Travel Agency Readiness for NDC

Twelve years on from the creation of the NDC standard by IATA, the degree of adoption by travel agencies has been mixed. The airlines with the largest gaps between EDIFACT and NDC content report that NDC represents 10 to 30 percent of all travel agency bookings, up from about 5 percent prior to the implementation of their strategies. Some travel agencies have quietly moved forward with NDC and now process most of their eligible airlines’ bookings via NDC, while others decry NDC’s unsuitability for their business. How can we make sense of the uneven progress made by travel agencies so far?

The Factors Affecting Travel Agency Readiness

The transition from EDIFACT to NDC can affect the entirety of a travel agency’s business. The implications cut across how the travel agency manages its technology, operational processes, and commercial model. Let’s look at each one in more detail:

1. Technological Readiness
   Every travel agency builds its business atop a tech stack comprised of very similar components, each of which is affected by the transition to NDC:
   • User Interface: This is the web- and/or app-based system with which the end customer interacts. It must be updated to render the new NDC content in a seamless display. NDC content often comes with new product features and rich media, causing the travel agency to rethink how it uses screen real estate. New product features can also give rise to the need to offer the customer new ways to filter, sort, and interact with airline content.
   • Call Centre Interface: A travel agency’s call centre staff also need tools to interact with NDC content. These tools are typically more advanced than user interfaces since they must be able to handle the most complex servicing scenarios. Because NDC workflows differ materially from legacy processes, this can mean that the call centre interface needs to be completely rewritten or replaced.
   • Content Aggregation System: In an NDC world, no single system can be a one-stop shop for all airline content. Therefore, a travel agency needs a mechanism which can accept airline content from multiple sources simultaneously in real time, seamlessly unite and deduplicate airline results, and pass the consolidated information to the user or call centre interface.
   • Order Management System: Once the customer selects an itinerary, the travel agency needs a centralized storehouse in which to place the booking and process the purchase. This is the role of the order management system, which serves as the single source of truth of the travel agency’s transactions and, therefore, the authoritative source of information for all downline processes. NDC content can come with new types of data and data processing needs which have a knock-on effect on order management system design.
   • Mid-Office System: Many travel agencies use mid-office systems to automate tasks which are too inefficient to handle manually. For example, travel agencies may perform fraud checks before processing purchases, place bookings on queue while a corporate client completes its pre-trip approval process, or identify and address itineraries affected by airline schedule changes. Mid-office systems often contain a mountain of business rules and scripts which have been developed over a very long period. Some of these rules and scripts must be updated to accommodate NDC workflows, and the process of identifying which are affected alone can be laborious.
   • Back-Office System: The back-office system is the hub for all accounting and reporting. As the travel agency begins to consume NDC content, the types of data flowing into the back-office system changes. There are new ancillaries, bundles, and continuously-priced itineraries to track, which can lead to the need for new types of reports and/or changes to reporting frequency.
   
   A successful NDC transition requires all these components to be upgraded before any of them can begin processing NDC transactions. The full, end-to-end business processes must be enabled each airline in unison. Enabling Airline A’s NDC capability for the User Interface and Airline B’s NDC capability for the Order Management system yields no benefit.
   
2. Operational Readiness
   Travel agencies spend a lot of time and effort optimizing their call centre environments because they require the most expensive asset of all to operate – i.e., people. In an ideal world, travel agencies would prefer to have as few call centers as possible filled with pools of people who can be used interchangeably to perform standardized tasks with as few keystrokes as possible. Unfortunately, NDC can frustrate these goals, especially in the early stages of adoption.
   As a travel agency begins to experiment with NDC bookings from its first partner airline, it must stand up a new call centre tool and train its staff to work with new NDC workflows. However, since incoming calls for servicing NDC itineraries would only pertain to a subset of a single airline’s itineraries, most travel agencies do not train their entire staff on the new tool. Rather, they more commonly set up a dedicated desk with a small number of trained staff and institute a call routing mechanism to ensure the subset of customer requests related to NDC bookings are routed to this desk.
   This is a suboptimal situation for the travel agency, as dedicated desks typically have more unproductive staff time and new workflows can cause average call times to increase. A travel agency must reach a very high level of overall NDC adoption before it can return to managing this volume using large pools of people who are all trained to execute their tasks efficiently. In a world in which it has become more difficult to hire staff, the pressure NDC applies to the call centre environment can significantly impede progress.
   
3. Commercial Readiness
   It goes without saying that travel agencies are businesses too and require revenue to survive. For some agencies, a key component of their pre-NDC tech stack – i.e., the Global Distribution System (GDS) – has become a significant source of revenue, sometimes even the largest single source. These travel agencies depend upon GDSs to provide at a minimum their Content Aggregation, Order Management, and Call Centre Interface systems.
   In general, the largest travel agencies earn the highest financial incentives per booked flight segment from the GDSs. On the one hand, this has enabled large agencies to offer lower transaction fees to their customers. On the other, it has powered these agencies’ ability to acquire smaller travel agencies with less lucrative GDS contracts to generate synergies. It is not hard to imagine why a large, GDS-dependent travel agency would not rush to take on the expense and disruption of transitioning to a non-GDS architecture for the sake of losing this competitive advantage.

How Have These Factors Affected NDC Adoption So Far?

The NDC trend has brought into sharp relief how important it is for a travel agency to control the product roadmaps of all elements of its tech stack to coordinate development timing and maximize nimbleness. It does not serve the interests of the travel agency for one element to prioritize development for Airline A and another to prioritize Airline B, as discussed above. Rather, all elements of the tech stack must be synchronized in lockstep to move forward quickly.

The travel agencies which have developed the entirety of their own tech stacks from scratch have therefore had the advantage in this regard. On the leisure side of the market, Online Travel Agencies (OTAs) such as Expedia, Hopper, and Odigeo were born as technology companies and have controlled their tech stacks from the beginning. We have begun to see the same dynamics in the corporate side of the market with new entrants like Spotnana, Navan, and TravelPerk. These agencies are better equipped to swap out airline content sources without requiring a major change management exercise.

Differences in economic models have also caused uneven progress. OTAs generally depend upon hotels as their primary source of revenue and therefore never had a high degree of dependence upon GDSs as a source of revenue. Their priority is to offer the broadest array of flight options to maximize hotel attachment. This explains why OTAs have led the way on NDC adoption for many years. By contrast, the largest TMCs which are the most dependent upon GDS revenue have preferred to wait for the GDSs and other third party tech providers to ready their systems for NDC. The decision to optimize for short term revenue has exposed these TMCs to the long term risk of slower NDC adoption due to the difficulties of coordinating the product roadmaps of multiple third parties. One GDS recently reported that only about 1 percent of their global transactions were NDC-enabled.

What Does This Mean for the Future of NDC Adoption?

The pace of NDC adoption will continue to be greatest among the travel agencies which control their own tech stacks and have diversified revenue streams which are not GDS-dependent. Therefore, we expect that OTAs and more tech-centric TMCs will lead the way in NDC adoption.

The market will also keep a close eye on the progress being made by the GDSs with their nascent NDC integrations. Most travel agencies in the world use GDSs as the centre of their architecture. If the GDSs can accelerate their work with airlines and find more effective ways of coordinating with other important third-party tech providers like corporate online booking tools, they have the potential of producing a very large amount of NDC volume.

Considering the challenges airlines encounter in driving NDC adoption, it becomes even more critical to prioritize implementation efforts towards travel agencies capable of yielding the highest ROI from NDC-enabled content, such as OTAs and tech-centric TMCs. Furthermore, accurately deciphering the factors driving third-party channel behaviour is essential for driving adoption forward.

Read our previous piece on preparing for a successful NDC rollout here.