and so will the first part of 2019. The big pick up in numbers is dependent on the GDSs and all 3 have shared roadmaps in 2019 that suggest they will all be in “plug and play” mode between Q2 and H2 2019. The journey is only starting! The entire value chain is engaged: Airlines, GDSs and another 59 tech companies, large and small TMCs are now publicly engaged, Expedia group have said they are “Leading the adoption of NDC” (blog by Mark Hollyhead CCO Egencia on behalf of Expedia group) and so are Skyscanner.

The future commercial model remains a fog though. As of 2018, NDC has not been thought-through (especially for business travel) and not everybody is pulling in the same direction. From a commercial model, GDSs want to preserve the status quo and charge for inventory and distribution (essentially double-dip). GDSs want full content deals and TMCs have put all their eggs into the GDS baskets and still receive a significant kickback – plus there is a significant integration cost nobody knows who wants to pick up the bill, and one has to maintain several interfaces going forward. The largest TMCs have meanwhile introduced fees if a booking is created around the GDSs since there is an extra cost to service such bookings in the backend. You also need a Super-PNR and all backoffice provider need to integrate with such Super-PNR. Some GDSs prohibit the creation of passive segments unless they are an approved supplier (which NDC carrier are not). So, plenty of hurdles and for now, I only see the possibility GDSs integrating NDC themselves. And they seem to jump on the train with a little delay.

Now that the GDSs are further along with their technology (or acquisition), NDC seems to be used as something which it was originally intended for – a newer and better standard: replacing a several decades old EDIFACT standard, by a ‘newer’ (meanwhile also already ‘aged’) XML schema. This provides airlines with new ways to present, distribute and sell their inventory. It will still be challenging, how aggregation of such a flexible content will be handled.

NDC offers more flexibility than EDIFACT, so at some point it will play out its original benefits and yes, the GDSs will have to integrate it – the question is at what price and whether there is a kickback. It’s all about the timing and to maximize profits. Hence, I expect the current version not to be the last one – and still major changes ahead. Also, NDC will still learn lessons – as they did with the totally overloaded Air Shopping message of their earlier versions, which gets closer and closer to the way business was conducted in a pure GDS world.

The big question is, how will the business model change, as obviously there won’t be a kickback in NDC and now airlines have invited another player (their NDC provider, like Farelogix) who gets a piece of the cake. In my recollection the commercial model just simply doesn’t add up. For each TMC to integrate 500 airlines directly through NDC won’t work. For us as an aggregator, I already got a lot greyer hair by just integrating NDC to some extent. The fun part is that even though you have certification all this level 3 certification which sounds great, no one size fits all – there are too many optional areas.

On paper, if every airline is NDC Level 3 compliant, one should be able to copy the integration to Lufthansa 1:1 over to British Airways and American – right? However, there is only a subset of fields (= features) mandatory for each airline to comply with (and it remains to be seen whether even that subset implementation can simply be copied). A significant part is optional and up for interpretation. If Lufthansa wants to offer brewery tours for long stopovers in Munich (or a visit to the FC Bayern), what’s the equivalent for American in Dallas? A tour through the headquarters of the Chicago Cowboys in Frisco? And, will the airlines make sure they all use such provided optional fields in the same manner?

GDSs made sure that a seat is a seat – and that came with its own challenges: one provided a business class seat at an angle while the other one had a lie flat seat – but in the GDSs it looked the same. There is no ideal solution to the problem (and there never has been). In the past all looked the same but it wasn’t, in the future all looks different and comparison shopping will almost be impossible. Airlines need to differentiate and travelers need to understand the differences. Technology can help to some extent, but it is a business challenge that needs to be changed.

Especially for business travel a solid set of comparable features need to be available. It may be that airline brand differentiation becomes the major factor, however, then we have the problem with the hubs which are dominated by one airline. Every corporation will need several airlines to do business with extensively.

This is once again an area where TMCs probably need to sit at the table, as they know what subset of air ancillaries and features are important to their business clients. However, TMCs have not been part of the discussion so far as their eggs were in the GDS baskets who paid them large sums in the past. These days, I can see TMCs starting to realize NDC and carefully evaluating it (quietly to not jeopardize their GDS relationships).