Unit 2 Learning Outcomes

This unit will familiarize you with the New Distribution Capability initiative put forth by IATA in
partnership with the travel industry.
After completing this unit, you will be able to:
• Identify gaps between direct and indirect distribution capabilities;
• Define New Distribution Capability (NDC)List NDC airline retailing goals;
• List NDC airline retailing goals;
• Illustrate the role played by all distribution parties in NDC;
• List and explain the four core features of NDC-enabled systems;
• Summarize NDC benefits for participants in airline distribution;
• Dispel myths associated with IATA's NDC project;
• Explain how payments will be handled in NDC;
• Conduct travel management activities in NDC simulation.

Unit 2 Overview

Travel distribution systems have been around for decades. Over that time, the industry has
changed significantly. The airline industry is deregulated and very competitive. Consumer
technology is greatly advanced with the rise of the internet, mobile phones and social media.

Legacy booking systems have several limitations. These include

• airline product innovation;
• airline brand competition, and;
• the online shopping experience, when compared to online shopping for other products.

IATA identifies these limitations as opportunities for improvement, creating new standards to
modernize the distribution of travel products. New Distribution Capability (NDC) represents
these new standards.

The goal of this unit is to introduce you to the NDC, to explain its impact on the industry, and to
illustrate the benefits to airlines, intermediaries and travelers.

2.1 Airline Distribution Capability Gaps

There exists a capability gap between direct and indirect distribution channels. This capability
gap does not meet the expectations of modern travelers and inhibits airlines.

The following points illustrate how this capability gap does not meet the expectations of modern
travelers and inhibits airlines.
• Minimal versus full product control
• Limited versus unlimited products to sell
• Slow to market versus quick implementation
• Mass market selling versus customized product offerings
• No Real-time Seat Selection

Let’s explore the first two limitations of the indirect system.

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Airline Distribution Capability Gap 1

• Minimal versus full product control

Airlines have less control over products offered through the indirect channel. The indirect
channel does not always deliver the range and quality of products that the direct channel offers.
A major limitation of the GDS display is that it lacks rich content and product information in the
form of photos and videos, as featured on airline websites. It cannot present a virtual reality
experience to the agent shopper.

Airline Distribution Capability Gap 2

• Limited versus unlimited products to sell

Although the indirect channel allows travel agents to compare products across multiple
suppliers in one search display, the offerings can be incomplete compared to what airline
websites sell. Airlines cannot mark et new, innovative products easily. Examples could include
pre-select meals, pre-purchase of duty-free goods, and pre-order groceries for home delivery.
Indirect systems do not show the full set of available airline ancillary products. If travel agents
must search for the right value product in direct channels, they must research different airline
websites. This makes comparing and booking these products laborious and awkward.

Let’s explore the other limitations of the indirect system.

Airline Distribution Capability Gap 3

• Slow to market versus quick implementation

Airline products must be filed with a third party before they appear for sale in indirect channels.
This takes more time than launching a new product directly, via an airline’s own website. This
creates missed sales opportunities for indirect distribution users. Indirect distribution systems
limit how quickly airline prices and products can be changed. For example, to remain price
competitive or react to changing market conditions, airlines may need to rapidly modify the price
of a product for a very limited period. This is called “dynamic pricing”. Limitations on the filing
process mean that airlines cannot react so quickly through the indirect channel.

Airline Distribution Capability Gap 4

• Mass market selling versus customized product offerings

Today’s travelers appreciate personalized shopping experiences and products. Indirect
distribution systems do not know who the traveler is and cannot offer only those products
relevant to the traveler. Distribution providers may know who is shopping for airline products
and services, but they are anonymous to airlines unless they purchase through the airline’s
website and choose to be recognized.

Airline Distribution Capability Gap 5

• Real-time Seat Selection

In indirect distribution, travel agents cannot see all available and occupied seats on a given
flight. Travelers may wish to choose and reserve a specific seat based on all of the seat’s
attributes, which is not possible using the GDS.

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2.2 What is NDC?

New Distribution Capability (or NDC) bridges the capability gap between what airlines retail on
their own websites and what indirect distribution systems, such as the GDS, retail on behalf of
airlines.

NDC is a communications standard that allows airlines and any other interested party to
merchandize bundled travel products with rich content.

NDC enables the travel industry to build robust, standardized distribution systems that present
airline product information in a dynamic, customer-centric manner. It removes traditional cryptic
commands and displays, replacing them with simple messaging content. These distribution
systems can be used by airlines and travel agents, enabling standardized communication
between airline passenger reservation systems.

NDC enables an Airline to directly make promotional offers through the GDS to travel agents
who are the 'sellers'. This is instead of the third party intermediary system preparing the offer to
the travel agent. These offers can be aligned in terms of their content and pricing to real-time
inventories rather than being based upon previously filed products. It can price bundles of
products dynamically, and may personalize the product offer if the traveler identifies himself to
the airline.

NDC therefore enables the airline to control the product offer in indirect channels to the same
extent as through direct channels (airline websites).

2.3 NDC Goals

NDC is designed with the following goals in mind:

• Product control: To allow airlines to construct, own and present their products in any
distribution system;
• Comparison shopping: To standardize the display of product attributes that facilitates
comparison shopping;
• Airline-shopper interaction: To support a standard web-based approach that enables
interaction between airlines and shoppers;
• Product personalization: To personalize products and meet all customer preferences
and needs as well as price;
• Shopper authentication: To authenticate the shopper’s identity (consumer or travel
agent) in compliance with applicable data privacy laws;
• E-Commerce: To support a shopping basket approach, adding and removing products,
as is the standard for e-commerce;
• Consistent Shopping Experience: Enabling the customer to purchase airline products
in a consistent manner, in terms of choice, flexibility and personalization through indirect
and direct channels;
• Branding and merchandizing: To support airline branding and merchandizing as well as
providing the shopper with an enhanced customer experience, through the use of rich
content;
• Cross channel marketing: To enable airlines to easily present their offers through any
distribution channel. The Agent remains the point of sale;

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 • Error prevention: To eliminate synchronization errors between information available on
GDS and an airline’s true flight information. These errors lead to travel agents being
subjected to debit memos when the fare collected is different from the fare the airline
expects.

2.4 How does NDC work?

In NDC, airlines develop an offer management system. It works like a pricing engine, able to
price a combination or bundle of products.
1. The travel agent sends a shopping request to a selection of airlines - rather than
requesting an airfare;
2. The airline offer management system receiving a shopping request, selects the products
it wants to offer, which may include ancillaries. The airline responds to the agent with an
offer;
3. The agent receives the airline offers. Each offer comes with an ID number and a time
limit for a purchase acceptance;
4. The agent explains the offers received to the customer who accepts one. The agent
accepts the airline offer on behalf of the customer.

The airline receives and processes payment against the accepted offer ID and creates an order
or reservation.

2.4 NDC Distribution Capability Landscape

In the NDC model, the Airline is always the source of the entire Offer, and each Offer may be
based on the nature of the request. This could include the Customer’s preferences if they have
chosen to be recognized. The Airline has the opportunity to propose an Offer based on the
request in real time, rather than having to propose components (e.g. schedules, and fares) in
advance, in the hope they match Customer requirements.

Third parties are not responsible for building itineraries as before, but the Airline will construct
these, apply any pricing and conditions as they wish, and propose one or more Offers to the
Customer. Whilst GDSs and other Aggregators continue to play a role, they are no longer
responsible for building the Offer. Many travel agents will continue to use aggregators, including
the GDSs, to search for, compare and purchase products on behalf of their customers. NDC
comes with initial IT investment by all the parties i.e. Travel Agents, Airlines and Aggregators.

2.5 NDC Enabled Distribution Systems

The core features of NDC-enabled systems are.

⦁ Differentiation
Airlines have the freedom to describe their own products. For example, they can state the seat
pitch, or legroom, which could influence the purchase decision, subject to the customer’s needs.
This type of detail is available in direct airline booking sites. NDC-enabled distribution systems
have the potential to do the same for all suppliers through one channel. Common product
descriptions displayed in NDC-enabled systems can be different from airline to airline. This
stimulates competition and makes comparison shopping easier.

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⦁ Merchandising
Airlines want to offer their passengers more than a seat on an aircraft. Traditional distribution
systems make it difficult to sell a package of airline products that include a seat as well as other
optional add-ons. There are other pre-flight and in-flight products and services an airline can
offer, such as checked baggage, airport lounge access, meals, seat selection, Wi-Fi and more.
NDC-enabled systems allow the agent user to offer these optional extras together with the fare
as one total price and collection. These are called branded fares.

⦁ Personalization
NDC-enabled systems personalize the shopping experience through a level of interaction with
the agent user. If there is an opportunity for the airline to authenticate the traveler, for example
by entering the traveler’s personal loyalty program subscription number, the airline can instantly
make an offer that matches the traveler’s preferences. For example, if the passenger is
vegetarian, the airline can tailor the offer to include vegetarian meals only. The passenger can
then directly compare offers that include vegetarian meals only across various providers.

⦁ Dynamic pricing
NDC-enabled systems update product information very quickly. As a result, the systems can be
as reactive to competition and consumer market conditions as they can be proactive. An airline
will be able to further customize their offering based on supply (ie: the availability of seats) and
existing consumer demand. For example, they may wish to increase the price of a product if the
demand for it appears higher than expected.

2.5 Connecting to NDC

To set up sales directly with an airline under NDC, the agent simply has to connect directly to an
NDC-capable airline or through an aggregator.

NDC comes with initial IT investment by all the parties i.e. Travel Agents, Airlines and
Aggregators. The direct agency would need an agreement and technical connection with each
NDC enabled airline. The approach uses XML Internet language to deliver rich content in the
travel agency system, personalized offers, more products and services to sell. The travel agent
may need to sign a commercial agreement with the airline to access its content. But most travel
agencies will find it convenient to connect via an Aggregator, like a GDS.

The aggregator acts as a technology supplier to the travel agency. Aggregators set up access
with many airlines, avoiding the need for the travel agent to connect with each airline separately.

Aggregators would distribute a Seller/Travel Agent's shopping request to multiple Airlines and
aggregate the offer responses. They use standardized contracts and procedures to simplify the
connection process.

2.6 Benefits of NDC for the Travel Industry

NDC provides many benefits for all players in the travel supply chain: airlines, distributors, travel
sellers and consumers. Let’s review each feature and its corresponding benefits.

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What do value chain members think?

As we move towards a stage in this development where we are all agreeing that this has a huge
value for the customer, it will be important for us to collectively find ways to communicate and
engage our various stakeholders through the process. I think we're kind of getting to a tipping
point and really that means everybody should start to engage and understand what this means
for them. To me, it is very much about bringing the booking opportunities distribution up to date
in a modern setting environment. I think we can have a much more in-depth relationship by
setting new limits for what tech contracts should include.

What opportunities can NDC bring to business travel?

We’re also going to get much better access to data as people are going to use them in one
common sourcing platform from themselves so we're going to access the data. We need that
I mean in order to further leverage I mean our contractual negotiations with Airlines then there's
the personalization. This for me is the really exciting one because in theory what you could do
as a corporate is understand your travelers needs better, and instead of saying there's a single
policy that everybody has to book a single product type, they could actually say we have this
group of travelers they have a particular need we have this other group of travelers they have
a different need.

Other views on personalization

My views around personalization are: there there's a combination to be had between the
corporate and the traveler. Where we want to be is to provide the traveler with a great service
that they want to use and is easy for them to use that meets their need. For me the travelers are
nothing else than customers, and I need to satisfy them and these customers have got different
needs and different requirements. Though with the preservation, we will be able now to tailor it
to their actual needs to their access specifications. That will enhance of course their level of
satisfaction and will bring them back into the organization so no more rogue traveler.
it is really looking at the big picture - means that I would like me to see that we move away from
a simple flight schedule on a service to something that integrates the door-to-door experience
and I'm convinced that this personalization aspect and negotiation will be able to reach that new
level of service and value for organization and for travelers.

2.7 Dispelling the Myths Associated With NDC

There are myths surrounding NDC. Most are founded on concerns over how it will affect players
in the supply chain. Let’s dispel these myths!

2.8 NDC and BSP 1

The IATA Billing and Settlement Program (the BSP) is processing transactions enabled by
travel agents and airlines in NDC. All existing benefits for IATA Agents can continue with NDC.
This includes access to selling on a credit basis, subject to the same capability conditions in
place for agents selling in the indirect distribution environment. The IATA Agent enabling a sale
in NDC will be identified by its IATA code, as normal.

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When agents perform transactions in NDC-enabled systems, BSP will continue to operate in the
same way as it currently does. It will continue to fulfil an important sales reporting, remittance
collection and airline settlement function. Transactions will continue to be reported to the BSP
Data Processing Center to generate billing statements and will follow the published BSP
Remittance & Settlement calendar of the local market where the agency operates.

However, because the airline is in control of the offer management, order management and
transaction processing, the airline assumes the function of reporting transactions instead of the
ticketing system provider (the TSP for short) or the GDS. When the airline assumes the
transaction processing function, such as ticket issuance, Airlines issue on their own ticket stock,
not relying on the GDS supplier as a third party to manage their traffic document inventory.

These transactions identify the Agent by the Agent’s IATA number. When the airline is using
airline ticket stock for NDC sales, the billing report will contain GDS sales on BSP standard
stock, and NDC sales on airline ticket stock.

To set up sales directly with an airline under NDC, the agent may connect directly to an NDC-
capable airline or through an aggregator. Aggregators would distribute a Seller/Travel Agent’s
shopping request to multiple Airlines and aggregate the offer responses. They use standardized
contracts and procedures to simplify the connection process.

2.8 NDC and BSP 2

BSP benefits Agents conducting NDC sales in the following ways:

• financial security: A financial security for accreditation, when required for access to cash
sales, covers both non-NDC and NDC transactions
• sales report: A consolidated sales report is generated for all GDS and NDC generated
sales
• billing and remittance: A single channel for billing, with all airlines for both GDS and NDC
generated sales

2.8 NDC and BSP 3

In NDC, the airline decides which forms of payment it supports, including those accepted today
by the GDS: cash, authorized credit card or EasyPay.

• Card form of payment

When a travel agent shops for flight options and is ready to book, the agent can securely pass
on the customer credit card details to the airline for payment. The airline must authorize the
credit card use and process the payment on its own merchant agreement with the credit card
company’s acquirer or bank. Provided that it has received the Airline’s consent the agent can
also use an alternative transfer method, such as an agent-owned card enrolled with IATA in
order to transfer the funds of the sale to the Airline. In that case, the authorization process is
similar to the one of the customer’s credit card. Although the airline settles the sale with the
credit card company, the sale continues to be reported to BSP to recognize the agent’s sales
for commission compensation and tax calculation purposes.

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 • Cash form of payment
The airline can authorize the agent to sell on a credit basis after checking the agent’s credibility
risk in BSP. A limit on cash sales is set for each IATA agent that is allowed access to cash form
of payment. – This it is called the Remittance Holding Capacity (or RHC for short). – This risk
management control program reduces the risk of agency remittance default. In such cases, the
agent collects payment in the form of banknotes, personal cheques, bank transfer or any other
payment method preferred. The agent holds the payment in trust for the airline sold. The agent
will remit the payment to IATA BSP according to the established remittance calendar. IATA BSP
settles the payment with the airline.

• EasyPay form of payment

IATA BSP supports a pay-as-you-go e-wallet payment method called EasyPay, available to
all IATA agents.

With NDC technology, BSP may enable other forms of payment common to the airline direct
distribution model, such as PayPal, Google Pay, and Alipay, etc.

Unit 2 Study Check

Now let’s test what you have learned in this unit. When you are ready click on the Next button to
proceed.

Unit 2 Summary

Let’s summarize what we’ve learned in this unit.

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