2024-03-13

New Distribution Capability in the Airline Industry: Transforming Corporate Travel Management

Steve Reynolds
Steve Reynolds
Image of a male business traveler looking at his smartphone

NDC is a term that is fast gaining traction in the corporate travel world. But what does it mean, and more importantly, why should you care?

The airline industry hasn’t traditionally been viewed as being at the forefront of technological innovation. However, in recent years, the introduction of New Distribution Capability (NDC) has emerged as a significant development, promising to revolutionize how airlines distribute their products and services.

American Airlines (AA) in particular, is seeking new ways to enhance its customer experience, streamline operations, and improve overall efficiency. As part of this wide-ranging transformation, AA has aggressively pushed forward its NDC initiative since early 2023. This is causing controversy within the business travel ecosystem, because of its disruption in pushing progressive technology, as well as upending relationships with existing sales partners. 

But what exactly is NDC, what is its impact on corporate travel management, and why is it so controversial?

NDC 101: Understanding the New Distribution Capability

Computerized booking of airline tickets has been available since the early 1960s, and since the late 1970s, airlines have relied on Global Distribution Systems (GDS) such as Amadeus, Sabre and latterly, Travelport, to distribute their inventory to travel agents and corporate travelers. However, the underlying technology of GDS causes limitations regarding flexibility, personalization, and real-time information access. 

New Distribution Capability is a set of standards developed by the International Air Transport Association (IATA) to modernize airline distribution by introducing a more dynamic and customer-centric distribution model. Initially developed in 2012 and launched in 2015 NDC enables airlines to provide richer content, such as detailed product descriptions, images, and ancillary services, directly to corporate travelers and travel agents. This shift empowers airlines to differentiate their offerings, enhance customer experience, and compete more effectively in the digital era. 

In simple terms, NDC is an API to connect a point-of-sale solution directly to the airline’s inventory management system, bypassing the GDS.  At its root, NDC is able to deliver a more personalized and efficient travel experience and - most importantly to AA and other airlines - sell its products the way it wants and through a more cost-effective model. 

NDC’s Impact on Corporate Travel Management

Even a decade post-launch, take-up of NDC has been relatively low. As of 2023, only about 20% of tickets were booked through NDC, and according to a 2022 survey by Phocuswright, only 7% of travel agency employees were familiar with NDC and using it. However it holds huge potential to disrupt the industry. 

1. Enhanced Personalization and Customization

One of the primary advantages of NDC for corporate travelers is the ability to access more personalized and tailored content. NDC allows airlines to offer a wide range of ancillary services, such as seat upgrades, additional baggage allowances, and priority boarding. Travel managers using their organization’s online booking tool (OBT) can leverage this flexibility to cater to their travelers’ specific needs and preferences, ensuring a more comfortable and personalized travel experience.

2. Real-time Availability and Pricing

NDC enables airlines to provide real-time information on seat availability, pricing, and promotions. This allows corporate travelers to make more informed decisions based on the latest data, optimizing travel plans and reducing the risk of last-minute changes. The increased transparency in pricing and availability fosters a more efficient booking process, saving both time and resources for travelers and travel agents. Airlines also contend that since the GDS is no longer needed NDC should be providing the cheapest fare available for their corporate clients.

3. Direct Communication and Relationship Building

With NDC, airlines can establish direct communication channels with corporate travelers, bypassing traditional intermediaries like GDSs. This direct relationship allows for better negotiation of contracts, customized service agreements, and a deeper understanding of the corporate client's travel needs. As a result, corporate travel managers can build stronger partnerships with airlines, leading to more favorable terms and a more collaborative approach to travel management.

4. Improved Data Analytics and Reporting

NDC facilitates the seamless exchange of data between airlines, corporate travelers, and travel managers. This improved data flow enables more robust analytics and reporting capabilities, allowing corporate travel managers to gain insights into travel patterns, expenses, and compliance with travel booking policies. With a better understanding of travel data, organizations can identify and implement cost-saving measures, negotiate more favorable contracts, and increase compliance rates.

5. Streamlined Booking Process

The traditional GDS approach often involves a complex and time-consuming booking process, leading to inefficiencies. NDC can streamline the booking process, making it more intuitive and user-friendly. This simplification results in faster and more accurate bookings, reducing the administrative burden on OBTs and corporate travel managers. Travel agencies and GDSs have been slow to adopt NDC for a variety of reasons.  However, AA is making selective fares only available through the NDC channel as an incentive to implement the necessary technology.  Many travel agencies have pushed back on this initiative while others have implemented the technical solutions as requested.  

Why is NDC so controversial?

While it does have its detractors, it’s important to note that opinions on NDC vary, and there are stakeholders who support the initiative - primarily airlines around the world who could adopt the technology and benefit from the cost efficiencies and revenue generation opportunities it delivers.

The controversy surrounding NDC primarily revolves around a few key points:

1. Distribution Channel Disruption

Critics argue that NDC has disrupted traditional booking channels, particularly the GDS, which are widely used by travel management companies (TMCs). Some industry stakeholders, including TMCs, have expressed concerns about potential exclusivity and preferential treatment for certain channels. AA recently announced that only “partner” agencies can sell AA flights, and becoming a partner requires the adoption or a plan to adopt NDC.  

2. Fair Competition

There are concerns that NDC may lead to imbalances in competition, favoring larger airlines with more resources to invest in the technology. Smaller airlines and TMCs may face challenges adapting to the new standards.

3. Pricing complexities

While NDC offers the potential for better customization and negotiation, it may also introduce complexities in pricing structures and travel agency support. Corporate travel managers need to carefully navigate these changes to ensure that the benefits of NDC are maximized without compromising cost-effectiveness.

4. Implementation Challenges

While NDC presents numerous benefits for corporate travel management, it is not without its challenges. One of the primary concerns is the transition from legacy systems to the new standard, as this migration requires significant investments in technology, training, and infrastructure. Some critics argue that the transition could be complex and costly, particularly for smaller players in the industry. Additionally, there are concerns about standardization and interoperability, as different airlines may implement NDC in slightly different ways.

What Now?

NDC represents a pivotal shift in the airline industry's approach to distributing products and services. For corporate travel management, NDC brings a host of opportunities to enhance personalization, improve efficiency, and build stronger relationships with airline partners. 

Controversy aside, airlines’ use of NDC is not limited to AA, and the breadth and scope of airlines using NDC will increase in 2024 and beyond. As the airline industry continues to evolve, corporate travel managers must stay abreast of NDC developments and actively engage with airlines to capitalize on the advantages offered by this transformative technology. 

Embracing NDC not only streamlines processes but also positions corporate travel management to navigate the dynamic landscape of business travel with greater agility and precision. While challenges exist in the adoption and implementation of NDC, the long-term benefits for corporate travel management are substantial. For those in the ecosystem, it is adapt or die.

If you're looking to deliver the best value for your organization's corporate travel program and optimize your team's travel experience, learn more about Emburse's business travel management capabilities

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