The “offers and orders”-based model of future travel retailing has the potential to drive massive change in the travel industry. Airlines are starting to embrace components of it to become modern travel retailers with the flexibility to optimize, personalize and monetize their products. But airlines are only part of the travel ecosystem. To truly impact how travelers and travel managers shop for, book and buy travel, travel sellers like online travel agencies (OTAs), travel management companies (TMCs) and leisure agencies must invest in technology and buy into the process. There are plenty of reasons to do so.
The “offers and orders” strategy for travel retailing
“Offers and orders” refers to a technical infrastructure for retailing travel products. It’s an airline industry initiative to transform the traditional systems and processes into a modular, interoperable IT infrastructure. In the future, airlines will dynamically generate and distribute offers with new products and bundles at unlimited price points, in contrast to fewer products being distributed at fixed price points today. Future orders will include multi-supplier and product records in one order, in contrast to multiple booking and ticketing records today.
IATA’s New Distribution Capability (NDC) and ONE Order technical standards underpin the offer and order infrastructure. NDC is a data transmission standard that uses the XML programming language. It's designed to enrich the messages sent between travel companies and replace the EDIFACT standard used today. ONE Order is a newer XML data standard intended to unify multiple records and facilitate how products are delivered, managed and settled by third parties.
Adopting these standards, and offers and orders more broadly, is driven by evolving customer expectations. Leading consumer brands have whetted the appetite for optimized digital experiences. For example, financial advisory company Betterment delivers investment advice directly to users through its intuitive mobile app, and global technology company Samsung uses artificial intelligence (AI) to improve online customer support. Future offers and orders make it easier for airlines and agencies to emulate the convenience, fast delivery, seamless service and omnichannel distribution available in other industries.
By implementing offer and order-based solutions, airlines - and subsequently agencies - are moving towards retailing experiences currently available from other organizations. They are achieving this by developing and commercializing new products, applying dynamic pricing, streamlining interline capabilities, optimizing order management and creating intermodal bundles, e.g., railway, bus, ferry and other transport ecosystems. They are also diversifying their product mix, personalizing and contextualizing offers with the help of AI and providing greater visibility into travelers’ journeys.
How NDC and offers and orders benefit travel sellers
NDC is the first tangible step towards offer and order-based retailing, and it enables a range of opportunities for sellers. In the future, agencies will have new cross-sell and upsell revenue streams and improved conversion rates; greater product customization and personalization; and streamlined servicing capabilities.
New revenue streams and improved conversion rates will appeal to leaders at all agencies. They can achieve this through product diversity; travel agencies that adopt NDC either through a GDS or with an airline via an NDC application programming interface (API) integration can add more varied and customized products to their portfolios. For example, travel packages that combine air, hotel and car rental may eventually include ridesharing (to and from the airport), train travel, restaurant reservations or theater tickets – each a new potential revenue stream. And NDC enables richer content and visuals (photos, videos, descriptive text) of these products. Travelers are more likely to buy products when they understand what’s on offer.
Greater product customization and personalization capabilities can help agencies increase revenue as well. NDC enables more types of data signals, like shopping behavior and personal preferences to be transmitted to the airlines. In return, customized offers can be delivered back to travelers through the website or mobile app. The offers may include an à la carte list of personalized extras based on the customer segment (an additional checked bag for extended trips, discounted lounge pass for long layovers and upgraded seating) or dynamic fares for which travelers are willing to pay.
Streamlined servicing capabilities are another key benefit for agencies in addition to new revenue opportunities. NDC and ONE Order standards make it much easier for OTAs, TMCs and leisure agencies to service bookings (change, cancel or rebook flights, hotels, car rentals and ancillaries) since the data to do so is in one record. NDC also provides the technical foundation for agencies to automate some of the servicing functions to improve traveler experiences, particularly in the case of disruption. For example, if a passenger’s chosen premium seat isn’t available after an aircraft change, the airline and agency could automatically offer the closest equivalent, a refund of the amount paid and bonus loyalty points.
Agencies’ NDC adoption is on the rise
NDC adoption by agencies varies across the industry. Phocuswright will publish research this month in its U.S. Travel Agency Landscape 2022 report that sheds light on the current state of adoption. A 2022 survey of travel agency employees, owners and independent contractors indicated that only 7% are familiar with NDC, and their agency has access to NDC content; 18% are familiar with NDC, but their agency doesn’t have NDC content yet and 76% are not familiar with NDC.
Another indication of NDC adoption is the IATA Airline Retail Maturity index (ARM index): a measure of an entity’s capabilities and retailing partnerships. Of the 157 organizations listed, 20 are travel agencies. It's worth noting that this list isn't exhaustive of NDC-enabled organizations, and it only highlights those wanting recognition in the ARM index.
The ultimate measure of adoption is in booking NDC content which has increased across the seller ecosystem in recent years. In 2022, 10% percent of indirect sales – sales made through third-party travel agencies vs. directly with the airlines – were made through an NDC API compared to 5-6% in January 2021.
What agencies’ transition to offers and orders looks like
Although airlines still have work to do to unlock the value of NDC, major carriers are signaling their commitment to evolving travel retailing based on offers and orders and enabled by standards like NDC. Agencies have work to do too, and there’s untapped value to capture as they complete the work.
In 2019, a McKinsey & Company report estimated the industry could create approximately $40 billion in additional annual value by 2030. “More specifically,” the report says, “retailing can produce value for airlines in five ways: development of new offers (the largest source of value, at an estimated $22 billion), enhanced revenue management, an optimized distribution mix, better targeting of and engagement with consumers and optimized payment and fulfillment.” Agencies play an essential role in the travel ecosystem and can capture some of this additional revenue.
Developing NDC solutions and capturing this value is becoming easier, supported by GDSs like Sabre that are working with airlines to provide travel agencies with NDC capabilities and benefits through APIs and online booking tools. This work continues by optimizing the display of booking solutions, supporting end-to-end workflows and making it easier to cancel, refund, void and exchange NDC content.
Despite hurdles to the broader implementation of offers and orders across airlines, partners and sellers, the benefits of getting started are surfacing, and momentum is shifting across the industry. The travel industry is poised for alignment on the most significant transformation in half a century. Agencies must start preparing now - or risk falling behind competitors.