Will airlines get past our distribution deadlock?

For decades, air travel sales functioned with a simple division of labor: airlines flew planes, travel agents sold most of the tickets, and a handful of intermediaries connected the two sides. This setup worked. However, despite functional relationships between these parties, they were rarely satisfying to airlines.

While carriers struggled with thin margins and often danced with bankruptcy, distribution intermediaries and travel agencies enjoyed healthy profits.

Airline executives watched this disparity with envy as these businesses thrived on the profits of selling the airlines product. Could airlines one day cut them out and keep the money?

From airline websites to “NDC”

In the 1990s, airlines got their first taste of using the Internet to take away a meaningful portion of sales from agencies by selling on their own websites.

These direct sales initially lured customers away from third party sellers with lower fares, but then intermediaries insisted on pricing parity. Airlines who wouldn’t agree to those terms would get removed from the selling platforms, cutting off a huge portion of their sales. Airlines (mostly) caved.

In 2012, under the IATA industry group banner, airlines launched the New Distribution Capability (NDC) initiative to extend their control over third party distribution. Framed as a technological modernization effort to improve traveler experiences by giving travel sellers APIs to communicate directly with airlines, the underlying goal was obvious. Eliminate the middlemen and capture their revenue.

Early reactions to NDC

In aggregate, the outcomes the NDC program gives airlines, travel sellers, and travelers are underwhelming.

The new APIs can handle only a narrow subset of trip types that travel sellers routinely assemble. Multi-airline itineraries and sophisticated fare combinations are often inaccessible. Faced with NDC’s various shortcomings, travel sellers doubled down on using their decades-old tools. Aging systems held together by figurative duct tape still process the lion’s share of these sales.

Intermediaries like global distribution systems, reading the airlines ambitions with NDC, responded rationally. Investment in their legacy platforms slowed as they waited to see what the new airline-controlled future would deliver. Why overhaul mature systems if they would ultimately be cut out of the picture?

A billion-dollar reckoning ($USD)

Airlines that forced travel agents to rely primarily on the limited capabilities of NDC faced a predictable response. Instead of concocting workarounds to book on American over NDC, travel sellers booked on competing airlines that remained available in their more capable tools.

American Airlines chief commercial officer, Vasu Raja, got pushed out after his NDC initiative cost the airline billions in lost revenue.

Will airlines retreat or advance?

Today, our industry’s distribution future stands at an impasse. Airlines must choose between admitting defeat and retreating to the old separation of duties, or overcoming the limits in direct-selling infrastructure before legacy systems collapse entirely.

At Phocuswire, Sébastien Gibergues notices that potential of NDC and innovation in travel sales is squandered because airlines can’t meet demand for travel searches. He’s not wrong; each week I speak with travel agency partners who want to “revisit” the number of flight searches we allow.[^1] , Amadeus veteran Sébastien Gibergues advocated for a middle path: an "offer distribution platform" that consolidates airline pricing in a central store that can be referenced at much higher volumes than current NDC systems.

This proposed path is a tough pill to swallow. It assumes that some actor is capable of stepping up as an effective new intermediary to perform the functions historically performed by GDSes. It also assumes that airline execs will agree to pay for it.

This approach also duplicates efforts. Maintaining parallel systems for offer generation by travel sellers and live revalidation by airlines doubles computational costs. This approach only makes sense in an industry that accepts inefficiency in exchange for demonstrably increasing sales reach.

The clock is ticking

Until airlines develop the capability to generate millions of personalized offers per second—or acknowledge our more limited offerings—our industry remains trapped in a transition that fractured our past without delivering the future.

The expertise to understand the bajillions of tailored travel offers these decades-old systems produce daily evaporates slowly as people retire or get laid off.

The big question is: will airlines invest enough to develop these capabilities and finally push out the “middle man”?