Posted October 16, 2012

IATA To Propose Distribution Standards This Week, Pilot Next Year

The International Air Transport Association this week during its World Passenger Symposium in Abu Dhabi expects to propose "a roadmap and business case" for its New Distribution Capability, and plans to "complete the standards definition next year," according to prepared remarks delivered by director general Tony Tyler. Those standards must be approved Thursday by the association's joint passenger service committee before moving forward.

"Forty years after the birth of the current distribution paradigm, this meeting is the opportunity for everyone to get in on the ground floor of the next revolution in airline retailing," according to Tyler. "We need volunteers among airlines, travel management companies, online travel agencies, GDSs or other technology providers and corporate customers to join NDC pilots in 2013."

The New Distribution Capability, "powered by open XML standards," aims to enhance airlines' abilities to personalize sales through indirect channels, grow revenues and reduce distribution costs, while expanding the distribution marketplace to new entrants, according to Tyler.

"This will enable innovation in the same way the iPhone enabled applications to be developed," he claimed. "It is difficult to know what innovations will come. But we could certainly expect to bridge the gap between airlines and their customers so that customized offers can be made even through travel agents. With that, we will move from the mass commoditization of air travel to what one analyst has called 'mass customization.' "

Tyler argued that carriers already can better recognize customers and customize offers through their websites, where about 40 percent of tickets are sold. "For the 60 percent of air travel that is sold indirectly via travel agents using global distribution systems, the model is different," Tyler said. "The travel offer is put together outside the airline by third parties. The customer is anonymous to the carrier until the transaction occurs. Thus it is impossible for the airline to tailor its offer to the customer via the indirect channel. Furthermore, this model is focused only on finding the lowest ticket price. This has resulted in the commoditization of air travel."

While IATA senior vice president for industry distribution and financial services Aleks Popovich told The Beat in June that the new capability is "not a GDS bypass plot," he explained that the model calls for a changing role for GDSs and potentially others in the distribution chain, including airlines, OAG and the Airline Tariff Publishing Company.

Tyler this week said he also expects the distribution standard to "encourage market entry in the distribution space, which will stimulate competition, which is always good for prices."

"Airlines spend $7 billion per year on GDS fees," he continued. "It is not news that we are very concerned about this cost—which is greater than the industry profits this year. But through the NDC and the unbundling model, we also have an enormous opportunity to grow the revenue associated with every seat purchase—and thereby grow the pie for all—new entrants and incumbents. We are engaging with our GDS partners and are confident that they will identify ways to create value to the new model."

Posted by: Jay Boehmer | More by Jay Boehmer

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