Skift Take

From April, the airline will stop selling almost half its airfares through traditional channels, instead selling them exclusively through its own website and so-called New Distribution Capability-powered channels. The shakeup mostly impacts travel agencies and corporations that fly American for business. We explain.

With just one month to go, there’s a lot of noise about American Airlines’ decision to hold back 40 percent of its fares, mostly for business travel, for so-called New Distribution Capability-powered channels and direct channels, such as its own website.

To recap: New Distribution Capability is a technology standard developed by the International Air Transport Association. The idea is to give airlines more control over their airfares, rather than rely on global distribution systems.

Traditionally, these global distribution systems (namely Sabre, Amadeus and Travelport) act as middlemen who pass on airline information that travel agents and other retailers use to provide booking services to customers.

So What Changes?

From April, American is pulling about 40 percent of its content that is transmitted by Edifact (Electronic Data Interchange for Administration, Commerce, and Transport) a protocol that pre-dates the internet, and one that the global distribution systems use. It’s currently the main third-party distribution method used by the industry.

Content describes anything sold or offered by an airline including tickets, ancillaries like seats and bags, frequent flyer program benefits, and anything related to order management like changes or cancellations (according to tech company Duffel). This content will likely include American’s cheapest fares.

Amadeus and Travelport have developed ways to handle New Distribution Capability content from American, with Sabre going live in April. They’re all prepared, as American said it had signed deals with all three in October last year. They will “offer travel retailers and corporate customers the airline’s best content through New Distribution Capability connections in 2023.”

Airlines argue this method lets them offer broader access to their products and services. In American Airlines’ own words: “In the past, customers who booked travel through third-party distribution partners may have had subpar booking and travel management experiences with limited access to fares and packages.”

In American’s case, it said travel retailers and corporate customers get enhanced offerings that include Main Plus, Main Select and Flagship Business Plus fares, carbon offsets via Cool Effect, and day-of-travel features such as seat choices, upgrades and pre-ordered meals.

Who wins from this? Let’s break it down into four areas.

What changes for the passenger? Very little this year. The name of the game is personalization, so passengers may start seeing more opportunities to put together bundles, such as WiFi and a seat upgrade. Prices may be cheaper too, as American Airlines pays less to distribute its airfares directly.

“Most if not all travelers don’t care about New Distribution Capability, they only care if they are getting the fare that is inline with their personal or company price elasticity and policy,” said Gavin Smith, director of Element Travel Technology. “I have not seen any real benefit to travelers around offers or bundles. For corporates, there may be the option to create these in the future.”

The company travel manager perspective. The switchover in April will affect travel managers in a variety of ways. Perhaps the biggest impact will be around tracking fares. With new systems in place, will companies be able to keep an eye on how much they’re spending? How do they compare their spend on American with another airline that’s not selling so many fares via this new model.

Lisa Reilly, director, global sourcing for travel at Japanese tech giant NTT, has a lot of questions.

“What does that mean for your current contacts? Can you book on codeshare flights to still get access to those lower fares?” she said. “How are you going to negotiate that? Will you have visibility into what you’re using currently in those lower (price) buckets, so come April you can see what the difference is?” she said during a recent webinar, hosted by travel and expense platform Itilite. “Now maybe you’re going to have to start looking at: do I want to buy bundles? Do I want to display bundles? Do I want fares that include WiFi, fares that include baggage?”

American Airlines has also been working with its large corporate customers since 2021 to create bespoke product offers that cater to different subsets of their employees, like senior managers.

How does it impact corporate travel agencies? The main plus here is that they gain visibility into more product details and content previously only available in the airline’s direct channel. That includes any cheaper fares.

For Airlines Reporting Corporation, which works with Sabre, the new way of retailing also gives agencies a consistent settlement experience. “This allows travel agencies to make better-informed decisions for their customers,” said Paige Blunt, head of New Distribution Capability.

But if there’s one disgruntled party here, it’s the agency, as it will mean increased costs and complexity. These agencies are responsible for ensuring that passengers can not only book the fare, but be able to change it as well if needed something known as “servicing” in industry speak.

“As more of the major carriers push new forms of distribution, it forces change within the travel management companies, albeit very slowly,” Smith said. “Agencies have to deliver real innovation for their clients. The resistance we see is not good for the sector, our clients or the suppliers.”

Alice Ferrari, founder and CEO of Kyte, a next-generation distribution platform that connects airlines to travel retailers, agrees. “Sustaining the laborious work required to connect to an airline’s NDC APIs and maintaining these connections is extremely costly and resource intensive,” she said. “There haven’t really been visible benefits for travel agencies so far with New Distribution Capability, other than arguably the ability for sellers to negotiate better deals directly with the airlines, strengthening their partnerships.”

To help agencies, American Airlines is reportedly setting up a dedicated “special servicing desk.” A spokesperson for the airline told Skift: “Through modern retailing, we expect our travel agency partners to provide servicing to our customers who transact through indirect channels. We, of course, maintain a industry leading sales support team to assist agents and these team members have received modern retailing training as we would do with any update to our products and services we introduce into the market.”

How do global distribution systems benefit? This is a difficult question to answer. But according to one expert, it forces them to innovate. “It’s not easy to find ways monopolistic players are taken down from their thrones to a competing arena, but if we have to mention one, they will finally be forced to rebuild nearly from the scratch their GDS legacy (if not ancient) text-parsing-based technology platforms into modern API-enabled web/rich content retailing ones,” said Jorge Diaz, CEO and founder of airfrare aggregator  AirGateway. “So we could call NDC an obligation to be dramatically innovative.”

But as with the airlines, they may also get to save money through more efficient use of technology, but only if the traveler is happy, and the travel agency experience is smooth, Smith reckons. “New Distribution Capability aggregators are feeling these effect of the headwinds,” he added.

And, finally, what about American Airlines? Industry cynics will say this is purely about money, under the guise of offering more flexibility. Ultimately, yes, carriers like American Airlines in the long term will lower total distribution costs, in terms of commission, technology and people. But Element’s Smith argues the process of filing and maintaining airfares the “Edifact” way, along with the reservation system, has a greater cost compared to the amounts they they pay out in commission.

For the less cynical? “It’s the freedom to retail and differentiate their product according to their own interest, regaining ownership of such processes,” said Diaz.

Sabre also argues NDC is a technical standard, not a commercial model. “Commercial structures are evolving as business strategies evolve across the ecosystem — this will continue regardless of technology standards,” said Kathy Morgan, vice president product, airline supply and NDC at Sabre in a recent blog post.

The Bigger Picture

Whether travel agencies are ready or not to start offering American’s fares, New Distribution Capability will be widely discussed this spring, and particularly in the U.S. and Canada. It’s rather here that travel agencies will bear the brunt of the changes, rather then Europe which has a greater number of smaller airlines.

The move also needs to be viewed in the wider context of a slower recovery in business travel volumes, or at least from larger companies. According to reports American Airlines isn’t bothering with corporate contracts worth less than $1.5 million a year.

It is also phasing out its VIP-corporate membership AirPass scheme.

But it is seeing an uptick from smaller companies, many of which are likely to book direct or through lower-cost retailers compared to large travel management companies. Vasu Raja, American Airlines’ chief commercial officer, had plenty to say about that during Skift Global Forum last year.

“Like it or not, good or bad, I’m not saying either way, it’s pushing NDC further into the forefront, which is going to make sourcing different,” NTT’s Reilly said. “If the rollout is successful, there’s no reason that we shouldn’t see that from other carriers.”

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Tags: amadeus, american airlines, business travel, corporate travel, iata, ndc, sabre, travel retail, travelport

Photo credit: American Airlines is pushing the new fares so customers can avoid "subpar booking and travel management experiences with limited access to fares and packages." Miguel Angel Sanz / Unsplash

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