The world of travel has radically changed. There is no point in sugar-coating it; the last couple of months have been hard for airlines.
The travel business is collectively living through the biggest crisis of in our lifetime. Airlines have had to make difficult decisions - decisions they could never have imagined they would have to make even as recently as two months ago.
As we all work our way through the ramification of the impact of COVID-19, we can now see how fear of catching the virus could hamper the travel industry’s recovery for years.
In a recent survey
, only 56% of U.S. adults say they would be comfortable flying even 60 days after the “all clear” is given.
Another survey found that only 61% of American respondents said they’ll be comfortable flying anytime in the next six months. Such a recovery is neither full enough nor quick enough to stop the massive amounts of financial bleeding at the airlines and throughout the aviation and travel industries.
The distribution opportunity of the COVID-19 crisis
The recent Sabre court case attests to the importance US airlines place on controlling their own distribution destiny.
The cost of distribution has long been the biggest cost for airlines. With such a reduced volume of bookings, is now the right time for airlines to seize control of the offer and directly connect with their customers and cut out the GDS,
as Lufthansa did with Sabre recently
?
Given that the COVID-19 virus emergency poses an unprecedented set of challenges for airlines, it can be difficult to know how best to respond and where to start when thinking through airline distribution.
History shows that company investment in R&D and innovation
during a crisis pays off in long-term growth and profitability.
The better capital-resourced airlines might be able to turn the downturn into an opportunity to concentrate resources on strategic projects and emerge stronger. However uncertain the operating environment, rapid responses are still required.
Could IATA’s NDC provide that rapid response that airlines need during this difficult period?
The NDC value proposition
Before we examine why NDC can deliver for airlines during the crisis, recovery and “new normal” periods, let us look at the value proposition for NDC in airlines. There are two clear areas—revenue and cost benefits.
Airline - revenue benefit:
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control of the offer in all channels
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differentiation through product attributes
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upsell through bundling and fare families
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ancillary upsell
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rich content to inspire and drive conversion
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dynamic pricing and personalisation
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increased reach through new sales channels.
Airline - cost benefit:
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lower opportunity cost
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new technology at lower cost compared to legacy system
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cost savings across ticketing, payment, revenue accounting
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back-office automation
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improves revenue integrity (removes costs of fare auditing)
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control overpayment
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real-time settlement cuts the cost of agency defaults, etc.
The four reasons why NDC can still deliver for airlines through the COVID-19 crisis
Looking through the lens of airline revenue and cost benefits, we can see four immediate upsides through applying a coherent NDC strategy during the crisis:
1. Revenue stream innovation
The NDC goal of reduced distribution costs and increased revenue are particularly pertinent as airlines seek to recover.
The ability NDC gives airlines to innovate, create product offerings and roll these out to market in real-time can make NDC a "gamechanger" for an airline’s bottom line through – and beyond – the crisis.
The current travel environment is very dynamic and changing frequently. As regulations are introduced to restart international travel, health and safety products, such as vaccine certification, can more easily be delivered under the airline’s control.
Indeed, at the very heart of NDC is the capability to innovate through the addition of new customer propositions – at speed, and across all distribution channels.
Adding new health and safety products across all channels creates the exact sort of benefit that NDC was created for – more and better choices for the passengers, revenue and innovation opportunity for the airlines.
2. Market stimulation and long-term impact
We are starting to see airlines give dates for when they start opening up more. If there is one thing we can guarantee, it is that airlines will need to stimulate demand on an ongoing basis.
Aside from creating demand in the short term, there are longer-term reasons to think through marketing expenditure. Indeed, there is much empirical research across numerous industries that consistently shows that brands that maintain marketing spend during a crisis increase sales and market share.
Moreover, the decision has a lasting impact for several years after the crisis period, with brands cutting spend proven to continue to lose market share long after marketing spend has been reinstated.
If airlines wish to stimulate demand using innovative marketing campaigns, NDC will enable them to deliver propositions immediately across all channels.
NDC gives full control over content distribution and the offers made to all channels AND differentiation of your airline product offering.
3. Speed of delivery and time-to-market due to zero reliance on IT teams
Legacy technology should never be allowed to constrain the business goals and strategy at any time. Each product or proposition or customer experience enhancement not acted on due to legacy system constraints adds up to significant real cost during the crisis.
The Covid-19 crisis is the time that airlines do not want to be dependent on third party IT providers to get their products to market. Having an NDC just bypasses all these problems.
4. Cost-savings
Airlines must pursue every effort to reduce costs. NDC enables the offer, ticketing, and settlement to move from the GDS to the airline.
As a result, more control delivers cost savings in back-office processes built around the enforcement of product rules and settlement mechanics between the airline and its distribution partners.
Indeed, British Airways and Lufthansa have begun to adopt a strategy of removing fares from the GDS or creating fares that are exclusive to their NDC channels to accelerate the adoption of the channel – and reduce the costs of GDS fees.
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Check out part 2 of the analysis here
.