Why NDC makes sense for Airlines. A non-retailing perspective
NDC is mainstream. Why do we need another pamphlet? We have noticed, so far, that focus has mainly been on distribution, usually called retailing in NDC. There are many good reasons to choose NDC beyond distribution, such as a non-retailing perspective.
NDC makes a lot of sense for airlines.
First of all, and for some more clarity, an OMS (Order Management System) doesn’t necessarily mean ticketless. OMS serves both NDC (with or without tickets) and ONE Order (ticketless). And the transition from the old legacy world to NDC, ONE Order will be a phased introduction rather than a big bang. For a while, the different worlds will exist in parallel.
Similar to the coexistence of NDC sales and GDS sales, OMS and PSS are not mutually exclusive. As drafted in a Transition Study¹ by IATA some years ago, two models are conceivable, an "encapsulated" model stands for OMS functionality within a PSS, and an "on-top" model is an OMS on top of a PSS. Over time, more and more capabilities will move from PSS to OMS.
Fight declining revenues
Some airlines are still reluctant and fear starting their NDC journey for lack of knowledge on how to transition from one process to the other.
NDC, New Distribution Capability, the name already says what the motivation behind it is. In times of declining revenues from the pure sales of seats, the airline industry sought and found ways to sell more than just the flights. The airlines discovered the sale of ancillaries to increase the sales of other products and services. They now even sell ancillaries, not typically found in an airline portfolio. Thus, the need for new data formats and processes to support the extended offering became evident. The solution is ONE Order, as it allowed sales without accountable documents, still known as tickets and EMDs.
The challenge is: How do you turn a prospect into a customer – just make an appealing offer. In NDC terms, it is a dynamically priced, personalized bundle of services presented as attractive as possible, tailored to the need and interest of a particular customer. Ideally, the offer contains additional rich information that makes it stand out from the competition.
Is it just to sell more than seats?
NDC is the airlines' transformation from just selling seats to offering a customer-centric shopping experience. Then, is it accurate or even fair to reduce NDC to just airline retailing?
Of course not, the retailing aspect and enhanced distribution are important, as sales are key to success. The second lesser-known aspect, but not the least important, is the revenue accounting and financial aspect. By streamlining these important factors, the time saved in redundant processing transforms into money saved.
Another positive feature of NDC is the role it plays in reducing costs. Although sales bring in revenue, reducing costs by improving processes also tremendously affects the bottom line. Airlines should not underestimate the positive impact NDC has on cost reduction.
Full control instead of audit
In the GDS scenario, the seller, that used to be called a travel agent, selects a flight or combination of flights, additional services, and the fare. When the trip is booked and ticketed, it is then reported to the airline. The airline only knows about the reservation immediately but knows about the actual ticket when it was sold.
Despite the highly computerized agent sales process in GDS, every ticket sold by an agent needs to be verified. A thorough sales audit needs to be completed for the airfare, taxes and eventual commission. Most airlines have automated (or outsourced) this process, but it is still an enormous workload and takes time and money.
NDC enables the airlines to decide on flights and additional services offered for a particular request and to set the price. Only the flight and services offered can be ordered and respectively booked. As long as a ticket exists, the airline, and not the agent, issues the ticket. And the ticket is exactly what was offered and booked. The airlines are now in complete control.
So, no more variations, no more discrepancies, and best of all, no need for an audit. Time and money saved!
Relief the pain in interlining
A similar concept exists for interlining, which is the combination of more than one airline in an itinerary. The agent simply combines the flights of the different airlines (provided an interline agreement exists) and issues the ticket under the name (here: prefix) of one of the airlines. Once the other airline has transported the passenger and thus provided their service, they invoice the issuing airline.
The invoice is then reviewed and charges for airfare, taxes, are verified by the issuing airline. The ISC (Interline Service Charge) must also be verified to ensure it has been properly applied. A thorough interline audit should then be performed for every coupon used on every invoice.
Again, there is some automation and outsourcing, but the interline audit process is even more time-consuming than the previously mentioned sales audit. The person doing the interline audit usually needs to have knowledge about the airline-specific calculation of coupon values (“prorate”) and be familiar with a long list of industry-standard rules and regulations as well as tax rules.
Moreover, if a discrepancy is detected, a cumbersome rejection process begins, and in the worst-case scenario, with up to three stages of rejections, going back and forth, followed by correspondence, and at the end, a billing memo.
Even someone unfamiliar with interline audit might sense the effort and time wasted in this process. That’s why IATA has started the “rejection reduction” initiative in 2015 with the ambitious goal to reduce rejection by 32% within five years 2. According to the recently published “IATA Passenger Interline Rejection Reduction Dashboard,” 3 1.8 million rejections were raised in Q3 2021, even though 2021 was slow when it came to air traffic.
No more rejections!
NDC brings a huge relief to the process. Interlining is a shopping process, too. One airline offers a flight (service) at a specific price to its interline partner, and only what is offered can be ordered and ticketed. Therefore, both parties know precisely what will be invoiced; no more discrepancies and no need for an interline audit.
Just imagine the potential cost savings throughout the airline industry, considering that 11.2 million rejections were processed in 2019. Especially when airlines have been hit hard by the pandemic, reducing costs may play a key role for a successful re-start and survival.
Conclusion
All airlines can benefit from NDC due to its enhanced and increased distribution opportunities and the leaner and cost-saving back-office processes.
In the future, ONE Order will strengthen and improve the airline business. It removes tickets, ticket-centered formats, and data and opens a world of new possibilities – for all airlines.
Sources:
1 IATA ONE Order Transition Study V,1 September 2016
2 IATA Passenger Rejection Reduction Best Practices, Version 1.2, March 2021
3 IATA Passenger Interline Rejection Reduction Dashboard Q2 2021, August 2021
