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NDC: The Cost of Doing Nothing

Farelogix has been leading the charge in the real-world application of NDC since its inception. Farelogix has amassed unrivaled experience and insight into the real-world pursuit of NDC strategy development and implementation by working alongside NDC front-runners such as Lufthansa Group, United Airlines, American Airlines, Emirates, and Qantas.

Farelogix has seen NDC create significant opportunity for airlines to take control of their distribution strategies, substantially grow revenue, and strengthen competitive advantage.

From Farelogix’s experience, there are four critical drivers for the adoption of an NDC strategy:

1. Increased revenue through merchandising innovation and bringing to market new products such as ancillaries, fare families, and bundles using new offer management technology and modernized communication protocols
2. Optimized revenue on existing products by dynamically adjusting all elements of the offer (including price) and distributing it via NDC to yield greater revenue-per-passenger
3. Greater competitive advantage including the ability for an airline to differentiate itself using customized product and service bundles for leisure and corporate customers
4. Improved control and flexibility over the airline’s “Distribution Portfolio” whereby a single NDC API can feed any channel as the “single source of truth.” 

NDC Portfolio Distribution

The cost of doing nothing means airlines leave opportunities on the table and expose themselves to competitive threats.

With NDC adoption growing across the travel ecosystem (including through the GDS), and volumes rising, airlines globally are recognizing and realizing the benefits of NDC. Farelogix sees most airlines pursue a mix of NDC distribution approaches depending on the market (home versus away), target customer segment, and commercial strategy. In this way, the airline designs its optimal NDC distribution portfolio that may be a blend of direct-to-TMC (NDC Connect), distribution through third-party aggregators/tech providers (NDC Tech Connect), or plugging the NDC API into a GDS to achieve even greater reach.

With the ever-present challenges of competition, NDC presents an opportunity to compete more effectively by offering optimized and personalized products and services across all channels, aligning the service experience across channels, and empowering the airline to act faster to changing market conditions than can be done today with legacy technology.

The question remains, how can airlines quantify the benefits to justify the initial cost of NDC?

The rule of thumb is that to achieve an ROI, airlines need to initially commit to directing at least 5-10% of volume through the NDC Channel and then push towards achieving the IATA NDC Leaderboard objective of committing 20% NDC volume by 2020. Note that, distribution through NDC tech providers (such as Serko, Verteil, and Interes), and the GDS can drive volumes beyond IATA’s 20% objective. The more volume that airlines drive through the NDC channel, the greater the ancillary sales and better the customer experience through the distribution of personalized offers.

What NDC Can Deliver for Your Airline

For an average full-service airline, Farelogix estimates the following potential for NDC and merchandising:

• Increased Revenue Through Merchandising – potential for 30-40% merchandising revenue uplift (excl FFP) (source: Farelogix United Airlines Case Study)


 Optimized Revenue through Dynamic Pricing and Offers via NDC – increase topline revenue by ~6%, with increased network airline EBIT by 20% (source: Deutsche Bank Report)


• Competitive Advantage – incremental gains in market share by providing customers more of what they want 

 
• Increased Distribution Control – maximized distribution efficiency by defining and operating the best distribution portfolio for the airline.

Doing nothing is always an option, but is it an option that airlines can justify?

If you are interested in exploring how NDC and merchandising can grow revenue and transform offer at your airline, contact our sales team for a consultation.

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