Q: It is now six years after IATA's New Distribution Capability (NDC) was announced and several years since agencies could make NDC bookings. By now, it is clear that NDC has failed to gain a meaningful foothold in the U.S. agency market. Only a few agencies have NDC booking capability, and most of those make very few NDC bookings. Why has NDC not shown more progress?
A: Experts have blamed various industry factors for the snail's pace of NDC, such as the consumer's inability to compare prices among carriers, anti-competitive practices by GDSs and agencies' difficulty in integrating NDC booking data with GDS booking data in their quality-control, reporting, and back-office systems.
For example, in a recent interview with Travel Weekly editor in chief Arnie Weissmann, Travel Leaders CEO Ninan Chacko stated that the whole NDC concept "really doesn't seem to be in line with consumer trends."
In a recent article in Travel Weekly's sister publication, the Beat, IATA vice president Doug Lavin claimed that GDSs restrict travel agencies from adopting third-party technology solutions to implement NDC.
However, no expert has mentioned what I think is the real reason for the disappointing penetration of NDC into the travel distribution business: the lack of meaningful incentives for sellers.
Almost without exception, the world's major airlines do not want to pay travel agencies, as shown by the carriers' practices since the first commission cuts in 1995. Their ideal is for all travel sellers to pay the carriers for access to content instead of paying sellers for their sales efforts.
Although some airlines pay commissions and back-end overrides to many large travel agencies, these practices are the exception rather than the rule. For most U.S. travel agencies, there are no airline commissions at all.
The airlines' generally stingy attitude carries over to NDC. As far as I know, the carriers with probably the highest NDC booking volumes, such as Lufthansa, offer sticks rather than carrots. If an agency books Lufthansa using the GDS, it must pay the dollar equivalent of a 16 euro fine, or close to $18. Outside of monopoly markets like Germany, agencies can simply book other carriers, so NDC bookings won't grow much.
American is the only carrier that offers any incentive for NDC bookings, but there are two drawbacks that doom its plan to failure. First, the incentive is a mere pittance: $2 per segment.
Two dollars is probably not enough to pay for the technology needed to integrate the NDC booking data into the agency's systems, and it is less than most large agencies would get per segment if they made the equivalent GDS reservation. So NDC results in a net loss to the agency.
Second, and perhaps more importantly, American reserves the right to terminate the incentive at any time, although its policy is that its incentive will last through next year, whereas the GDSs contractually promise incentives for five, six or even seven years.
If the carriers want to make NDC successful, they need to offer much higher incentives and guarantee them for many years.