This is the second part of my analysis on the current state of play concerning IATA's New Distribution Capability (part one is here).
In line with NDC@Scale, and in order to drive mass adoption, I am convinced that the key lies in the three business drivers we identified back in March 2018.
Specifically, these are:
- Proven ROI
These three drivers are fully interrelated and need to be addressed simultaneously.
The new IATA NDC@Scale initiative is definitely headed in the right direction by defining the needed criteria for the right organizational setup to drive volume through the NDC API.
But, similarly to an NDC Level 3 certification, a check-the-box “certification” process won’t fully cutit for airlines.
Yes, most airlines will have a checklist and provide an updated implementation guide, set up a test portal, and dedicate support resources to assisting new partners.
But to successfully run a true transformation program (and not a project), there is more to be done at several levels:
- The baseline consists of creating a C-level sponsored program (which is what all Leaderboard airlines are planning to achieve by the end of the year) and managing a portal to deliver all required information on the NDC-API and related processes (the focus of NDC@Scale). In this level, the major challenge is to staff the program with enough resources to sign and support all potential partners. Only 53% of Leaderboard airlines state that they have enough people today to get their partners to adopt their program. For some, this task is surprisingly time-consuming and to this point, 27% of Leaderboard airlines currently setting up an NDC program say they hadn’t anticipated such an investment for their transformation.
- This transformation is to further involve distribution partners. For this, airlines will also need to achieve a number of key business-driven activities, not only to support their partners on their NDC API, but also to provide relevant business assistance on their end-to-end processes. They will also need to develop and share ROI success stories, which demonstrate the collaborative value of NDC on specific business attributes such as reducing costs, increasing market share, enhancing customer value, and creating additional revenue opportunities.
- Where airlines can truly and effectively retail - along with their partners - is when carriers can use data and fine-tuned retailing practices to gain intelligence and optimize their value-added services and business models. Today, although defined as a milestone in their 2020 roadmap for at least 74% of these airlines,the maturity of programs on these criteria is very low. The key criteria on which airlines are lagging? “Get relevant skills to fully exploit retailing”. Only 13% of airlines state that they are ready today on this front. Key talents are needed to fully unlock the retailing benefits of NDC, which is both a big challenge and a big opportunity in the long term.
2. Proven ROI
From an ROI standpoint however, the results are very encouraging.
This is quite remarkable given that in March 2018, NDC projects were far less ambitious in scope, usually limited to small projects such as gaining visibility in Metasearch or exposing rich content in specific travel agency channels.
But today, 2/3rd of the Leaderboard airlines now state that they are either in line or exceeding their ROI targets.
These ROI figures are extremely promising, as they are likely to bring other airlines on board as well.
More importantly, this NDC retailing shift could also be increasingly scrutinized by analysts as a kind of sustainability index.
- Can airlines sustain growth and start more ambitious, revenue-generating collaborative programs with the right set of merchandising skills to undertake A.I. or innovative data initiatives?
- Will they be able to optimize their business models based on the value that each player delivers in the value chain?
This longer-term view will certainly become predominant when assessing the value of an NDC program.
Arber Deva, senior director, head of distribution solutions at Lufthansa Group, says: "The Lufthansa Group airlines strive to put the customer at center stage and develop value-based partnerships.
"In our quest to improve distribution with NDC, we have developed a very comprehensive NDC Partner Program based on the most-advanced functional NDC API supported by talented people and processes. Our ambitious program which is continuously evolving includes NDC Smart Offers, NDC Bonus for partners, full servicing, and technology support.”
Interestingly, airlines in 2018 stated that their ROI would be most influenced by four revenue drivers:
- Personalized offers/dynamic pricing/bundles
- New channel reach
- New ancillaries
- Increased conversion
But today, that set of tools has become much more balanced between revenue and costs.
The 3rd most critical set of business drivers for airlines nowadays has also become related to costs such as “savings on GDS fees” and “renegotiating transaction fees.”
However, airlines still clearly expect to generate most of their revenues from the ability to personalize offers, create dynamic bundles, and take advantage of continuous pricing in more granular offers.
Thanks to rich and personalized content and a reinforced focus on experience and usability, conversion/adoption rates are also expected to increase revenues. And while some easily-manageable NDC use-cases to increase reach such as connecting to Metasearchers and social media, was seen as critically important back in 2018, it has since been downplayed with a decrease of 27 percentage points.
With NDC maturing, renegotiations on transactions and GDS fees are likely to take place and enhance the ROI with the same criticali level than additional ancillaries being promoted through all channels.
Additionally, one key driver will eventually be the overall simplification of the business model. For example, many employees today book their business travel through a B2B2B2B2B2E model involving airlines, GDS, TMCs, OBTs, and corporations in the delivery chain, when a simpler and more typical model could probably suffice.
3. Push & Pull approach
97% of Leaderboard airlines stated that the ROI should benefit all distribution partners , proving the strong commitment from airlines to ensure a collaborative success throughout the distribution value chain.
The NDC@scale initiative also helps in this direction by defining use cases to foster growth.
However, to ensure wider adoption, we will need to go further i.e.well beyond illustrating simple use cases towards demonstrating tangible business cases and best practices across the entire distribution value chain.
Finally, there is no doubt that when in a pull& push approach, the pull should ultimately be driven by end-users’interest in true rich content. It is essential to ensure that the NDC technology (and related offers) therefore demonstrate clear benefits to end-users directly.
In the business travel world, this approach has proven a success: the Business Value to Agencies white paper from IATA and Answair found that 92% of corporations planned to include NDC business requirements in their next tenders.
And yet this area rates very poorly today: only 14% of Leaderboard airlines expect to be able to measure the impact of NDC on their travelers by end of year.
Again, this reminds us of the challenge airlines face in getting the right retailing skills on board. Managing the shift to a merchandising culture can only happen if carriers - along with their partners - can measure and manage traveler-centric KPIs in the first place.
Understanding travelers will also create new opportunities - beyond initial bookings - by addressing their needs throughout their entire journey.
Based on geo-localization, profiled adoption levels, and emotional receptiveness, conversational retailing can create relevant services and generate associated revenues e.g. lounge access offers after the airport security check or bundle with WIFI and seat upgrade before a long flight.
Julia Fidler, global employee experience lead at Microsoft Travel, says: "NDC provides a great opportunity to create inspiring end-user experiences, which in turn will allow us to leverage more travel data, and trigger advanced intelligence for a virtuous change at all levels.
"It’s time for us to further enhance this traveler experience by considering, for example, how NDC could also help provide environmental and sustainability guidelines."
With this traveler-focused knowledge, we can address questions such as:
- Do personalized offers built on NDC convert better?
- Can demand be forecasted more accurately with NDC?
- Is rich content too rich, thus impacting usability?
- Are bundles always relevant?
- Is continuous pricing in line with demand?
- Does corporate leakage get reduced?
- Can TMCs and travel agents introduce new added-value services to their customers?
- Can we collectively make sense of data and differentiate better?
The Leaderboard airlines continue to be trailblazers, carrying NDC forward.
Today, they are succeeding through both outstanding ROI results and the creation of solid foundations on which to build sustainable NDC-driven growth well beyond the 202020 milestone.
This is helped by IATA, that continuously supports this momentum with ongoing initiatives such as NDC@Scale, NDC matchmaker, Accelerate @IATA, and evolutions such as new certification versions, technical architecture frameworks, interlining and the critical ONE Order.
As the success of Leaderboard airlines becomes increasingly certain, and they continue to develop best practices on how to deal with adoption barriers, many airlines will follow suit, and likely shift over to NDC channels much faster than is the case today.
Managing the shift to a merchandising culture can only happen if carriers - along with their partners - can measure and manage traveler-centric KPIs in the first place.
Philippe Der Arslanian - Answair
One question remains however: will NDC-derived value eventually be recognized on a standalone basis?
The rich, dynamic and fully differentiated NDC-powered content should eventually become akey adoption driver to shift to NDC channels and fuel its standalone business case.
Understandably, additional tactical methods such as incentives or surcharges currently help accelerate demand for, and adoption of, NDC.
But in the long run, this standalone business case or rate-of-return analysis should not rely on any short-term acceleration mechanisms by airlines and not be diluted in “consolidated” agreements – but rather assess its own standalone business case based on its unique NDC-derived value.
Only 40% of airlines polled believe that NDC-based ROI will stand on its own in 2022, while 27% believe that it will not.
This analysis obviously varies depending on the nature of the airlines polled, their region, and their established business model, but this metric can perhaps still be considered a critical success driver for NDC.
It is, in a way, the final complement to the three key drivers we explored in this paper. Combined, these four factors will no doubt propel airlines into the Productivity Plateau, and towards big gains: by the end of 2022, 53% of Leaderboard airlines expect that over 40% of their bookings resulting from a reseller will be powered through an NDCAPI.
I am continuously monitoring this inspiring evolution, and will keep providing you with more reports as this NDC take-off unfolds. Stay tuned!