News Backgrounder
GDS failing to meet airline needs
Study identifies major trends that are transforming travel distribution
March 1st 2013
A new study commissioned by the International Air Transport Association (IATA) says airlines have “morphed into retailers - true merchants of the skies”, but existing global distribution systems (GDS) are failing to meet their needs because they don’t cater for the wide diversity of products offered by individual airlines. Read More »
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| Eric Leopold, director, passenger, IATA: IATA’s New Distribution Capability will lead to innovation |
“As merchants, airlines need systems that can help them not just distribute their flights, but merchandise their products and value across the channels that make sense - online and offline, direct and indirect - at sensible costs,” said the report.
“What airlines don’t want are distribution channels that present all airlines as equally substitutable commodities. Airlines want, and expect, their distribution partners to offer passengers helpful contextual information to make well-informed purchase decisions, reducing the number of reservations made based primarily or exclusively on price.”
The independent study identifying major trends that are transforming the travel distribution landscape, The Future of Airline Distribution – A Look Ahead to 2017, was written by Henry H. Harteveldt, co-founder of Atmosphere Research Group.
“Airlines also want commerce platforms that can support extensive fare and product transparency, dynamic pricing, rich basic and ancillary product merchandising and retailing, and the ability to reliably and securely process the massive volume of shopping sessions. Importantly, airlines are also eager to see new providers enter the airline distribution/commerce space,” said the report.
It comes as IATA moves ahead with its New Distribution Capability (NDC) project, aimed at facilitating a new model for distributing air travel products. Foundation standards for NDC were adopted last October at IATA’s Passenger Services Conference. Pilot programmes are to be conducted this year.
Eric Leopold, IATA’s director passenger, said NDC would allow anyone to distribute air travel products, including new entrants and intermediaries. “NDC allows airlines to manage retail of their products via indirect sales channels (using travel agents) in the same way as selling through their own websites. This will help close the gap between direct and indirect channels,” he said.
But he stressed NDC was not a system designed to bypass existing global distribution systems. “Quite the opposite. It gives GDS and travel agents the ability to access the same product offers when airlines sell their products directly to consumers via their websites,” said Leopold. NDC makes it easier to compare air travel products and will lead to innovation, he added.
“Basically, airlines provide limited information about the products they sell and don’t know anything about the customers who purchase the product until they check in for their flight.
“This model was designed 40 years ago, when IT resources were limited and the internet, PCs and mobile phones did not exist,” said Leopold.
The Harteveldt study pointed out that travel is the largest e-commerce category, led by airline ticket sales. “In the U.S., it’s estimated that business and leisure travellers will spend $85.7 billion online for airline travel in 2012,” said the report.
It said the typical travel shopper visited 22 websites in “multiple shopping sessions” before booking a trip, but “travellers relying solely on third party websites would not receive all the information needed to make a fully informed purchase decision”.
Passengers are more likely than the general population to own smartphones and tablet devices, with substantial growth expected due to these devices’ growing capabilities, said the study.
By 2017, Atmosphere expects 50% of online direct bookings will be made on mobile devices, with even more ancillary purchases made through mobiles, given the portability and ease of use of devices.
Customers, meanwhile, believe “control is as important in booking flights as in buying a cup of coffee. Passengers may accept that airlines can’t be the first to offer customization tools like buttons, sliders and other similar controls that make flight shopping easier,” but as they see these tools deployed on other websites, “they will expect airlines to offer comparable functionality”.
By 2017, according to the study, what airlines call ‘distribution’ will be replaced by a “focus on channel-based, value-creating commerce”.
Atmosphere believes this new approach will be supported by the emergence of “value creation hubs” (VCH), which will represent an evolutionary “pivot” from the current GDS approach.
