How airline distribution works | Global Distribution Systems | New Distribution Capability (NDC)

Summary

The script delves into the evolution of flight booking systems, from the 1960s' Sabre system to modern Global Distribution Systems (GDSs) like Sabre, Amadeus, and Travelport. It discusses the challenges of GDSs, including limited customer data and ancillary service support, and the emergence of the New Distribution Capability (NDC) standard by IATA, which allows airlines to offer more personalized services and bypass traditional GDSs. The script also highlights the industry's struggle between direct distribution and reliance on comprehensive booking platforms.

Takeaways

• 🛫 Early flight reservations in the 60s required manual labor and a mainframe computer, with American Airlines and IBM pioneering automated flight distribution.
• 💻 The Sabre system, an acronym for Semi-automatic Business Research Environment, was a groundbreaking development in flight reservation technology.
• 🌐 In the 70s, the introduction of terminals in travel agents' offices marked the beginning of Global Distribution Systems (GDSs), which revolutionized how flights were booked.
• 🔗 GDSs like Sabre, Amadeus, and Travelport connect to airlines' Central Reservation Systems (CRSs) to manage seat reservations and distribution.
• 📊 Airlines rely on third-party providers like ATPCo for fare information and Innovata or OAG for flight schedules, which are then integrated into GDSs.
• 📈 GDSs have become dominant middlemen in the air travel industry, controlling a significant portion of ticket distribution and limiting airlines' direct customer interaction.
• 💼 The lack of customer data and limited ancillary service support are key issues faced by airlines due to the GDS-centric distribution model.
• 💵 Some airlines, like Lufthansa, have taken steps to counter GDS dominance by imposing fees on GDS bookings and encouraging direct bookings.
• 🆕 The New Distribution Capability (NDC) standard introduced by IATA allows airlines to create their APIs, potentially bypassing GDSs and offering more personalized services.
• 🚀 Despite the potential of NDC, adoption has been slow, with only a fraction of airlines implementing it, and GDSs are adapting by incorporating NDC support.
• 🌟 The future of travel distribution remains uncertain, with a balance needed between direct bookings and the comprehensive services offered by GDSs and OTAs.

Q & A

How did flight reservations work in the 1960s?

In the 1960s, making a flight reservation required multiple people and a mainframe computer. American Airlines and IBM pioneered automated flight distribution using the IBM 7090 computer, which was connected to 1500 remote terminals. Reservations were made through travel agents who contacted the airline by phone.

What is the full name and original purpose of Sabre?

The full name of Sabre is Semi-automatic Business Research Environment. It was originally designed to process flight reservation data and could handle up to 84,000 telephone transactions per day.

What are Global Distribution Systems (GDSs) and how did they start?

Global Distribution Systems (GDSs) are large flight aggregators that collect flights from airlines and distribute them across travel agencies using APIs. They started in the 1970s when terminals were extended to travel agents' offices to free up manpower at airlines.

How many major GDSs are there and what are their names?

There are three major GDSs: Sabre, which became an independent business in 2000; Amadeus, established in 1987 by four European airlines; and Travelport, a UK-based GDS formed through a merger of smaller providers.

What does a Central Reservation System (CRS) do for airlines?

A Central Reservation System (CRS) is a software program that manages seat reservations on the airline side once a GDS requests a seat. It is connected directly to the heart of airline sales technologies.

Why do airlines publish their prices on ATPCo?

Airlines publish their prices on ATPCo, the Airline Tariff Publishing Company, because it is the main global source of fare information that further distributes prices across GDSs, online travel agencies, and price aggregators.

What are the main problems with GDS-centered distribution for airlines?

The main problems with GDS-centered distribution include the lack of valuable customer data, limited ancillary support, and the lack of full control over their inventory and the choice of distribution channel.

How do some airlines combat GDS dominance and encourage direct bookings?

Some airlines, like Lufthansa, combat GDS dominance by encouraging people to buy tickets directly from their sites and by introducing additional fees for bookings made through GDSs.

What is the New Distribution Capability (NDC) and how does it benefit airlines?

The New Distribution Capability (NDC) is an API standard introduced by IATA that allows airlines to build their own APIs and suggest them to GDSs or bypass this layer by connecting directly to online travel agencies. It supports rich content, wide ancillary offers, and personalization for every customer.

How many airlines have adopted the NDC standard so far?

As of the script's knowledge cutoff, only 65 airlines have adopted the NDC standard in one way or another.

Why are GDSs investing in innovation and incorporating NDC support in their products?

GDSs are investing in innovation and incorporating NDC support in their products to maintain their positions in the market as airlines, hotels, and other service providers strive to distribute their products directly and as the number of travelers grows.

Outlines

00:00

🛫 Flight Booking Evolution and GDSs

The script discusses the evolution of flight booking from the 1960s to the present, highlighting the role of Global Distribution Systems (GDSs). Initially, flight reservations required travel agents and a mainframe computer like the IBM 7090, which was used by American Airlines and IBM to automate flight distribution. This system, known as Sabre, was capable of processing a large number of transactions daily. In the 1970s, GDSs expanded to include travel agents' offices, leading to the current system where major GDSs like Sabre, Amadeus, and Travelport collect and distribute flights from numerous airlines. GDSs are connected to airlines' central reservation systems (CRSs) and rely on additional third-party providers for pricing and scheduling information. The script also touches on the challenges faced by GDSs, such as the lack of customer data for airlines and limited support for ancillary services.

05:05

🚀 The Impact of NDC and Direct Bookings

This paragraph delves into the challenges of GDS-centered distribution and introduces the New Distribution Capability (NDC) standard by IATA. NDC aims to allow airlines to create their own APIs, potentially bypassing GDSs by connecting directly with online travel agencies. The standard supports rich content and personalized offers, offering airlines a chance to regain control over their inventory and distribution channels. However, the adoption of NDC has been slow, with only 65 airlines having implemented it in some form. GDSs are also adapting by incorporating NDC support into their products. The script concludes by considering the future of travel booking platforms, suggesting that despite efforts to avoid third parties, comprehensive services that cover the entire travel experience will likely become more popular.

Keywords

💡Flight Aggregators

Flight aggregators are online platforms that compile flight options from various airlines, allowing users to compare prices and schedules easily. They play a crucial role in the script's theme by offering a convenient way for consumers to shop for flights. Examples from the script include Skyscanner, Travelocity, and Kayak, which are mentioned as platforms for comparing fares.

💡Global Distribution Systems (GDSs)

GDSs are computerized systems that allow travel agencies to access and book airline tickets, hotel rooms, and car rentals. They are central to the video's narrative as they represent the evolution of flight distribution from manual processes to automated systems. The script mentions Sabre, Amadeus, and Travelport as the three major GDSs.

💡Central Reservation Systems (CRSs)

CRSs are the internal systems used by airlines to manage reservations, seat assignments, and other booking details. They are integral to the GDS-centered distribution model discussed in the video, as they are the direct link between the GDSs and the airlines' inventory. The script explains that GDSs are connected to CRSs for booking purposes.

💡APIs

APIs, or Application Programming Interfaces, are sets of protocols and tools that allow different software systems to communicate with each other. In the context of the video, APIs are used by GDSs to collect flight information from airlines and distribute it to travel agencies. The script emphasizes the importance of APIs in modern software connectivity.

💡ATPCO

The Airline Tariff Publishing Company (ATPCO) is a global provider of fare information for the travel industry. It is mentioned in the script as the entity that airlines use to publish their prices, which are then distributed across GDSs and other booking platforms.

💡Ancillary Revenue

Ancillary revenue refers to additional fees or services that airlines offer beyond the basic ticket fare, such as seat selection, baggage fees, and meal upgrades. The script discusses how limited support for ancillary services in GDSs can impact airlines' profitability, as these services are a significant source of income.

💡Direct Booking

Direct booking is the process where consumers purchase tickets directly from airlines' websites or through their customer service, bypassing GDSs and travel agencies. The script mentions Lufthansa and Ryanair as examples of airlines that encourage or require direct bookings to regain control over their inventory and distribution channels.

💡NDC

NDC, or New Distribution Capability, is an API standard introduced by IATA that allows airlines to create their own APIs for distribution purposes. It is highlighted in the script as a potential solution for airlines to bypass GDSs and offer more personalized services and rich content directly to customers or through OTAs.

💡Sabre

Sabre is both the name of an early automated flight distribution system and one of the current major GDSs. The script discusses its historical significance as the pioneering system in automated flight reservations and its current role as an independent business in the GDS market.

💡Amadeus

Amadeus is a GDS established by European airlines in 1987. It is one of the key players in the GDS market, as mentioned in the script, and is working to incorporate NDC support to stay competitive in the evolving distribution landscape.

💡Travelport

Travelport is a UK-based GDS formed through the merger of smaller providers. It is part of the script's discussion on the major GDSs and their efforts to adapt to new technologies like NDC to maintain their market positions.

Highlights

Traditional flight booking methods include direct airline purchases or using aggregators like Skyscanner and Kayak.

Airlines distribute tickets through a complex system involving travel agents and GDSs (Global Distribution Systems).

American Airlines and IBM pioneered automated flight distribution with the IBM 7090 computer in the 1960s.

The Sabre system processed up to 84,000 telephone transactions daily for flight reservations.

GDSs evolved in the 70s, extending terminals to travel agents' offices to reduce manpower at airlines.

There are three major GDSs: Sabre, Amadeus, and Travelport, which also support non-air travel services.

GDSs are connected to airline central reservation systems (CRSs) for managing seat reservations.

Airlines publish prices on ATPCo, which distributes fare information across GDSs and OTAs.

Scheduling providers like Innovata and OAG supply flight schedule and routing information to the travel market.

GDSs have become powerful middlemen, almost monopolizing the air travel distribution market.

Many travelers use OTAs for price research, with about a third making purchases through these platforms.

GDS-centered distribution has downsides, including lack of customer data for airlines and limited ancillary support.

Airlines like Lufthansa have introduced fees for GDS bookings to encourage direct purchases.

Ryanair discontinued its contract with Amadeus in 2017, opting for direct bookings to avoid GDS distribution.

IATA introduced the NDC (New Distribution Capability) standard in 2015 to allow airlines to build their own APIs.

NDC supports rich content, wide ancillary offers, and personalization, but adoption has been slow.

GDSs are investing in innovation and incorporating NDC support to maintain their market positions.

Despite efforts to avoid third parties, comprehensive travel booking platforms are likely to gain popularity.

The future path of the industry regarding distribution methods remains uncertain.

Transcripts

How do you purchase your flights? By going directly to your favorite airline

and grabbing the first flights you see for the dates you need? Or maybe you

research prices on Skyscanner, Travelocity, Kayak, or any other

aggregator to compare fares and book the cheapest flight for the dates that

work. Maybe you don't trust your computer and call a travel agent.

How do users get all these options and exactly how do airlines distribute their tickets?

Back in the 60s, making a flight reservation took multiple people and

a mainframe computer to process. American Airlines and IBM pioneered automated

flight distribution using the IBM 7090 computer. It was situated in Briarcliff

Manor, New York, and housed all flight reservation data. That computer was

connected to 1500 American Airlines remote terminals across the country.

To make a reservation you contacted a travel agent who then reached the

airline by phone to reserve a seat. That system could process up to eighty four

thousand telephone transactions per day. Its full name Semi-automatic Business

Research Environment was simplified to Sabre. Later similar computers were

adopted by most carriers, while Sabre became the leading flight distribution

provider in the world. In the 70s, terminals were extended to travel agents

offices to free up manpower at airlines. This was the beginning of the era of

global distribution systems known as GDSs.

Today GDS, large flight aggregators, collect flights from about 400 Airlines and distribute them across

travel agencies using their own application programming interfaces or

APIs. APIs are the main connectivity channels used for linking different

software systems in the modern world. There are three major GDSs: Sabre which

became an independent business in 2000.

Amadeus, established in 1987 by four

European airlines, and Travelport, a UK-based GDS formed through a merger of

smaller providers. Besides air travel, GDSs now support

hotel room distribution, train travel, cruises, car rentals, and even airport transfers.

So, how exactly does GDS-centered distribution work?

GDSs are normally connected directly to the heart of airline sales technologies -

central reservation systems or CRSs. A CRS is a software program that manages seat

reservations on the airline side once a GDS requests a seat.

But this connection channel doesn't cover scheduling information and pricing.

To set time tables and prices Airlines must connect with two additional third

parties. Airlines publish their prices on so called ATPCo or airline tariff

publishing company. It's the main global source of fare information that further

distributes prices across GDSs online travel agencies or OTAs and price

aggregators like Skyscanner. On top of that, airlines connect to scheduling

providers such as a Innovata and OAG. These technology companies supply the travel

market with flight schedule, routing connection, and flight code info.

Powerful middlemen, GDSs have become close to a monopoly on the air travel distribution market.

For many years they've been the main point of contact for both airlines

and agents, including online travel agencies. Most travelers today research

prices at OTAs and about a third of travelers worldwide purchase tickets there.

What's wrong with GDS-centered distribution?

First problem is the lack of valuable customer data. As GDSs process bookings, most of the

information remains in the hands of middlemen and doesn't allow airlines to

track their customers and eventually adapt to their preferences.

Second, limited ancillary support. Airlines receive very thin margins in

the sale of their core services: carrying people from point A to point B. The main

source of profit for many airlines is allowing you to choose seats, upgrade a

class, take more luggage, get priority boarding, or order a better meal.

While global distribution systems' APIs transmit key booking information to

online travel agencies, ancillary support is usually limited. And perhaps the main

problem is that airlines don't have full control over their inventory and the

choice of a distribution channel. Some airlines, like Lufthansa, for instance,

decided to combat GDS dominance and encourage people to buy tickets directly

from their sites. Lufthansa even introduced an additional 16 euro or

approximate $18.00 fee for each booking through GDS. Some low-costers like

Ryanair tend to avoid GDS distribution entirely opting for direct bookings from

their websites. For instance, Ryanair, the major European carrier, discontinued its

contract with Amadeus in December 2017.

In 2015, IATA or International Air Transport Association introduced a new

API standard for Airlines called NDC, or new distribution capability.

NDC allows Airlines to build their own APIs and suggest them to GDSs

or entirely bypass this layer by connecting to online travel agencies

directly. NDC standards support rich content wide ancillary offers an even

personalization for every customer. Despite the opportunity airlines are

slow to change. Today only 65 airlines have adopted NDC one

way or another and GDSs are also trying to keep up with technologies pace

investing hundreds of millions in innovation. Curiously enough,

all three are already incorporating NDC support in their products as they try to

maintain their positions.

Even though airlines, hotels, and other local service providers strive to avoid third parties and distribute their

products directly, each year's growing number of travelers will be looking for

reliable, comprehensive travel booking platforms, services that allow you to

plan your entire trip from flights and accommodations to snacking at local

eateries will gain in popularity. But we don't know yet which path the industry

will choose.