What NDC is really all about
Q: Every week, there’s a trade press article about New Distribution Capability (NDC). Many of the major airlines are trying to push NDC by emphasizing its ability to “modernize” travel distribution by making personalized offers for travelers that the GDSs cannot provide. In your opinion, what’s really going on with NDC?
A: I have a cynical opinion of NDC. It is not primarily a better service but rather a better weapon in the 38-year war that the airlines have been waging to reduce or eliminate the fees that airlines pay the GDS vendors.
Since 1985, the GDS companies have been toll collectors for every booking by a travel agency or a corporate travel department. As the tolls increased every few years, the airlines began complaining that they paid too much, especially in relation to the cost of other kinds of transaction-processing technology.
The airlines had a good point, as there is no doubt that the GDSs have been able to take financial advantage of their oligopoly. Over the years, the airlines have asked the departments of Justice and Transportation for relief and have filed antitrust suits, all to no avail.
Lacking meaningful legal relief, the airlines have tried to bypass the GDSs by various means over the years, including through Direct Connect technology and the like. They have also tried to reduce the fees they pay to the GDS vendors by threatening to withhold some content, but with limited success.
Particularly galling for the airlines is the fact that most fees they pay are passed through to travel agencies in the form of incentives. After all, they spent years nearly eliminating agency commissions only to see them partly restored as what they see as indirect commissions.
More stories on NDC:
- ASTA asks American Airlines to delay new distribution method
- IATA working group spearheads modern airline retailing
- Travelport Plus is adding NDC content
Airlines have finally figured out how to bypass the GDSs, as agencies can now make NDC bookings directly or through a non-GDS intermediary company. The GDSs are scrambling to handle NDC bookings, as well, presumably collecting lower fees.
While it is true that NDC can offer some enhanced services that are not available in the GDS, I believe that the airlines’ primary motivation is not better service but rather saving or reducing GDS booking fees.
For agencies, there are three major problems with NDC. First, bypassing the GDS entails a loss of GDS segment incentives, and bypassing can trigger GDS penalties under GDS contracts with market-share or volume quotas.
Second, for NDC bookings handled through the GDS, it is not yet clear to what extent NDC bookings will earn incentives or count toward quotas. Even under new GDS contracts, the vendors’ commitments are somewhat vague.
Third, records of NDC bookings made outside the GDS cannot yet be integrated into agency mid- and back-office systems without additional costs per transaction. These costs diminish any benefit of being able to offer additional services.
Until the airlines address these problems, NDC will not be a success.
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