Distribution And Digital Transformation: A Primer On NDC

Transcript

Ian Heywood:Good afternoon, everybody. For those people that don't know me, my name's Ian Heywood. I work for Travelport, but today at these CAPA events, we always do an agreement that we speak for the industry. So I'm— yes, I do work for Travelport, but I'm not here to promote or sell you Travelport. I'm here to To talk from an industry perspective, we like to do things slightly different. So I was to. So one of the things we try to encourage is questions from the audience because NDC is that sort of subject that everyone's heard about, not necessarily everyone's an expert in, and people have. A lot of their own questions that they would like to ask. So we use Slido. If people haven't used it before, please go onto your phone. You can download the Slido app, and if you put in #CAPAsummit where it asks, that will get you into the right page. You can ask the questions. All of the questions will come up on the screens. You will see them. I'm not going to censor any questions. I might not be able to ask them depending on what people are asking, particularly if it's commercially sensitive. But any question that you ask, we've got a really good panel coming up after I finish. I'm going to do about a 10 to 15 minute talk. When I finish that, and we've got representatives from Etihad, Gulf Air, and Donata coming up on the stage to talk about what they're doing with NDC and their— and what they're seeing happening in the region. about NDC. So you've got a wonderful opportunity to ask these people any questions that you want. So please download the app and start asking your questions. In the meantime, I'm going to talk about how the industry is looking at successfully delivering the NDC and this 2020 vision. So what's happening at the moment? To be fair, the Middle East is a bit behind the game. Middle East and Africa. Africa's even further behind the game. But they're starting to come to the forefront, and you'll hear that hopefully with my guests on the panel. But IATA have 56 airlines that are Level 3 or higher certified. There's 63 IT providers out there, around the world this is. Wow. that are Level 3 certified. That accounts for the vast majority of IATA traffic of passengers boarded. That's IATA passengers boarded. Doesn't take into account the low-cost carriers. Commercial models are starting to change around the world. Unfortunately, in a public forum, we can't go into great detail on that, but a lot of you would've seen that happening. And agents. Agents were quite slow in getting engaged, slow coming to the party. That was partly the fault of IATA, it was partly the fault of the airlines, and we've tried to encourage that now. And also it was the stage where things developed were going, but now the agents are really engaged and so are the corporates. For those of you that don't know what the IATA's 2020 vision is, It's— there's 21 airlines now that have signed up to say that they will distribute 20% of their third-party sales, or not only distribute, they will transact those sales by the 31st of December 2020. What's significant about that? That's going to come around quite quickly. 2, it actually means all of the infrastructure has got to be in place With the likes of the third parties, likes of the agents, likes of the distributors, and with the agents, for the whole industry to start working in a way that will enable 20% to be transacted. And if you can transact 20%, there's no reason you can't transact 30, 40, 50, or 60. You may not be able to get to 100 because at the moment Interline, for example, is not within the IR to schemas, the NDC schemas, but people are working on that. It will come. If people are not sure who those airlines are, there's one, Qatar, in this region that have signed up. And the others, you've got a couple coming, larger airlines coming on stage. You can ask them whether they're going to be a signatory or whether they're just looking at getting things moving in that direction. But these are the, the 21 signatories. A very good question to ask is why. Why is this whole industry going through massive disruption and expense? Because it is big disruption and it is expense, and it was started by the airlines. But there's really good reasons for it. You can go on more than these 3, but I think these are the main 3. And I've been presenting this for a couple of years now and they haven't really changed. We get a bit more detail on some of them, but control. The airlines want to take control back. They want to make that booking in their own system. They want to know who's making that booking at the time of booking. They want to respond with an offer to that particular travel agent or that particular customer when that request comes through. So that's the control that they don't have at the moment, because when an agent makes a booking, using a distributor at the moment, it's made in the distributor system. And the airlines know they've sold a seat and they know what price they've sold it for, but they don't know who they've sold it to or why the person's buying it. Or did they, would they really have liked to try to sell them something different? You've got improved sales capabilities. I'm going to cover this in a bit more detail on the next slide. But this is to me the main reason because At the end of the day, when you've gone through perhaps some of the cost savings, you know, the CEO is going to ask next, well, what do I get next year? The thing that has longevity is the improvement in revenue. And this is the main reason that the airlines are moving forward with their API sales, I, I, R2NDC, is that they can improve the way that they sell. And for some airlines, not so much in the Middle East, or Africa. But airlines in say Europe or Asia where their competitors are low-cost carriers, they distribute using APIs now. They manage their flights using APIs. And so they can do things that, that the traditional carriers find very hard to compete against. I used to work for British Airways in the sales side. Trying to compete against EasyJet or Ryanair was difficult because they were a lot more nimble, a lot more agile, And they had a lot more fare points than we ever had. And commercial model flexibility, I've mentioned that before. And I also mentioned that we can't talk about that in a public forum, so we just skip onto the next slide. I'm sorry about that. So these are the main reasons how the airlines will improve their sales effectiveness. They will know the customer at time of search. So when an agent is saying, I've got a flight, I want to know what is the fare going to be between Dubai and Oman or whatever. They will know who's searching, the agent that's searching, and if the agent puts the information in, who's the customer that's searching. You've got fares to offers. So at the moment, the airlines sell fares and then they try and scratch a bit around ancillary sales at the end. They're a lot more effective doing that through their own website. They are looking at putting offers together. It's one way that they can increase ancillary sales. It's also a way that they think they can put together more competitive products for individuals. And some of the airlines now are starting to do a lot of work, a lot of research around what sort of offers could they make work. What I should highlight is these are all capabilities. The important thing going forward is how are the airlines going to use these capabilities? That's not for me to tell them or even to necessarily know what they're planning to do because that's their commercial strategy. Although we are in quite big detailed conversation with a lot of the airlines because we're trying to help the airlines. But these are capabilities and they're going to learn what works and what doesn't work over the next few years. Agile, they're going to be a lot more agile, they're going to be a lot quicker. They really do want to boost their Ancillary sales. As you know, that's a, a lot of revenue is earned through ancillaries and low-cost carriers, something like EasyJet, Ryanair. They earn at least 25% of their revenue comes through ancillary sales. And the low-cost, and particularly in perhaps the shorter sectors, those are the things that the traditional airlines are starting to say we've got to earn money through. Dynamic pricing. You're going to move away from the 26 fare classes that you've got today. And you're going to move to this spot pricing in an infinite number of price points. Differentiation. Currently at the moment, when that public fare is distributed to the agency community, all the agents get access to that fare and they can then choose to do what they want to do with it. But the airline isn't able to say, you support me, you don't, I'll give you something different from this agent over here. Everyone gets the same. And finally, personalisation. That doesn't mean down to an individual level, but it does mean the airlines are going to look at personas. They're looking at doing things with their frequent flyer members. They're looking at perhaps people that are associated to clubs. They're going to be looking at corporates and putting specific offers together for those types of passengers. This is a really important slide because one, it's very simple. 2, it highlights what the airlines are trying to do. If you want to take advantage of all of those sales improvements, you can only do that when you're selling through an API. And all of the traditional airlines are on the left-hand side of this. So this is third-party sales by a traditional airline and they want to move to the right. They want to get more and more bookings coming through the API. Because it's only by getting more and more bookings coming through the API that they will then benefit from those capabilities. What you are seeing at the moment is to help drive bookings down that from left to right is that you're seeing carrots and sticks. Now I've got to be careful. I don't know. I didn't realize this is on a click-through build. So you're seeing carrots and sticks, particularly in Europe. The European airlines are adding surcharges to their traditional ATPCO content, and then they're saying if you want an unsurcharged fare, you can access that through our API. That's to drive people to book the APIs. They're removing content from ATPCO. Qantas have announced that they will do something similar. And so you're gonna see, you know, that happening perhaps more and more around the world. And some of the airlines have gone to their agents and they've said, here's an NDC target. If you don't hit that, then you're not gonna get— earn your marketing deal. So those are sort of the sticks that we are seeing in operation at the moment. And there's others. But then there is also the carrot side where the airlines are trying to incentivize the agents to make the booking. Yeah. And from that you'll see that they want to look at making perhaps payments for ancillary sales. Because they make a lot of money through ancillaries. So why not reward the people that are selling it? Lufthansa are giving additional frequent flyer points for bookings that come through the API. Then some airlines such as American Airlines, they're making payments for bookings that come through the API. And some of the airlines, Qantas talking about it, British Airways are doing it, which is that new content is only distributed in the API. And some of the airlines are saying ancillaries will only be distributed via the API. And that is one, because technically it's a lot easier, but also it will drive those bookings. In summary from me, and perhaps some of the questions that we can hope to get answered from my panel, is what's happening in this, you know, in this particular market. The Middle Eastern airlines are slow, but they're all starting to engage now. Well, I say all, the major ones are starting to engage now. It would not surprise me if we see a Middle Eastern airline live in the market with their APIs this year. That won't be the case in Africa. You will have to wait at least till 2020. maybe even 2021. What is interesting though, knowing the Middle Eastern airlines quite well, is that they have a determination. And that if you— if they use that determination and say, and particularly if the CEO says, NDC sales are really, really important, then they will drive those sales. So what you may see is that even though they've had a slow start, they may be a lot quicker in catching up and starting to perhaps even lead the marketplace. How the Middle Eastern airlines are going to apply carrots and sticks is going to be interesting. Because they've got a smaller home market than perhaps say someone like British Airways or Lufthansa, who can be more aggressive in their home market. But they've also got a large 6th freedom market. Where using something like a stick is perhaps not as easy as trying to encourage the agents to book through the API. So that could be something that's slightly different for the Middle Eastern carriers to move forward on. You've also seen, and I think there's a session on it tomorrow actually, which is talking about the, the traditional airlines working with low-cost airlines to feed them. If they're both using the same technology, if they're both on the same APIs, then that's going to perhaps make that a lot easier technically. And that's something that you may see. The other thing that's interesting is, will we see this proliferation of ancillary sales? Will we see the traditional Middle Eastern airlines unbundle their products even more, particularly perhaps around the GCC or the shorter sectors? and see them trying to go for more and more ancillary growth. No one knows yet. Perhaps we talk about that in a year's time. Travelport.

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