The New Distribution Capability programme, NDC, is ramping up and airlines now need to consider how they are going to engage with it. If they get it right, they could get full control of the customer relationship across all distribution channels and use that to deliver a world-class customer centric shopping experience. However, to achieve this, airlines will need to review their distribution strategy and GDS (Global Distribution Systems) agreements, design an enhanced customer data intelligence infrastructure, and ensure the potential of NDC is understood at all levels of the organisation. NDC is here to stay, and airlines need to make the decisions and the investment now to ensure they realise its full potential.
Airlines were one of the first sectors to use the internet as a platform for marketing and managing bookings but now many are struggling to truly customise the online services they provide. Yet this has never been more important. Deregulation has led to a fiercely competitive market and new business models and products have been developed in response to changes in regulation, customer behaviour and technological advances. At the same time, airlines are having to learn to operate in the middle of a digital revolution, fuelled by an explosion in connectivity and new devices. However many are struggling to make the most of these opportunities and understand the untapped potential in the technology and in their data and how they can use it to create value for their customers.
This means there is now a real need to focus on distribution capability. It is vital that airlines have a harmonised and effective digital sales and marketing system to provide the best possible service to all customers. While current distribution providers have developed their systems and technology to meet changing demand, the pace has been slow and airlines are still dependent on external distribution providers of IT services, who have different frameworks and system limitations. This means, airlines cannot offer a similar digital customer experience across all sales channels.
In response to this challenge, in 2012, IATA developed its New Distribution Capability programme (NDC) to facilitate the deployment of a new data transmission standard. This aims to enhance the capability of communications between airlines and travel agents and transform the way airline related products and services are sold to all types of customers. This then enables airlines to distribute more differentiated products quickly.
Customers are increasingly knowledgeable when they make decisions about their travel and have a clear understanding of the different options, such as differentiated pricing for particular seats. Airlines can build on this awareness and adjust their business models to meet changing demands and NDC can help them do this. It will require investment in the back office but will give airlines the clear benefit of ownership over their content and the way their products and services are offered.
Some critics suggested that NDC will create a lack of transparency that could lead to increases in prices as airlines gain greater power in the value chain. Yet, in reality, the NDC gives both airlines and agents an opportunity to provide customers with more information about value for money options, which should give them a better deal. It is also gaining support with Rolf Purzer, Chief Executive of ATPCO: “we will continue to support all distribution models and enable the industry’s New Distribution Capability".
It is clear that airlines want to embrace the new digital capabilities and we are seeing increasing adoption of the NDC standard. Out of 179 airlines surveyed by IATA, 48% are planning to adopt the new standard in some degree by 2020. That is 7%-points up on last year.
However, 2020 may be too late. Airlines need to move more quickly as, in today´s fast moving digital world, customers already expect seamless shopping experiences across sales channels and platforms when buying airline services. Business opportunities will be missed if airlines cannot provide that high quality system now.
It is also worrying that 39% of the airlines surveyed by IATA are undecided about adoption of the NDC capabilities. They need to develop a clear understanding of what NDC can offer both now and in the future. This should be secured through a structured review of the organisation’s IT, structure and current legal position and then measured against a clear assessment of what the airline wants to provide in future.
In a world where NDC is fully adopted, airlines will own the messages from customers, and by knowing who is requesting a particular seat, price or product, they can design atailor-made response for every individual. The key challenge will be to ensure that all customers provide information that allows them to be identified e.g. by using their frequent flyer ID across all sales access points.
While some airlines already have some ability to offer tailor made responses to their customers, this is only through their direct online distribution system. As NDC provides a standard data transmission it will allow data content to be shared across all platforms and give airlines full control over their own data. This can then lead to new opportunities to expand and manage omni-channel marketing in a more customer centric manner and ultimately strengthen the relationship with all passengers. This is gaining support.
Airlines have four broad options available to them, depending on the level of control and degree of customer centric approach they want. The two options that provide full control are to make the investment to move away from GDS or to adopt the full NDC. Those preferring limited control can either stick with the current position and leave it to others to invest in new IT capabilities or invest in existing vendors’ products.
However, whatever option they choose, it needs to be underpinned by a customer centric view and business model across the whole company that is driven by senior management. They need to ensure that all parts of the company: sales, marketing, distribution, revenue management and operations are focused on how they can really meet customer needs.
This should include a focused channel strategy that sets out the extent to which the airline wants to offer tailored products across both direct and indirect distribution (GDS) as well as to what extent it needs to be synchronised across all channels.
Then, airlines have to decide on how to bundle and price services. The level of content provided should reflect defined market segments or customer profiles and all be linked to the IT and distribution possibilities and limitations.
Legal and organisational requirements will also need to be considered when developing the strategy. This is especially true for incumbent airlines that might be locked into distribution contacts with GDS’s. Existing contracts should be reviewed to ensure there are no breaches of their terms. This is equally true for third party content providers, where restrictions on distribution channels, markets and methods should be checked.
It is clear that there is a real need to get to grip with NDC now. Airlines need to develop a detailed understanding of how to put the customer at the centre of their business and then create the distribution strategy and business design that reflects that approach. This will also help them to create and develop innovative new products and services to bring further benefits to customers.
The stakes are high but the airlines that get this right will see higher revenue growth driven by increased customer satisfaction and customer experience, and they will be the ones that come out winners in a more competitive world.