Just how much more damage is COVID-19 going to do to the
airline industry? Resources have been slashed, investments cut, strategic
programs paused and, more than ever, executive focus has zeroed in on any new
project to scrutinize its rate-of-return.
The new “party line” at executive committees:
only invest and deliver in what would help us survive, recover and grow again.
Does NDC meet these survival criteria, or does it fall below
the line?
In times of crisis, the natural tendency is to avoid risks
and rely on legacy frameworks. Although it is now seven years old with 40 airlines
already certified “level 4” to address full servicing, NDC may still not be
perceived as fully mature yet.
Indeed, as highlighted by the Expedia Group, while NDC is
definitely part of its strategy, COVID-19 has put the spotlight on where NDC
was not fully up to the challenge.
This crisis accentuated some shortcomings in
the company’s critical servicing capabilities to cope with this unprecedented
level of disruption, and cascading problems in cancellation, rebooking
(voluntary or not) and other dynamic changes.
"Expedia Group will continue to invest in building more
features and acquiring the content that our customers need. While the initial
business results for our NDC implementations are promising, COVID-19 has
highlighted just how important it is to solve for the servicing gaps that
currently exist. To that end, we will collaborate with our partners to fill
those gaps so agencies and airlines are able to efficiently service our mutual
customers,” says Paul Butcher, senior director of airline solutions at Expedia
Group.
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And let’s be honest: before this tsunami of an epidemic,
high-level analysis and predictive models might have been a tad overly
optimistic, touting values amounting to a gigantic upside of $40 billion
annually. Several studies on NDC also promoted a potential double-digit revenue
increase created through personalization, retailing, dynamic offer creation,
continuous pricing …and so on.
Unfortunately, the time for rosy expectations is but a
distant memory, relegated to pre-COVID times along with the Australian
bushfires and the risk of war with Iran. We are now back to a single-focus
approach: realistic profit.
Back before COVID, a select few airlines had already passed
this step of inflated expectations and reached cruising altitude at the
“retailing productivity plateau” – which has allowed them to better weather
this crisis and prime the pump for the coming recovery. Their lessons are
invaluable in understanding how NDC can be used to – realistically – secure a
business case.
One of these is Lufthansa Group airlines.
Serving 145 million passengers in 2019, the company
pioneered the implementation of NDC five years ago. It also viewed NDC as a
brand-new digital channel to provide travelers with rich content, stimulate
innovation and ensure agility for a smoother experience.
The Lufthansa Group airlines have been well ahead of the
game on NDC. In December 2019, NDC became even larger than GDSs in their total
distribution volume (excluding their .coms) to represent over 20% of their
volume or approximatively 15 million passengers.
Moving forward, what can we learn from their concrete return
on experience?
First, fueled by intermediated distribution cost-savings of
more than 80%, Lufthansa Group airlines were able to lower entry prices to
their customers.
Today, this helps the carrier to position very attractive
offers e.g. a one-way Geneva-Nice is promoted at a competitive €36 in
August when it used to be over €50 on a GDS channel. Moving forward,
needless to say that this competitive model will help Lufthansa Group airlines
attract more travelers, grow their market share and generate cash when it is
most dearly needed.
NDC now stands over the horizon as a strategic investment line with tangible business benefits.
Philippe Der Arslanian - Answair
NDC also supported the company’s quest to ensure a
consistent offer display among all digital distribution channels, with new services
such as Wi-Fi, lounge access, fixed-price upgrades and “a la carte” dining
pre-order with their NDC channel partners or new offers such as continuous
pricing.
As a result, they saw their yearly NDC bookings jump by 250% in 2019,
while their ancillary sales exploded by a factor of 10 (read 1000%) on these
same tickets. Post-COVID, these huge revenues upside are there to stay to make
Lufthansa Group airlines more profitable.
Finally, Lufthansa Group airlines’ NDC Partner Program
managed to gather over 4,000 NDC-connected partners. These partners are key to
appreciating the support they receive from them and materializing the value
they get.
For example, Egencia, the corporate travel platform of
Expedia Group, processed more than 1,800 NDC bookings within a week of
launching for 10 of its European points of sales.
On the leisure side, Expedia
was able to use NDC to enhance its products with the addition of branded fares
and the ability to add paid seats to their bookings. Again, these collaborative
programs to support their partners will keep making them more resilient
collectively.
“As a first mover in the NDC journey, this transformation
has paid off: we deliver on the ever-changing customers’ needs while proving a
strong business return with quantitative results. More importantly, and
particularly during this very challenging crisis, we will accelerate the
delivery of products in digital channels - .com’s and NDC - along with our
sales and technology partners to add value, make our overall business more
sustainable and jointly reaching scale,” says Arber Deva, senior director, head
of distribution solutions at Lufthansa Group airlines.
NDC now stands over the horizon as a strategic investment
line with tangible business benefits. Going “well beyond” this line with NDC,
Lufthansa Group airlines keep maintaining a solid NDC share growth in their
distribution mix.
For those who have yet to reach the NDC “plateau of
productivity”, the only question mark remains the ROI, whose return depends
on three major drivers:
- Embark into ambitious transformation programs with
partners, as the time for experimental trials is now over.
- Further enhance
NDC readiness by perfecting the standard, solutions, and processes -
particularly in the servicing space.
- Take existing dotcom as a business
benchmark in terms of speed, attractiveness and profit by offering new
ancillaries, products and services.
About the author...
Philippe Der Arslanian is CEO of
Answair.