The Allplane Podcast #14 - Airline distribution & IATA's New Distribution Capability (NDC), with Jorge Díaz

Believe it or not, a significant percentage of airline tickets are still sold through indirect legacy distribution systems that offer limited options when it comes to showcasing the rich diversity of services and pricing options that are a feature of today’s air travel landscape.

Jorge Díaz, our guest today, is one of the people I know that knows most about airline distribution systems (and airline technology in general!) and, in today’s conversation I will try to get him to explain to us what is this thing called New Distribution Capability or, most commonly NDC, that has been making the rounds at industry conferences and forums these last few years.

We also discuss why the indirect distribution systems currently in place in the industry have serious limitations, how NDC can help overcome these issues and help, mostly, full service carriers get more control of their distribution channels.

Jorge-diaz-airgateway.jpeg

Having Jorge on the pod was also, of course, a great opportunity to speak about some broader trends in airline distribution and how he sees the future from the helm of Airgateway, the tech firm he founded. Berlin-based Airgateway develops NDC-based solutions that help travel operators and airlines make the most out of this promising tech standard.

Listen to today’s podcast to learn about the nuts and bolts of airline ticket sales and the processes they involve!

Download this episode on:

Apple Podcasts / iTunes, Spotify, Google Podcasts or Stitcher

Things we talk about in this episode:

  • What is the New Distribution Capability (NDC) pushed by IATA

  • Why NDC matters for airlines and their distribution channels

  • How airlines currently distribute through Global Distribution Systems (GDS)

  • Why adoption of the NDC standard has wide regional variances

  • What Airgateway does in the field of NDC

  • Why full service carriers are the primary users of NDC and it is less relevant for low cost airlines

Resources

Podcast Music: Five Armies by Kevin MacLeod
Link: https://incompetech.filmmusic.io/song/3762-five-armies
License: http://creativecommons.org/licenses/by/4.0/

Interview Transcript

(please note that, although we strive to make it as close as possible to the original recording, the transcript may not be 100% accurate)

Hello and welcome to the Allplane podcast, where every week we explore an area of the commercial aviation industry in the company of an expert professional.

But first of all, a quick reminder that you can find this and all the preceding episodes of the Allplane podcast as well as many other interesting stories about commercial aviation on our website, this is Allplane.tv

Today’s guest, Jorge Díaz, is an entrepreneur that is working in a field that, although hidden from plain sight, has very important implications for the structure and costs of the airline industry. 

Jorge is the founder of Airgateway, a Berlin-based technology firm that develops solutions based on a technology called New Distribution Capability, or NDC in industry jargon.

And what is NDC? Let’s take a step back...

Those of you that, like me, tend to book your plane tickets directly on airlines’ websites may be surprised to learn that a very significant percentage of airline sales are done through intermediaries. 

The Global Distribution Systems, or GDSes in industry jargon, that take a cut from each transaction. But, perhaps more importantly, this channel also has some limitations when it comes to market the ancillary services that many airlines have come to increasingly rely on.

This is the reason that IATA, the industry body that groups many of the world’s legacy full-service airlines, came up with something called New Distribution Capability, usually referred to as NDC.

NDC aims to make it easier for intermediaries, such as travel agents, to provide a content-and-feature rich experience similar to the one you can get on airlines’ own websites, complete with ancillaries, dynamic pricing and all the remaining bells and whistles.

On this episode of the podcast we talk with Jorge about NDC, what it means for the industry. But, also, more generally, about airline distribution, an often overlooked but absolutely essential function of the airline business.

So, without further ado, let me welcome Jorge to the show!

-Hello, Jorge, how are you?

-Hi Miquel, not bad! I'm currently in Spain having a kind of break time during this weird situation that we are having. But I'm pretty good, I have to say!

-Yes, I've seen some pictures you've been posting about your stay in beautiful Asturias in the north of Spain. And it's really an amazing area to spend the summer. Not too hot…

-Yes, that's where that's where I come from. That's my homeland. And yeah, I try to visit at least twice, twice a year here.

-But you are normally based in Berlin. And you are the founder and the CEO of a company called airgateway. And it's a technology company. You're going to tell us now what you do, you are developing solutions around what is called the NDC, which is quite a big thing for the aviation industry.

-Yeah, that's correct, we created our gateway almost four years ago now...Yeah, it's a company focused on solving, let's say the so called problem around the switch in airline distribution, a solution model towards the standard NDC introduced by IATA and embraced mostly by the full service carriers.

So basically, when we get to this point, I will need to make a short pause to explain a little bit about this NDC thing. So NDC, basically stands for new distribution capability, correct me if I'm wrong, because I'm not as much an expert in this matter as you are. But it's basically a standard technological standard that facilitates the distribution of airline tickets in a much richer and broader way than before. So, if you're a travel agent is booking a ticket until now you had a very limited set of possibilities to do this booking but with NDC You can access pretty much the same amount of information about the flight, about the type of service on board, etc, etc, that, that you might access directly through the airline website.

-Yes, that's a way to say it. And there is a huge debate in the industry. Precisely. I mean, what's the motivation of NDC. And of course, here you have very different views and versions, the airlines want to have kind of the same capabilities or the same distribution flexibility, but also ownership also. It's a matter of ownership that they have on their b2c channels, which is a fully fully airline old channel, I mean, the so called airline.com channel in there, but while partnering with that with agencies that's pretty much the base of NDC, the reason to be, but said it's unclear is a big debate. And we should have to differentiate between the standard itself, which is a theoretical container, let's say, and the real implementation of NDC. Because there's normally some gap between these two concepts. Whether it enables actually new retailing possibilities or not, or not yet, or it's on the roadmap. I mean, there's it's a whole, it's a very complex debate. And we should have, we should evaluate these for each specific carrier. Because, of course, the level of implication and adoption and deployment of each specific carrier is different in many cases.

-What I would like to do is just do one step back to provide a sort of snapshot of how this works. So basically, until now, you had people buying plane tickets, either direct, going to the airline website, so you go to ryanair.com or you go to lufthansa.com. And you see all the options there. And normally there's quite a lot of different options and ancillaries and that's become more and more of a thing. So airlines have been adding additional services and you can book when you are booking a ticket so that you work directly with the airline. You get your ticket, you get your ticket reference, etc. The other way that people book is they might go to an agent, for example, a corporate travel agent or some retail travel agent. And these three travel agents normally what they would do is just go connect to something called the GDS. The GDS. It's a sort of intermediary that gets all these pricing information from the airline. And issues the ticket, but they are some sort of, yeah, an intermediary. There are like three major gds that get a cut of this transaction. Now is when NDC comes into stage, because NDC basically it's enabling, can we say, bypassing the GDS in some way?

-Yeah, this expression has been literally used because as I said, it's not only a matter of functionality or cost, which of course it matters as well, but also a matter of ownership. I mean, right now if the airline for instance in the b2c channel that you mentioned before the airline would come they have the so called branded fares, which is a way to retail their own branded fares as its its name, explicitly states, it's a way to state their own products with their own naming with their own marketing. And that's something that NDC enables, I mean, the airlines are able to deliver a branded first through their NDC API's, which is something that conceptually I would say that it's almost impossible to put in the GDS world and well, they're all they're sort of on efficiencies in the GDS world. I don't know if you know, but at This is pretty shocking in the year 2020 but it's high words right now, when when an airline all the tariff publishing workflow happens through an American company called ATPCO which literally stands for Airline Tariff Publishing Company, that all three major GDS pull the fares from. This happens three or four times a day. So this doesn't enable us to implement business logics and returning logics functionalities, like the so called dynamic price, which is being able to react immediately to the month for instance, this is not doable, because of the tariff publishing model and the GDS model itself. So this is something which is under control, and the b2c channels, the airlines can do these practices actually. And these are the reasons mostly that airlines used to push for NDC-based distribution.

-So you Basically the NDC Can we say it's an attempt by IATA to enable people that are booking through channels that are not airline websites to get access to all these additional services and salaries, etc. And in real time dynamic pricing. So it's in a way kind of updating indirect distribution to the same standards that we have in direct distribution.

-Yes, that's correct. And it's a way to equal both I mean, equal in terms of control and ownership as well. I mean, the thing is that the b2c the solution is totally under the control of the airline, but the b2b distribution is not that's pretty much so it's an attempt to bring the b2b distribution minister through and I you see, no matter what kind of agency to bring the distribution through partners, through agencies, let's call it to the b2b distribution add to airline control or airline-controlled channels, that's pretty much probably the one-liner definition for NDC.

-So NDC, it's a project from IATA, but we must say not, not every airline, not even every airline that is a member of IATA is is onboard with this, right? Some airlines are more enthusiastic than others. So, what's the situation right now? What's the panorama? 

-Well, if there's a word to define the panorama is fragmented, because as you stated, is actually a small number of airlines. It's a small number of airlines that are actually pursuing a direct distribution strategy with a NDC base. But it happens of course, in some regions like in Europe that the three big, big groups are heavily pushing for this. So in Europe it's a very relevant trend. It's not something that is happening, I don't know, somewhere in the middle of Asia...So it's a very local trend...in the US as well. The adoption has been, it's been big. But the biggest difference between Europe and the US is that in the US, there haven't been the so called the GDS surcharge, which is a huge argument that the European tariffs are just going to push the airlines to switch to the NDC. So yeah, of course, this creates a very different landscape, very different set of motivations or no motivations at all. And for agencies to start considering that this is a real alternative. I mean, the first big push made towards NDC, the GDS surcharge introduced by Lufthansa, I think was in the year 2016. This is four years ago now. And this was followed by IAG and  Air France-KLM. And recently like one year ago, it was Qantas, the first move outside Europe. And the rest, a couple of weeks ago, Singapore Airlines was the one that did this move in Asia. But the European carriers kept pushing and they started to remove the light fares from the GDS, because they're in position to do this. And one month ago, there was a big...I don't know how to call it... Sabre announced that Lufthansa was by the 30th of June, they were removing all the content from the GDS. So this created a big debate in the industry because there are a lot of agencies that still were relying on the GDS for booking Lufthansa. This was a big situation. But in the end, it didn't happen. But the way it is today, the content is still there. But it shows that at some point, there are carriers that are willing to sacrifice entirely a whole GDS channel, and we're talking about 30% percent, probably, you know, 30% of volume, but we're talking about three GDS and they're willing to somehow sacrifice one of them. So this gives a big proof of the commitment, especially from the Lufthansa group with direct distribution.

-What are more or less the percentages now of the GDS when it comes to airlines ticket sales?

-Well, this is very complex, this super opaque and it's...you hear a lot of statistics, but there's not actually easy to connect this with the GDS financial results, especially now with Coronavirus is going to be even harder because it's going to be very difficult to differentiate. So there's a lot of speech. And there's a lot of conversation about this, a lot of data and numbers and twisted statistics. But I think yesterday, the head of distribution of Iberia announced that they're already selling 30% of their b2b, not of the entire volume, but of the b2b volumes, through their NDC channels, which in my opinion is a good rate. And so did Lufthansa last month, there was also close to 25%. So and this one we can consider IAG and Lufthansa, the two leading groups in terms of migrating to direct switching. So we can consider this like the leading and numbers 

-Where does Airgateway fit into this landscape. You founded this company in Berlin because you spotted the opportunity to provide services in this area. So can you tell us a little bit what do you do? And what's your area of specialization in this field?

-Certainly. I had the opportunity to work closely with NDC before creating, founding Airgateway. Actually helped IATA with the first launch of NDC related events and so on...so let's say, I think I can say that somehow I witnessed the birth of NDC as a standard, as a theoretical standard at least. Where airgateway fits in...let me explain to you...basically what the airlines are doing is opening the distribution landscape to anyone who wants to become an aggregator in the GDS model. Only the GDS could act as distributors by definition and by architecture...by all everything...by all means...by NDC model anyone who has the will can come and say, “Okay, I'm going to aggregate all this content for these reasons or this differentiation, with this strategy or these commercials and start knocking on the airline's door”. This is very important, we talk to the airlines not to the GDS, of course, that's how directly social works. And we put content in one single point. There can be many, many motivations and many commercial approaches to this. But, since the airlines are opening the distribution industry, to anyone who wants to take it, that's pretty much the definition of air gateway itself. It's a company which was born to aggregate all the content and put it in one point with multiple interfaces, because I can say that we're one of the few aggregators and NDC aggregators, which provide the dual interface for both an API and a web interface. So we can provide a full end to end solution or a solution for partners that want just to take the content. And it's pretty much air gateway, I mean, anything I say beyond this is probably redundant.

-So basically, your customers are, for example, travel distributors or agencies that would like to access the inventory of the airlines with all this additional rich content information, dynamic pricing, etc, and offer it directly to their customers. And then with the tools you have developed, they can do that. You provide them the way to connect with all this inventory that the airlines have for distribution.

-Yes, we facilitate...I mean...actually, this is part of the counter-NDC speech, sometimes thrown from the GDS, which is the difficulty of consumption of the content because it's fragmented and it's de-aggregated...Which is obviously true. And so what we do, by putting all this content in one point...and we could have a huge debate, a technical debate about how we do this, and how it shouldn't be a competition, what pros and cons for each aggregation, but is a bit out of the scope of the of the conversation now, but basically, we put all the content in one point so that any kind of travel agent or traveling partner, which is not willing to do all the integrations one by one and going through the certification processes, one by one, airline by airline, just want to take something which somehow replaces the GDS was in the NDC world. That's what we provide. We frequently have found ourselves defining airgateway as a small GDS for NDC and that's what we are.

-And where do you see this market going? I mean, in terms of distribution. There's been a lot of talk in the industry about how ancillaries are more important. Also, you have lots of different tools, software that is being developed to help the airlines be more efficient and a word that everyone is mentioning is personalization. It's a bit like the thing that everyone is looking for is a way to match exactly each offering to each passenger, each potential passenger. From your point of view, as an NDC expert and someone that is daily working with airlines and distributors. How do you see this going? I mean, do you think we are any close to this personalization ideal? Do you think that we're going to have a landscape where more airlines are moving onboard with NDC? What are the trends here?

-Okay, you mentioned personalization. I mean, there are three big arguments that the airlines use to switch. One is a dynamic pricing to enable enable them to be able to do dynamic pricing, but they know that they won't ever be able to do dynamic pricing the GDS, that's right now they're on a stage of gaining the control of the channel, let's say and once they have the control of the channel, they will be in position to do all these three things which are dynamic pricing, and ancillary distribution and personalization which is closely related to the second one and also to the third one and to the first one, because dynamic pricing also intends to be like a way to personalize the offering, a proposal for each individual for each specific request which comes to the airline. So everything is heavily related and comes together. But right now I don't see that these things are happening. Even when we can say that most of the airlines do have ancillaries and are delivering branded fares through their channels, which is already a goal of NDC distribution itself. But what I was saying is that right now during the stage we are in right now, they're more in the state of gaining control of the channel to be able to implement these principles and these ideas which are contained, which are part of the standard or ship with the standard.

-And, well, the inevitable question these days is how does the pandemic affect your business?

-Well, obviously for bad first, but also for good because we're in such a shakeup of the industry. One of the big problems when something is very established, and there's a huge standard school or everything turns around, that comes its way more difficult to introduce changes, right? But when we're close to a chaos situation, it happens that the previous status quo is a bit more vulnerable. So, yeah. I don't know if I'm being very optimistic here but I have the feeling that all the established, all the huge established players in distribution will struggle much more than newcomers. And, of course, we're including airgateway in the newcomers. So I have the feeling that as I said, one month ago, Lufthansa announced that they were willing to disband or to dismiss the distribution agreement with Sabre, which is something that I don't know if this could have happened one year ago, in the middle of normality, let's say

-Because NDC I guess is not so relevant or not relevant at all for many low cost carriers, I mean, because I have this idea low cost carriers normally distribute mostly direct, but some of them might be on GDS and indirect distribution systems as well. So it might be relevant for them as well or not?

-As you as you pointed for them, the b2b channel is way less relevant than the b2c channel. In a conversation with someone in a managing role a couple of years ago, they told me that they sold 98% of their tickets through their website, of course it is not such a relevant for them to switch the remaining 2% to a channel or another. But actually, let's make it very clear that real low cost carriers, I am not talking about the low cost brands belonging to a full service carrier groups, the real low cost brands like Ryanair and Wizzair have very, very different relationship with the GDS than the full service carriers, starting by the fact that they rarely have their PSS on the system, which is where everything starts from. So not having the same kind of relation to the full service carriers...for the low cost is not even a big debate. And API-based distribution is a very common thing in the low cost world since the early Navitaire years. So this is nothing new for the low cost airlines. They already have APIs, which normally are not in NDC, they are either Navitaire or how they call it Direct Connect or open travel alliances in some cases. I think this like at the Irish airline airline...the one that is not Ryanair…

-Aer Lingus..?

-Yeah! Aer Lingus has an open API called open travel and travel Alliance. I mean for the low cost carriers is not such a topic, because it's almost irrelevant. Even, lately, apparently, there are some low cost carriers that are starting to have corporate travel ambition, which are starting to consider NDC or the API based distribution for achieving these goals, but this was not, in general, this was not the trend for the last 20 years.

-And one question, what are the obstacles? What are the costs of adopting NDC standards? I mean, if you are an airline, let's assume you're a legacy full service airline. What would prevent you from adopting NDC? Is it because of the institutional relations they have with GDS? IS it because there is some technical barrier?  I'm just asking this because as you said, not all airlines are on board with this. So if it's a way to facilitate others to sell your tickets and sell more tickets in general, why an airline wouldn't adopt it straight away?

-It's not you selling more tickets, but selling them better and selling them, of course, at a very different distribution costs. Consider that on the direct channel they don't have that the GDS distribution costs. This is a fixed cost established the late 80s or early 90s that is a huge cost nowadays. And so I don't think it's more a matter of increasing the tickets that they sell but of selling them at a lower cost. 

-With the amount of hybridisation that we are seeing, with some full service carriers now introducing some elements of low cost carriers like discontinuing some free service and introducing ancillaries. I guess that's also a way for them to sell these ancillaries better, right? because one of the capabilities of NDC is that it makes it easier for the distributors to push these ancillaries or to include them into the fare. 

-That's it, it's a way to de-commoditize a bit the seats, which is what they traditionally have been selling. And yes, it's an investment. Of course, not all airlines are in a position to do the investment, either if you do it through a consulting, a big consulting firm specialized in travel, or if you do it with one of the out of the box options in the industry, which are Farelogix, Datalex, etc. these kind of companies. In any case, of course, we're talking about a relevant investment. And not only...it's like a mindset, it's an effort. It's a huge effort, certification, that you have to do. And while until today, we've only seen such a very clear commitment mostly in Europe, also with Qantas, and Singapore Airlines, and in the US they are kind of somehow in the middle of making their decisions, kind of undecided, to be honest, sometimes I don't understand that distribution approach in the US, for the US carriers, because it's somehow like the middle, middle of nowhere. It's not clear enough, but they have a better distribution anmbition, I don't know. It's, in my opinion, the European way is way clearer, more understandable…

-So, you have to make an investment, have setup costs, you have to create the API's I guess, and then you have to invest as well to manage that...how does it normally work internally at an airline?

-These kinds of questions...the response always depends...because it's super changing from one or less than others, and we have examples like I would say, Lufthansa and IAG doing a very, very clear and focused work in terms of gaining ownership processes commercial the involving their commercial network in the process and ever seen together. But you have other airlines, which have NDC initiatives, and they have been proven to be unable to onboard partners. I don't know. Our agencies, they've their technologies...the readiness is not not the same. And I don't know we can see these even within Europe, within the same region, we see very different readiness of the airlines for this. I have to say that by far, Lufthansa and IAG are the two better positioned so far. In terms of timing processes, control, technology, readiness...readiness in general and the rest of carriers, either because they don't have a clear, fully clear commercial policy. When I say commercial policy, I'm talking about key phrases, GDS, which are just, they throw a very confusing message. They talk about initial time, but then they're unable to run certification processes, for instance of the bigger European carrier, which is not one of the two mentions above that before...I don't know, it's very, it's very changing...And this creates a lot of complexity that the small companies have to deal with. 

-And just to start wrapping it up. There is another initiative from IATA that it's often mentioned alongside NDC, and that's a One Order. Can you tell us what's one order and how does it fit into the story?

-Yes, you're right. It's commonly mentioned alongside, but while considering myself quite deep knowledgeable about NDC, I have to admit that when it comes to one order I'm still confused about whose the ownership of this standard because so far I've only seen presentations and PowerPoints and a lot of talk about it, certifications...but haven't ever seen an API or something. So to the day of today I have to say that one order still confuses me and as I said quite familiar with the NDC idea, the NDC concept and the NDC implementation, so I don't know if it's a matter of communication...or of course can be my fault...but to date I don't have a clear views (About One Order) that I have over NDC, which I understand why is happening and how it's happening and where and and when...when it comes to one order I have a lot of questions around it so, as i said, I can't provide such as much light as I can do with NDC

-It has also been kind of a slow process...I mean, I've been following this (NDC) for quite some years and there's always this sense of expectation but it seems that it's kind of slow adoption, right?

-Yes, yes, it's slow, as I said, everything involving distribution...moving, switching...especially when it comes to the pipes, because this hits deep in the in the pipes of the industry is extremely sensitive. So it's very slow, but as I said, I don't know...I have the feeling that 2020 being super strange for the industry it has been better than worse for direct distribution, because it somehow is created this feeling of, “Okay, let's reset our minds, let's revamp a bit the situation” when you spend three months or six months at home, almost without the possibility of working, you come back to work with a different mindset, that's for sure. In many ways, probably, it will also affect what we call the corporate travel industry as well. And I read a lot of articles stating this kind of predictions, which of course, sounds pretty reasonable to expect something like this. So I assume that there are some cons of course the situation is not the optimum right now in the industry by far. We're gonna see a slow recovering I hope, hopefully starting in September or October or something like that. But, well, since we're a small player We have very, very deep reduced costs right now we can get to adjust to the situation very, very fast We didn't talk to governments and things like that we didn't ask for a government bailouts and things like that. So yes, we did the homework in a matter of days. And I seem to now we're ready to wait for the return of the industry, back to life. And everything that ever since comes will be great news for us.

-Well, let's hope so. It's called the back bit and, and we all get back to normal really soon. In any case, it's been a real pleasure speaking with you, Jorge. I hope we will be able to coincide again at some at some event of the industry, as we have done in several occasions in the past and, Yeah! just finishing by wishing you all the best with your, your company, your growing technology company. 

-So thanks for the opportunity has been the same pleasure, as you said the hope that we meet very soon in an event. That will mean that we have the events back, it will be great news for the industry...either with the mask or with whatever...but hopefully we will have the opportunity to meet soon. face to face, anywhere in the world.

-Great. Thank you so much.

-Thank you because you too! have a great time.

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