Air Canada has described its current financial model for distribution as "unsustainable period, end of story" as it lays out its strategy going forward driven by the new distribution capability (NDC) technology standard.
The plan will enable travel agents to access Air Canada inventory in a number of ways, including building their own connections, partnering with third-party technology providers, using the airline’s Connex portal or via global distribution systems (GDS).
Detailing the changes, Mark Nasr, the airline’s senior vice president of products, marketing and e-commerce, said the commercial strategy was defined by six things, including maintaining its market position, expanding its $1 billion vacations business and sustainability.
Diversifying its non-ticket revenue, which includes its Aeroplan loyalty program that was revamped in 2020, is also part of the mix.
He also said that the financial model would also change.
“In addition to the tech being old, limited and arcane, the financial model associated with classic distribution has become unsustainable period, end of story.”
Nasr said distribution costs had risen even taking into account increasing inflation rates in recent years, so going forward bookings made via the “old school” GDS Edifact channel will incur a “distribution cost recovery” (DCR) from mid-June.
Air Canada plans to confirm the DCR nearer launch but said it will fall somewhere between $20 and $30 per ticket.
Keith Wallis, head of distribution and payments for the airline, said that it is also introducing a coupon incentive of $2 to encourage agents to book via NDC channels. The coupon will be available initially in Canada ahead of a global rollout, “applicable to eligible NDC booking for those who connect directly as well as through select, certified NDC technology providers.”
Closing the gap
Wallis said that the biggest challenge facing the airline is the “growing gap between what we can offer and sell to customers in our direct channels and what we can enable for our agency partners using the technology they are using. That gap is significant today, we know what our roadmap is for the future, and we’re incredibly worried that gap is going to grow.”
Both Nasr and Wallis said that the changes will also give agents access to products and services currently only available via direct channels.
That includes the Air Canada for Business program for small- to medium-sized companies, Flight Pass subscription service, the recently launched "cancel for any reason" product, promotional offers, Aeroplan loyalty plan and sustainability products.
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First steps for new content via NDC channels, Wallis said, include domestic basic fares, best available seat inventory and discounted ancillary pricing on paid and preferred seats.
“The groundwork is also being laid for continuous pricing later this year,” he said.
A distribution deal recently announced with Amadeus means agents will be able to make Air Canada booking via NDC as well as via the traditional Edifact channel.
Wallis said Edifact bookings will incur the DCR, while the NDC bookings on the GDS will not. In addition, the NDC booking via GDS will not be eligible for the coupon incentive.
The Air Canada team also said it has sought feedback from the trade throughout the development of the strategy and that while some airlines have introduced new NDC-driven ways to sell their product, the servicing technology has often not been in place.
Wallis said: “We made a concerted effort to invest heavily over the past five or six months to build out not just the features to sell our product but capabilities around core services so we can do change, cancel, void, refund - and we’re in the process of implementing support for when people get disrupted.”
Lufthansa Group was the first to levy a distribution cost charge to bookings made via GDS back in 2015. Since then a number of carriers including Air France-KLM have introduced their own initiatives, with many adding surcharges while others have introduced incentives.
Most recently, American Airlines made some content only available via NDC channels to mixed reactions from the distribution chain.
And there is a feeling in many quarters that change, and innovation in distribution and the related commercial models is long overdue.
Jeff Klee, CEO and co-founder of AmTrav, recently said that progress had been made by travel management companies (TMC), GDSes and other players in the distribution chain thanks to the actions of American.
He also said TMCs "are accepting that they have reached a ceiling with what they can do with their legacy technology."
Meanwhile, Travelport's chief product and technology officer Tom Kershaw said in a recent interview with PhocusWire, that innovation in commercial models is as important as technological change.
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