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NDC and the Need for Network Economics

NDC and the Need for Network Economics

By: David Smith Manager, Product Strategy

 

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Emerging methods for airline distribution is a fascinating topic, with a wealth of recent publications and opinion pieces speculating on how the chips will fall.  One thing is clear in this complex, brave new world: new technologies and data standards, used together by a mix of capable system providers, industry organizations, and agile startups, will continue to drive innovation and serve airlines under the direction of the IATA New Distribution Capability (NDC). This will be a critical infrastructure to get travel-related products to the market in very creative ways.

Recently, I represented ATPCO at the Ancillary Merchandising Conference in Majorca, Spain, where I asked a few people I met how they would define NDC. I heard many opinions about what it constitutes, from a disruption tactic by airlines, to dynamic pricing, to a move to direct channel selling. Very few people gave me the same answer. 

NDC is a set of standards. The term is used synonymously with new pricing and distribution methods, such as dynamic pricing, or airline-owned offers, but it is not the same. NDC standards take XML and supply chain processes through IATA Resolutions and Recommended Practices to enable new ways of distributing airline products to the marketplace, fundamentally built around personalization, rich media, and the API economy. This set of standards achieves unprecedented levels of airline control of their own product on the shelf, what they choose to offer, and how they manage the order. In other words, the airline can get the right product to the right person, at the right time and in the right place, and the airline can control the content through a very flexible communication medium.

The fact that NDC incorporates the word “New” is also confusing because most airlines have at least some API capability today. The leaders in distribution innovation are trying all sorts of new ways to get their product to sellers, both through direct and indirect methods. They’re also widening the funnel to turn more shoppers’ attention to locked-in revenue bookings at the highest conversion rate, for the best revenue and at the lowest cost. What was “New” has become current, or just “business as usual.”

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But those few at the forefront are noticing a common problem.  Different API and messaging standards mean a long time to market (typically up to 6 months to build a single connection), a high price of implementation (in the tens of thousands of dollars to get a live seller up and running), and increasing maintenance costs to hold down several standards.  NDC brings a common XML standard, but even that evolves by two new versions each year. Stakeholders implement different “flavors” of each message to serve different business needs and interoperability requirements of non-NDC players.  More stakeholders, many connections, and many standards can all add up to a big headache. 

Keep a careful eye on this one. The problem is not large yet (because most airlines have only just started creating one-to-one connections with sellers), but it is coming, and fast.  Over the next two or three years, as the API economy for travel and the number of stakeholders exponentially grow, the number of versions will quickly become unmanageable and our industry will uncover the need for an “exchange” or “hub” for messaging. 

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This is exactly the kind of issue that industry organizations are formed to solve, through the power of network economics.  Allowing the message translation issue to be solved once, centrally by an industry utility, frees all the stakeholders--airlines, their system providers, and sellers--to focus on what they do best: innovating to get product to the market consistently, and quickly, generating revenue for everyone to sustain a healthy business.

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