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What is IATA New Distribution Capability (NDC), and why do we need NDC?

Everyone associated with booking Travel has probably heard and used the term “IATA NDC or New Distribution Capability”, But do you know what it means?

How does Airline Distribution work?

During the 1970s, airlines created computerized ticket reservation systems, Central Reservation Systems (CRS), to help their agents search, book, and confirm flight bookings. Having proven to be an extremely efficient tool, the airline industry looked to reduce their booking workloads by allowing travel agents to make bookings directly on the CRS.

However, each airline had its own unique CRS. To gain access to the flights of every airline, travel agents in the US demanded and received a single CRS platform. This remained the status quo for over 20 years. Customers called the travel agents, who then booked their flights on the CRS.

However, in the 1990s, the major CRSs, namely Sabre, Amadeus, and Galileo (now Travelport) chose to become independent of the airlines that had created them four decades earlier. This was a milestone for the industry and the beginning of the Global Distribution System (GDS) era. These three major GDS companies emerged as formidable air travel distribution systems in a few years. The GDSs use the legacy EDIFACT protocol, which dates back over 40 years.

Then, the internet happened.

With the advent of the internet came online travel agencies (OTAs). While these agencies wanted to offer their customers access to every possible flight, they didn’t necessarily want to go through the trouble of integrating with three GDSs. So, the GDS aggregators arrived and translated each GDS’s language into a single common format.

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So, what is the New Distribution Capability (NDC)?

New Distribution Capability, NDC for short, is an XML-based data transmission standard (NDC Standard) launched by the International Air Transportation Association (IATA) to transform how the travel industry sells its products and address the shortcomings of the existing airline distribution system.

NDC, more or less, is a modern, more feature-rich way for airlines to share their product offerings through Application Programming Interfaces (APIs) directly from the airline Passenger Service Systems (PSS) to a B2B platform or Airline Agent Portals or OTA’s etc. which is a big improvement over the legacy EDIFACT protocol that has been in use for the past 40 years.  Today this connectivity (from the airline PSS to an external world to the direct customers) exists through the airline’s website, where customers can directly access the airline content without any third-party interference.

Why was the NDC created? | Two inter-related factors led to the creation of NDC.

The first arose relatively recently. In the 2000s, airlines wanted a way to share “rich content”, “Dynamic or Instant Pricing”, and “Bundling air with ancillaries” with their customers.

Rich content would let airlines bundle ancillary services with their flights, help them differentiate themselves from their competitors, provide more personalized offers, and eventually increase revenue. However, the existing GDSs couldn’t technically handle this level of product differentiation using their 40-year-old EDIFACT protocol. This resulted in a loss of revenue for airlines on one of their major profit sources.

Secondly, airlines were increasingly looking at ways to get around the GDS-centric distribution system and take control of their distribution channels. The existing distribution system was complex, requiring multiple third-party systems to publish fares, the airline schedule, the various taxes, etc. For example, if an airline wanted to change their prices, they’d have to update them on a third-party system like ATPCO or if they want to change a schedule, they’d have to update it on OAG or Innovata before it reached the customer.

What are the benefits of NDC?

New Distribution Capability (NDC) has transformed the air travel industry. Running an airline is costly, with profit margins ranging from 3-5%. And running a business selling flights is difficult when product offerings are small and customers are price sensitive. Airlines and travel sellers need to lower costs and increase revenue to stay profitable and competitive, but this is difficult with legacy technology platforms – NDC is here to change that.

NDC helps airlines and travel sellers deliver better customer experiences and generate more revenue with modern retailing opportunities, including new products, better pricing structures, and transparent data sharing.

No GDS fees

Global Distribution Systems (GDSs) like Sabre, Amadeus, and Travelport dominate the content distribution landscape. They charge a fee to airlines for each booking made on their platforms and as they process such large booking volumes, it’s difficult for airlines to avoid these fees.

To recover costs and encourage GDSs to develop NDC solutions, airlines charge their own fees on tickets sold through the platforms, which are often passed on to the traveller or seller. Travel sellers can avoid these fees entirely by connecting to an airline using NDC, either directly or through an NDC provider.

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