Green light for new GDS standards

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

November 1st 2012

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The International Air Transport Association’s (IATA) Joint Passenger Service Committee gave the go ahead last month to a roadmap and business case for new global distribution system (GDS) standards. Read More »

'Airlines spend $7 billion per year on GDS fees. It is not news that we are very concerned about this cost'

Tony Tyler Director General IATA

The New Distribution Capability (NDC) – its standards definition will be completed next year – is aimed at revolutionizing the airline distribution chain and dragging it into line with today’s internet and mobile technology.  

IATA director general, Tony Tyler, said the new distribution capability was needed to enable the industry to offer more options to customers and to reach them seamlessly regardless of distribution channel.

“The internet economy has fundamentally reshaped the ways in which sellers and consumers interact. Customers expect to be recognized when they shop online. And they are used to receiving tailored offerings based on their past purchasing behaviour,” he said.

“Airlines are able to participate in this new model with those customers purchasing directly from their websites. They can recognize return visitors and make offers based on travel history, loyalty status, credit card brand or other parameters. And customers have complete visibility of additional products and services on offer.”

Airlines have complained for years that today’s GDSs are outdated and unable to meet their needs in a fast changing world. About 40% of ticket sales by value come through airline websites. The rest is sold indirectly via travel agents using GDSs.

“As a result, it is impossible for the airline to tailor its offer to these customers. Furthermore, this model is focused only on finding the lowest ticket price, which is commoditizing air travel even as airlines innovate their products,” said Tyler in an address to the World Passenger Symposium in Abu Dhabi last month.

“Airlines are trying to escape the commoditization trap through differentiation and merchandizing. They are developing products and services, such as special meals, expedited boarding, roomier seats and access to airport lounges.

“But the travel agent sees only fare codes - F, J, Y and their various derivatives - which cannot fully describe options available. Customers expect more.

“The solution is the NDC powered by open XML standards. This will enable innovation in the way airline products are distributed. One key outcome will be the closing of the gap between airlines and their customers so that customized offers can be made to travellers, even through travel agents.

“Forty years after the birth of the current distribution paradigm, we have an opportunity for a revolution in airline retailing. It also will 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. It is not news that we are very concerned about this cost, which is greater than 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.”

Tyler said airlines expect to carry three billion passengers next year. “And that number will double by 2030. Connectivity is a critical component of modern economies. Serving that growing demand will require innovation,” he said.

In another major development, for the first time last month travel agencies in China received clearance to book airline travel via foreign GDSs. Until now, China has been a closed shop to offshore distribution systems, with Chinese agencies confined to using the local state-owned Travelsky GDS.

In September, the Civil Aviation Administration of China (CAAC) published new regulations on Computerised Reservation Systems (CRS) aimed at bringing enhanced global distribution technologies to the Chinese market. The regulations took effect on October 1.

They allow flight bookings on non-Chinese carriers. Bookings on China’s own airlines still have to be made through a local GDS.

Foreign GDSs moved quickly to take advantage of the rule changes. For example, European-based GDS, Amadeus, immediately appointed a travel industry veteran, Bart Tompkins, as managing director for Amadeus China.