CONTEXT

Ever since deregulation, the Airlines industry has been struggling with intense competition and high customer expectations. Evolution of GDS has not only brought great distribution capability, but has also commoditized the airline. The advent of internet further commoditized the airline product. The two key focus areas for airlines today are high revenue generation and high customer experience and both of this need to break the trend of commoditization. The technology and business models of the GDSs and other intermediaries are a deterrent to airline’s effort to move away from commoditization. While the airlines are able to achieve this on their own websites, that are under their control, they are unable to push this through the intermediaries.

Airline Ancillary Sales: Airline Ancillary revenue worldwide is

projected to be around $ 42.6 Bn in 2013, which is up by 19.6% compared to 2012, which was $ 27.1 Bn (Idea Works) . In an industry where profits are difficult to achieve, ancillary sales have helped the airlines raise the top-line to a large extent. The phenomenon of ancillary sales which started with Low cost carriers have been adopted by the network carriers in a selective manner to improve the top and bottom line, while it additionally has the capability to help improve customer experience if implemented judiciously . This is a great opportunity to further improve airline revenues as a whole .

Personalized Services: The airlines reservation system was built to be a PNR (Passenger Name Record) centric system in 1960s a journey centric system, in other words. This means that for any passanger travelling, however complex in-terms

of multiple airlines and numerous segments, different systems like the reservation systems , check-in systems and GDSs would work together to give a seamless ( discounting the glitches that come up when there are issues) information transfer from the systems perspective,but these systems were not customer centric. A few days after the last arrival date in the PNR, the data would be obliterated from the reservations systems and the next time the passenger came in for another booking the reservation system did not have any information of that passenger.

Around 2000 was the year when the term Customer Experience started to be used across all industries. However the 9/11 incident and the proceeding ones left the airlines focusing only on survival rather than investing in any customer experience systems. However in the last few years, various airlines have been investing heavily in both sporadic (siloed) customer experiences Use cases as well in the systemic customer experience that includes comprehensive customer experience platform. Most airlines are implementing this by enhancing their customer touch points , including, their website to enhance customer experience

GDS and OTAs: As per HENRY H. HARTEVELDT, Co-Founder, Airline & Travel Industry Analyst, Atmosphere Research Group, Airline websites will produce 59% of booking volume by 2017, which means that around 41% of the bookings will be done by GDS, OTAs (Online Travel Agencies) and other intermediaries.

Diagram 1

As it stands today, when the passengers are booked on flights through the Intermediaries (GDSs or OTAs), the airline is unable to pass on their ancillary sales information, other offerings like Wi-Fi, advanced boarding facilities, extra leg space etc. or give any personalized response to the requestor (Barring some work done by Travel port for Air Canada). This would mean that for around 41% of the bookings done globally (by 2017), airlines will not be able to use the ancillary sales revenue component and also not be able to provide customized services to its customers and that is the airlines’ potential to improve both revenues and customer experience

NDC, a new standard that IATA has been driving is a process enabler that will allow intermediaries to show product differentiation of the airlines, richer content and provide better shopping experience to the end customer.

NDC will also allow intermediaries to offer airlines ancillary sales components as well as enable personalized services if the customer is willing to give his identification details.

What NDC also enables (when adopted by intermediaries), is to allow the ‘differentiation’ of each airline product that can be showcased right at the time when a customer is comparing the offerings from different airlines on a display screen on an intermediary’s system. What you typically see is Flight numbers, booking class and fares (Diagram 1), that might be wrapped in a better looking GUI. But it certainly does not show what additional features each of the product has, like Wifi access, special meals, lounge access and other amenities that the carriers has to offer on that route which will help customers take quick and right decisions. This was precisely what AA was intending to pursue before it went into insolvency protection. Diagram 2 shows an IATA simulation of how the NDC enabled display might look like.

a) Technically, most GDS are still running on the age old ‘TPF’ platform which is extremely non agile and expensive to upgrade . The change that NDC will demand of the GDS will involve a) change to enable XML based messaging to airlines instead of the EDIFACT messages currently being used and b)extensive changes in message processing as well as the changes resulting in the change in business agreements

b) From a business perspective, intermediaries have an agreement in place which is simple and caters to flight segment fees only. For NDC to come into operations, GDS will have to first figure out what business agreement changes need to be made to ensure an ROI for replacement cost and then negotiate with each airline separately as they have different levels of maturity of NDC implementation

c) Intermediaries see a possible loss of revenues as Airlines will begin to push their own ancillary components even for hotel, car , insurance and other travel attraction tickets. This will need an intense negotiation process with the airlines, but being an unchartered territory for all, there would be reluctance.

However, the smaller and more agile OTAs will be able to enable this more rapidly than the GDSs and once this process starts with some intermediaries, others will have to follow. Some business agreements may face hiccups and some may succeed but eventually everyone will figure out the way forward with agreements that includes NDC.

IATA is running a few pilot tests to finalize and fine tune the XML standards to be used for NDC, which will take a few years s to be embraced by all the airlines and other players.

The intermediaries especially the GDS are not very keen on this because:

What is NDCNDC is an IATA led industry proposed standard, that prescribes an XML based data transmission standard for communication between the airlines and the Travel Agents/ GDS. IATA recommended use of NDC will use the Open Axis schema (currently under the custody of ATPCO) to create a standard framework for airlines to distribute personalized products, based on the customer’s identity and/or characteristics. The pre-Internet messaging standard (EDIFACT) that used to deliver airline fare and schedule data to these partners cannot easily accommodate the way in which many airlines want to market and sell their products today. XML makes it easier, faster and cheaper to provide the customer more information about fare alternatives, ancillary services, onboard amenities and graphics such as pictures or seat maps.

How will NDC fit into the existing aviation Ecosystem

From the technical perspective the following four diagrams depict how NDC fits into the existing airline ecosystem. Diagram 3 and Diagram 4 depicts the cases where the reservation systems are hosted by third parties, while Diagram 5 and Diagram 6 depict the cases where the reservation system is hosted by the airlines themselves.

GDS OTA**

Airline Schedules and prices from Airline, ancillary items from GDS/ OTAs

Airline Website

CUSTOMER

Comprehensive offer details from Airline

OTA XML*

OTA XML

Airline Booking Engine

*OTA XML indicates Open Travel Alliance XML, which is widely used as reference**OTA – Online Travel Agencies

Current State (Airline Reservation system hosted by third parties)

Diagram 3

Airlin

e

Sys

tem

s

Comprehensive offer details from Airline

Only Airline Schedules and prices

Edifact

OTA XML**

Airline Res System/ATPCO/Schedules

GDS OTA*

Comprehensive offer details from Airline

CUSTOMER

Comprehensive offer details from Airline

NDC XMLNDC XML

NDC XML

**OTA – Online Travel Agencies

Future State with NDC (Airline Reservation system hosted by third parties)

Diagram 4

Airlin

e

Sys

tem

s

Airline Booking EngineAirline Res System/ATPCO/Schedules

Airline Website

ND

C X

ML

**OTA – Online Travel AgenciesDiagram 6

Airline Reservation System / Schedules

GDS **OTA

Comprehensive offer details from Airline

Airline Website

CUSTOMER

Comprehensiveoffer details from Airline

NDC XMLNDC XML

NDC XML

Airline Booking Engine

Future State with NDC (Airline Reservation system hosted by the Airline)

Airlin

e

Sys

tem

s

NDC XML

One key change to be made to enable NDC is that the OTAs and the GDS will need to communicate to Airlines using the NDC XML. In the current state, the GDS sends EDIFACT host to host massages to get the availability directly from the airlines reservation systems. The airlines reservations systems are either hosted on SABRE, Amadeus, Navitaire etc. or hosted by airlines themselves, like in the case of Continental Airlines.

In the future state with NDC where the reservation systems are hosted by third parties like Sabre etc, the information flow will change, and the GDS would need to send the NDC XML instead of the EDIFACT messages to the airlines (depicted as Airline Booking Engine in diagram 4), which will, inturn make the booking availability request to the Airline reservation system and then add on the necessary ancillary and personalization information before sending the response back to GDS.

In the cases where the reservation system is hosted by the Airline itself, the GDS will send the NDC XML instead of the EDIFACT messages, but here it will continue to send it to the Airlines systems. On the airlines side, where it was being processed directly by the reservation system earlier, in future, will be processed by the Airline booking engine (Diagram 6) itself, which in turn will send the message to the reservation system after parsing the XML message. The Airline Booking Engine will then add on the necessary ancillary and personalized information and send the response back to GDS.

Comprehensiveoffer details from Airline

Airline Reservation System / Schedules

GDS **OTA

Airline Schedules and prices from Airline, ancillary items from GDS/ OTAs

Airline Website

CUSTOMER

*OTA XML

OTA XML

Airline Booking Engine

*OTA XML indicates Open Travel Alliance XML, which is widely used as reference**OTA – Online Travel Agencies

Current State (Airline Reservation system hosted by the Airline)

Diagram 5

Airlin

e

Sys

tem

s

Only Airline Schedules and Prices

Edifact

OTA

*

XM

L

Comprehensive offer details from Airline

NDC Value Proposition

For End Customer • More complete product offering through rich content and freedom of choice for the customer• Product comparison like fares, features and alliances across airlines• More transparency and instant price update including ancillaries• Access to any Unique airline offerings that might exist• More personalized experience based on personal choices, including the ancillary sales

For Airlines • Capability to sell all products through all channels • Leverage the investments made for their direct channel (like web, mobile) and

develop retail capabilities for all channels (GDS other intermediaries)• Greater ability to recognize and reward customers and provide personalized offerings

For Travel Agents • Broader access to airline products with a one stop access to ancillaries and other airline services• Better service for clients by comparing complex product offers• More productivity when dealing with complex offers• Significant reduction in Agency Debit Memos (ADMs)

For Aggregators (including global distribution systems)• Improved process for displaying a wider range of products and services• Stimulate innovation and offer more choices to consumers, while exploring new business opportunities

Different players will have to contribute in their own capacities to enable NDC to function. Some of the key areas that will have to be addressed by each of the stake holders are as follows:

Airlines

Airlines whose sales strategy includes distribution through GDS and other OTAs will benefit by implementing NDC. These airlines will be able to sell personalized offerings through the intermediaries and also sell ancillary components using NDC. Once the NDC is in place, even the LCC can begin to distribute through the intermediaries as the NDC will support the LCC ancillary sales model too

As shown in the diagram 4 (Case where the reservation system is hosted by a third party) the GDS will send the NDC XML message to the Airlines when it is enabled. This means that Airlines network infrastructure will have to be enhanced to ensure that this additional load of messaging is handled well.

In addition, NDC message parsing and processing will have to be enabled. The technical architecture of the airline website and mobile website will need to be fine tuned so that it enables seamless integration to GDS and OTAs, when NDC becomes operational. A robust SOA architecture to ensure that the NDC messaging can be used across its various channels like GDS, OTA, Web, mobile and other channels seamlessly will be required.

From the Business perspective, the airlines will have to negotiate new deals with the GDS and OTAs. Currently the GDS engagement model primarily charges based on segment booking. With NDC coming in, airlines will have to renegotiate the agreements with GDSs and OTAs to include ancillary sales and other functions that NDC might enable.

To make the ancillary sales available to all channels like GDS, OTA, Web, Mobile, Call Center etc seamlessly, airlines will have to create a platform to ‘manage’ the ancillary sales (Diagram 7). This ancillary sales platform could help the airlines to create ancillary sales items, bundle them and create offerings around them, including pricing as well as personalization. The Airlines strategy across different channels can be driven through this platform. Analytics around the data on the platform and customer behaviour will enable optimal ancillary sales item pricing and implementation. This tool can help create campaigns, offerings, bundling and unbundling; and eventually play a larger role in the fare itself. Diagram 6 depicts a high level view of the ancillary sales platform.

Impact of NDC

Channels

Web OTA KIOSK Contact Center GDS

Booking Engine

Airline Systems

CRS DCS FF ERP

MOBILESocial

Networking

Suppliers

Insurance Hotels Car RentalsRevenue Mgmt

Booking Services using NDC

ProductsOffers

Fulfillment Dynamic Contents

Pricing Business Rules

Tour consolidation

Customer analyticsOperational analytics

Metrics, KPISales and ReportsSupplier Statement

Agency ReportsAncillary Sales

Ancillary Business Functions

CustomerData

Ancillary Sales platform

Analysis/ Reports

There will be some change to the way the PNR is created and in the ownership of the same, especially when there are multiple airlines connecting and sharing codes.

Diagram 7

GDS and OTA systems

GDSs and OTAs will have to re-negotiate the agreements with the airlines to ensure they benefit from additional services they will provide to the airlines through NDC. While the unbundled ancillary offerings may not affect the GDSs revenues, but as the commission based ancillary sales like car rentals, hotels, insurance and other begin to get included in the NDC, the intermediaries may see a revenue challenge, which needs to be incorporated into the agreement. However the existing connectivity of the intermediaries with the suppliers of the commission based ancillary services could be reused. Of course there will be some changes to the way the PNR gets created on the GDS.

ATPCO

The fares will begin to move towards dynamic pricing as opposed to the fixed fares that are typical in ATPCO as the industry moves towards personalization, enabled through NDC. There will be changes to the way ATPCO today allows to file a fare. Some airlines may even move out of it to provide highly dynamic pricing as NDC becomes institutionalized across the airlines.

Agents

NDC will improve the competitiveness of this channel and as they will be able to offer detailed product features to the end customers. This will also reduce the Debit memos as the offerings that Agents finally give to the end customer will be the one provided by airlines themselves as opposed to the current scenario where the offering is by the GDS.

The roadmap for NDC is shown Diagram 8 (IATA):

Where are we now

Currently IATA is trying NDC with some pilots and we can expect 2014 to be a time for these pilots to run and come up with further suggestions. Both the airline and intermediaries will need to put the technology as well as the business agreements in place to begin implementing NDC as and when it becomes operational. GDS will be the laggards as there will be maximum impact for them to adopt to this standards.

Some of the preparations that Airlines can do in the meanwhile to ensure that they are able to leverage NDC as and when it becomes a norm are:

• Along with the Business unit the IT team needs to understand, evolve and finalize the overall strategy the airline needs to take for NDC, based on the revenue percentage from intermediaries.

• Implement EMD as per the IATA prescription. EMD is another cog to the wheel that completes the ancillary sales for airlines.

• Put in a robust SOA architecture around the booking engine and reservations systems

• Finetune the architecture to ensure that Web and mobile becomes a channel of sales. This will ensure plug and play when the NDC gets enabled for other intermediaries

• Conceptualize the Ancillary sales platform that needs to be build around the booking engine

ConclusionIt seems very intuitive that industry should move towards implementing NDC, but the GDSs needs to be convinced of the benefits and Airlines needs to push in parallel to achieve it. NDC is a great opportunity for the airline industry as a whole to improve the customer experience as well as increase revenues though the ancillary sales. This is also an opportunity for the industry to break the shackles of the restrictive ecommerce and try to leverage the ecommerce that the retail has been able to tap.

Tech Mahindra provides consultancy to the airlines towards a roadmap to establish a robust platform to leverage NDC as it is adopted by the industry. Tech Mahindra can also support the development and enhancement of the platform for booking engine and ancillary sales and put the state of the art analytics around the ecommerce to make the most out of it to improve the top line and bottom line of the airlines industry.

About Tech Mahindra

Tech Mahindra represents the connected world, offering innovative and customer-centric information technology services and solutions, enabling Enterprises, Associates and the Society to Rise™. We are a USD 2.9 billion company with 87,300+ professionals across 49 countries, helping over 605 global customers including Fortune 500 companies. Our Consulting, Enterprise and Telecom solutions, platforms and reusable assets connect across a number of technologies to derive tangible business value.

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This paper has been authored by Kiran Balimane – Principal Consultant - Airlines. For further information on this subject, please contact Kiran.balimane@techmahindra.com