Will NDC replace GDS?

The aviation industry is at the edge of revolution again. There are two main factors regarding this, one is coronavirus for sure and the other one is the New Distribution Capability (NDC). To get the latest updates and insights about how coronavirus affected the industry you can read Virus or Game-changer? COVID-19 effects on the Aviation Industry” on our blog page.

In this article, we want to discuss the answer to the popular question;

“Will NDC replace GDS?”

But let us remember what NDC is and does the world really need it?

Why NDC?

NDC is a new set of XML standards brought by IATA that aims to enable airlines to increase in profit and reach the passenger data. The new standard is expected to improve the communication between airlines and travel agents as well as other players in the market. With its open infrastructure, the accessibility is immersed and can be reached by any third party including non-IATA members.  

But how is that possible? How is the current distribution channel structured and why GDS’ are on the radar now? Let’s take a look at the aviation industry history briefly. 

Distribution Channels Development in History

     1. Innovation by Chance: IBM and Sabre

In the 50s, one day at a flight of American Airlines, an IBM salesperson mentioned what IBM built for U.S. air defense system, SAGE, to American Airlines CEO C.R. Smith by chance. This led to the partnership of IBM and American Airlines and finally, Sabre was introduced. Sabre, the first Computer Reservation System (CRS). It was a great innovation for that period of time. Both sides took advantage of it. IBM has developed various versions of Sabre to other mid-sized airlines with the product name as PARS. American Airlines became “first-mover” and got a great amount of market share. By the early 1970s, all the major carriers experimented with bringing the CRS to travel agencies.  At the beginning of the 70s, the largest carriers tested the CRS by bringing it to the travel agencies.

As we see through history regulations came after innovations. This re-defined and the unregulated market was expected to face new challenges. Let’s take a look more.

     2. Data is power

Since there were many CRSs and travel agents, there was a tough competition. In brief, CRSs wanted to extend their travel agent coverage and travel agents needed to work with more than one airline to increase revenue as expected. CRSs saw the opportunity and opened their content platforms to other carriers. That is a visionary strategic decision made by CRS. In 1978 the U.S. government deregulated airlines in terms of pricing and flight coverage. Airlines have started to compete in serving the best price to passengers. Prices may be changed even daily. Since travel agents are the most important point of sale, CRSs have become crucial data providers.

     3. “With Great Power, Comes Great Responsibility”

CRSs gained excessive market power concentration and unquestionable responsibility to play fair. Seemingly, they did not. As mentioned above, CRSs were first initialized with major airlines. American and United were sued by a dozen airlines in 1984 due to violating antitrust laws. CRSs faced critical observation from the Congress, General Accounting Office, DOT and courts until the next decade.

By the early 90s, the American Department of Transportation took control and addressed the issues not covered by The Civil Aeronautics Board, which regulated the airline industry at the time, and the revolution started. 

  • Sabre in 1996,
  • Galileo and Apollo together in 1997,
  • Amadeus in 1999 launched its IPOs.

As CRSs gained more power day by day, they stronghold their place as independent and gradually global markets. Besides, leading carriers spread into globalized entities with the airline mergers, profits and financial failures. This had made the CRSs today’s Global Distribution Systems (GDS). 

     4. New Era: Internet

During the four decades, industry experienced conflicts among airlines with CRSs. And travel agencies had a significant role as the distribution channel. Until the internet takes the role in the change there was a well-structured environment in the market. However, the internet has disrupted the market and each player took additional roles, too. The new era begins.

At the beginning, GDSs took advantage of the internet as “first-movers” again. They provided the internet and software tools to travel agencies to build their website. Moreover, they’ve supported new distribution channels like Online Travel Agencies, OTAs, and startups, too. 

On the other hand, airlines got the advantage of e-commerce and built their websites to offer prices directly to customers without the GDS fee. This was an initial step to increase profitability for the airlines in terms of distribution channel efficiency. 

Later on, a new kind of player showed up, too. Search Engines. Supporting search engines was also strategically correct for airlines. Expedia, Orbitz, Skyscanner, Momondo are the best-known ones.

The Internet has proved that it is the biggest change in recent history. Some IT providers have emerged by offering direct connection capabilities between airlines and travel agents. These are called GDS new entrants as known as GNEs. As a result, the first time in history GDS lost market share dramatically. Despite this fact, they invested in technology. GDSs offered IT support to carriers, and content to OTAs. 

Another player emerging in the market is Travel Management Companies, TMCs. Since the internet made the world more connected, the number of corporate travelers has increased. GDSs identifies this as a new opportunity and invests in TMCs, too. 

The Need For NDC

Above, we want to summarize the whole air travel history. For now, we can discuss the current situation of airlines and their passengers in the lights of chronological development. Today, everything is accessible via the internet and information is not in the control of any groups or companies. That makes the competition even tougher. The new world economy is based on experience. One key business success is “customer experience”. The new economy focuses on user experience and companies are marketing how customer-centric they are. If we put this insight into the aviation industry, ancillary services provided by the airlines are very important for them to be successful. Contrarily, these services are also a cost center to overcome and could be a profit center for airline companies.

The NDC has emerged at this point: the need for data to improve customer experience and increase revenue. Because of the GDSs legacy system, airlines are not able to reach the passenger data. Also, GDSs still charge a significant amount of booking fees to airlines even though there is a great change in the industry.

The distribution of flight tickets was expected to change with a new messaging standard. Through avoiding GDSs, the new standard will assist service providers to get customized content directly to metasearch engines, OTAs and TMCs. In the end, NDC was meant to shatter the cornerstone GDSs had built. 

Even though there are still rumors regarding GDS vs NDC issues, it is certain that the aviation industry is at the edge of another revolution, whether NDC or coronavirus might be the main reason. Disruptive effects of information power will lead to the adaption of NDC. Apparently,  NDC will be the future and GDSs will synchronize themselves as part of a new dynamic distribution structure.