NDC in a Post Covid-19 World

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Introduction

The world of travel has radically changed. There is no point in sugar-coating it; the last couple of months have been hard for airlines. The travel business is collectively living through the biggest crisis of our lifetime. Airlines have had to make difficult decisions – decisions they could never have imagined they would have to make even as recently as two months ago.

As we all work our way through the ramification of the impact of Covid-19, we can now see how fear of catching the virus could hamper the travel industry’s recovery for years.[1] In a recent survey, only 56% of U.S. adults say they would be comfortable flying even 60 days after the “all clear” is given. Another survey found that only 61% of American respondents said they’ll be comfortable flying anytime in the next six months. Such a recovery is neither full enough nor quick enough to stop the massive amounts of financial bleeding at the airlines and throughout the aviation and travel industries. 

The Distribution Opportunity of the Covid-19 Crisis

The recent Sabre court case attests to the importance US airlines place on controlling their own distribution destiny. The cost of distribution has long been the biggest cost for airlines. With such a reduced volume of bookings, is now the right time for airlines to seize control of the Offer and directly connect with their customers and cut out the GDS, as Lufthansa did with Sabre recently[2]?

Given that the Covid-19 virus emergency poses an unprecedented set of challenges for airlines, it can be difficult to know how best to respond and where to start when thinking through airline distribution. History shows that company investment in R&D and innovation during a crisis pays off in long-term growth and profitability[3].  

The better capital-resourced airlines might be able to turn the downturn into an opportunity to concentrate resources on strategic projects and emerge stronger. However uncertain the operating environment, rapid responses are still required.

Could IATA’s NDC provide that rapid response that airlines need during this difficult period? 

The NDC Value Proposition

Before we examine why NDC can deliver for airlines during the crisis, recovery and “new normal” periods, let us look at the value proposition for NDC in airlines. There are two clear areas—revenue and cost benefits.

Airline—Revenue Benefit:

  • control of the offer in all channels
  • differentiation through product attributes
  • upsell through bundling and fare families
  • ancillary upsell
  • rich content to inspire and drive conversion
  • dynamic pricing and personalisation
  • increased reach through new sales channels.

Airline—Cost Benefit:

  • lower opportunity cost
  • new technology at lower cost compared to legacy systems
  • cost savings across ticketing, payment, revenue accounting
  • back-office automation
  • improves revenue integrity (removes costs of fare auditing)
  • control overpayment
  • real-time settlement cuts the cost of agency defaults, etc.

The Four Reasons Why NDC Can Still Deliver for Airlines Through the Covid-19 Crisis

Looking through the lens of airline revenue and cost benefits, we can see four immediate upsides through applying a coherent NDC strategy during the crisis:

Revenue Stream Innovation

The NDC goal of reduced distribution costs and increased revenue are particularly pertinent as airlines seek to recover. The ability NDC gives airlines to innovate, create product offerings and roll these out to market in real-time can make NDC a ‘gamechanger’ for an airline’s bottom line through – and beyond – the crisis.

The current travel environment is very dynamic and changing frequently. As regulations are introduced to restart international travel, health and safety products, such as vaccine certification, can more easily be delivered under the airline’s control. Indeed, at the very heart of NDC is the capability to innovate through the addition of new customer propositions – at speed, and across all distribution channels.

Adding new health and safety products across all channels creates the exact sort of benefit that NDC was created for – more and better choices for the passengers, revenue and innovation opportunity for the airlines.

Market Stimulation and Long-Term Impact

We are starting to see airlines give dates for when they start opening up more. If there is one thing we can guarantee, it is that airlines will need to stimulate demand on an ongoing basis.

Aside from creating demand in the short term, there are longer-term reasons to think through marketing expenditure. Indeed, there is much empirical research across numerous industries that consistently shows that brands that maintain marketing spend during a crisis increase sales and market share. Moreover, the decision has a lasting impact for several years after the crisis period, with brands cutting spend proven to continue to lose market share long after marketing spend has been reinstated.  

If airlines wish to stimulate demand using innovative marketing campaigns, NDC will enable them to deliver propositions immediately across all channels. NDC gives full control over content distribution and the offers made to all channels AND differentiation of your airline product offering.

Speed of Delivery and Time-to-Market due to Zero Reliance on IT Teams

Legacy technology should never be allowed to constrain the business goals and strategy at any time. Each product or proposition or customer experience enhancement not acted on due to legacy system constraints adds up to significant real cost during the crisis. 

The Covid-19 crisis is the time that airlines do not want to be dependent on third party IT providers to get their products to market. Having an NDC just bypasses all these problems.

Cost-savings 

Airlines must pursue every effort to reduce costs. NDC enables the offer, ticketing, and settlement to move from the GDS to the airline. As a result, more control delivers cost savings in back-office processes built around the enforcement of product rules and settlement mechanics between the airline and its distribution partners. Indeed, British Airways and Lufthansa have begun to adopt a strategy of removing fares from the GDS or creating fares that are exclusive to their NDC channels to accelerate the adoption of the channel – and reduce the costs of GDS fees.

The Role of NDC Post-Covid-19

Before the Covid-19 virus, NDC was approaching maturity and widespread adoption. Travel distribution transformation will accelerate as airlines begin to recover from the crisis. Why is this? NDC is still is the right mechanic to empower airlines to become retailers across all channels, in other words, to capture more of the value in the market, while reducing distribution costs. With NDC maturing, airlines will focus on better revenue capture and distribution costs savings and drive a return to profitability.

Post Covid-19, airlines will continue to bleed money until traffic levels recover to where the airline’s revenues more than cover their newly reduced cost base. IATA has recently predicted 2022 for domestic recovery and 2023 for international recovery[4]

Looking at revenue, airlines can include rich content, such as updates on situations in certain destinations, risks and protection measures being taken by the airline, as well as cleaning and hygiene procedures that are being followed.

NDC allows airlines to offer customers choices that are not always available in the global distribution systems. With an NDC platform, airlines can be more agile and offer personalised bundles. For example, airlines can package a range of ancillaries including non-airline products into a single fare for a specific corporate customer. Similarly, bundles can be created for individual customers based on the route, purpose of travel, customer loyalty and past purchases.

However, NDC is more than simply an issue of cost savings. Airlines will need more direct customer engagement at the point of sale to help influence travellers to return to the skies. What is important to understand is that airlines who are determined to control the Offer and make more personalised services available to their customers. Platforms that facilitate this will have an edge as the travel industry recovers.[5]   

A Real Revenue Opportunity From NDC: Dynamic Offers 

Today’s personalisation leaders have found proven ways to drive 5 to 15% increases in revenue.[6] NDC supports Dynamic Offer creation, allowing airlines to respond in real-time in response to a user request with the most relevant combination of products[7].

By ‘knowing’ the customer and having the ability to determine ‘willingness to pay’, the airline can price the Offer accordingly. For flights, airlines can Offer the flight at any price and do not need to use legacy pre-filed price points. Airlines can achieve between 3% and 6% additional revenue pricing flights in this manner.[8]

For Offers comprising flights together with other products, airline revenue management systems can be enhanced. Total Offer Optimisation techniques across all products can realise further additional revenue benefits of up to 10% for the airline.[9]

Thinking Through Your NDC Business Case

To truly succeed with NDC, airlines need to take a strategic approach to becoming retailers. However, the Covid-19 virus is enabling business transformation much faster than ever before. Now is the time for airlines to consider putting their NDC Strategy on ‘fast-forward’ to generate revenues and reduce costs faster. In doing so, airlines should consider the following seven steps while continuing to push fast.

  1. Can we get approval and understanding from the board level?
  2. Is there a clear strategy and budget approval?
  3. Do we have executive sponsorship and clear ownership?
  4. Do we have the right subject matter champions, and are they empowered?
  5. Do we have a clear channel and market strategy?
  6. Do we have a roadmap?
  7. Do we have strong programme management to pull it all together? 

Summary

Although the current Covid-19 context is incredibly difficult for airlines, the crisis allows airlines to accelerate their NDC strategy.

Now is not the time to stand still or descend into panic and wait. As an industry, we need to plan in a more agile way to ensure we come of out this crisis in better shape. NDC can be part of this. 

Here at OpenJaw, we believe that airlines need to do everything they can do to survive and sustain the current crisis. Rightly, there is a focus on improving operational efficiencies to eliminate cost from the business immediately and going forward. For non-operational areas, and with reduced headcount, it will be key to leverage the strengths of key partners, particularly in the area of distribution and retailing.

For those airlines with sufficient capitalisation, we believe that it is also vital for these airlines to invest in areas to help them recover quickly when markets and demand picks up. NDC will help airlines reduce distribution costs, grow revenues and provide them with the ability to respond as quickly as the market changes. For the foreseeable future, these will be the primary challenges facing airlines.

[1] Dan Reed, Forbes, May 14 2020, https://www.forbes.com/sites/danielreed/2020/05/14/the-data-say-the-fear-of-covid-19–will-hamper-the-travel-industrys-recovery-for-years/#38ce141a103f

[2] Linda Fox, PhocusWire, May 14 2020, https://www.phocuswire.com/Sabre-Lufthansa-end-distribution-agreement

[3] Board Of Innovation, boardofinnovation.com/low-touch-economy

[4] Brian Pearce, IATA, May 13 2020, https://www.iata.org/en/iata-repository/publications/economic-reports/covid-19-outlook-for-air-travel-in-the-next-5-years/

[5] Norm Rose, Travel Tech Consulting, May 13 2020, https://www.traveltechnology.com/2020/05/the-role-of-ndc-in-a-post-covid-19-world/

[6] McKinsey, June 18 2019, https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/the-future-of-personalization-and-how-to-get-ready-for-it

[7] Sebastien Touraine, IATA, October 2018, https://www.iata.org/contentassets/2d997082f3c84c7cba001f506edd2c2e/air-white-paper-dynamic-offer-creation.pdf

[8] https://link.springer.com/article/10.1057/rpm.2016.28

[9] HBR, https://hbr.org/2015/11/how-marketers-can-personalize-at-scale