For more than a decade, IATA’s New Distribution Capability (NDC) standard has been a topic of discussion and debate among airlines and travel sellers, with the former exploring ways to implement the standard to unlock new revenue opportunities while not completely abandoning loyal sellers that use traditional distribution systems.
American Airlines was one of the first to make a bold push for NDC when in 2023 it moved 40% of its lowest fares to be available only through its own channels and through NDC channels. Previous efforts from carriers, such as that of Lufthansa in mid-2015, leaned more towards surcharges for GDS bookings.
But in May the architect of that strategy, American’s chief commercial officer Vasu Raja, announced he was leaving the company and shortly after the airline said it would reverse course on the strategy – delighting some travel advisors and fueling skepticism about the future of NDC.
While it’s now clear American’s strategy didn’t pan out, that doesn’t mean the industry should stand still or retreat, said Cory Garner, a former American Airlines executive who now runs his own airline distribution consultancy, Garner, in a keynote address at The Beat Live event in New York City Tuesday.
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“We had American Airlines roll out a really bold distribution strategy, and now they’re on an apology tour, and this is the part where we’re supposed to be saying, this is all over and it’ll never happen again, right?” Garner said.
Wrong, he said: “It’s the time to adjust. Don’t fall asleep, is the moral of the story here,” he said.
What happened with American’s implementation should not be viewed as a shutdown or a slowdown on the NDC trajectory, he said, it’s just another time stamp in the evolution of distribution.
Garner also said that the best way to predict airlines’ future distribution strategies is to look at what is motivating them.
Three eras of distribution change
There are three eras of distribution change spread across the last three decades, according to Garner.
The first era was about finding a new way to interact with travel agencies to process bookings at a lower price point.
“The first decade of airline distribution change of the millennium was all about cost,” he said.
Airlines needed a less expensive way to interact with travel agencies as opposed to working through a GDS. Carriers therefore kept the distribution of ancillaries for their direct connections with agencies.
Then, the second era came after the ancillary trend took off.
“At this time, ancillaries were starting to form maybe 10 to 20% of an airline’s top line,” Garner said. “So the distribution strategies had to change coming into the second era, the second decade, and so that is why you saw airlines change the tactics. The tactics weren’t just about trying to ship bookings out of expensive channels into inexpensive channels. … The goal became also how do I make all channels more productive from a revenue perspective, how do I generate as much upsell as possible, as much attachment [to] ancillaries?”
During the second era of distribution change, airlines started to make “friends” with GDSs again, he said. Because of that, during the second era, there were more GDS-NDC deals made in an effort to bolster ancillary revenue.
It’s the time to adjust … Don’t fall asleep, is the moral of the story here.
Cory Garner, Garner
Now the industry is in a third era which started after COVID, Garner said. At this point airlines are looking to prioritize their loyalty programs, including credit card reward programs.
“If you look at airline P&Ls [profits and losses] these days, particularly the biggest airlines in the U.S., you find that their ‘other’ revenue category is growing in some cases faster than passenger revenue, and that is mainly coming from banks.”
Credit cards have become a huge part of business for airlines, Garner said, and as a result, solving for loyalty, cost and ancillaries are all priority.
What’s next in airline distribution
And with a focus on driving loyalty, direct connections are bound to grow as a priority for airlines, Garner said.
“What’s the best way for an airline to deepen a relationship with a customer? By talking to the customer,” he said.
“Does anybody have any friends that you only talk to through third parties? I don’t … And so a lot of airlines naturally think that the best way to deepen a loyalty relationship with a customer is through direct interactions.”
Garner believes American Airlines’ strategy is a preview of what the next decade will entail. He cautioned the audience to take action sooner rather than later as they consider distribution.
“This is your opportunity to adjust,” he said. “This is the time don’t wait for the next guy. Don’t wait for the guy after that. Don’t wait until it’s too late. Don’t wait until the only person you can ask is somebody who’s invested in keeping the status quo. Don’t wait. Do your homework. Now having time on your hands is an advantage.”
