New Distribution Capability and the future of personalized air travel retailing

Much has been written about how the New Distribution Capability (NDC) will help transform retailing in the airline industry, and its potential has been widely debated for more than a decade. According to the Airlines Reporting Corp. (ARC), NDC-enabled transactions have seen a substantial increase over the past two years. Year to date through April 2024, 19.3% of ARC’s transactions are NDC-enabled, up from just under 10% in April 2023. ARC has more than 30 airlines actively leveraging its Direct Connect program and more than 10 in the implementation queue, signaling the value of NDC to both airlines and agencies. In March 2024, the International Air Transport Association reports that more than 70 airlines are certified to use NDC to retail at least some of their content, with many others making significant progress in their implementation.

“In a rapidly evolving landscape, NDC presents a pivotal opportunity to modernize airline retailing, enabling personalized shopping experiences with better content, pricing and services,” said Lauri Reishus, president and CEO at ARC. “These changes have the ability to captivate travelers, strengthen loyalty and unlock new revenue streams for the entire industry.”

The focus of the air travel industry has largely been on adopting this new technology across the distribution landscape—and rightly so. The implementation of NDC brings significant changes to technology, data, processes and even organizational structures. Airlines, global distribution systems (GDS), travel management companies, online travel agencies and others across the ecosystem are all adapting to this substantial shift.

But what comes next? Once NDC’s infrastructure is in place, how can suppliers and distributors across the ecosystem grow revenue through effective upselling and cross-selling of ancillaries to deliver a truly modern and customer-centric e-commerce experience? As the transition away from the traditional Electronic Data Interchange for Administration, Commerce and Transport (EDIFACT) standard gains momentum, those who will benefit most are the ones who shift their focus from merely operationalizing NDC to capitalizing on its potential. The next frontier for commercial airline leaders lies in maximizing revenue from NDC, particularly through personalization in the indirect channel.

NDC is an enhanced data transmission standard that connects suppliers directly with third-party distributors, bypassing legacy GDSs. For the first time, airlines and distributors can access crucial details about travelers in real time when booking through indirect channels. This real-time visibility enables a virtuous cycle, giving airlines and distributors the power to: personalize the retail experience in indirect channels, both before and during the shopping process; sell more ancillary products; and collect more detailed data about their travelers based on who they are, when and where they buy and what they purchase.

Before diving into specific use cases of NDC-enabled personalization throughout the retailing journey, let’s first consider the attributes upon which personalization can be built. The key data points that drive revenue-generating personalization are often triggered by matching a traveler’s loyalty program number to a central customer data platform (CDP). Other identifiers, such as a traveler’s name or IP address, also can be used for less certain matches. When the airline or distributor matches a shopper in the CDP, they instantly access insights into basic demographic details, past booking behavior, digital activity and loyalty status.

NDC can yield insights for airlines and distributors at the time of booking—previously unavailable—based on how purchases are made, such as purchase location, payment methods and channels and the specific devices used to inform personalization. For instance, whether a traveler uses an Android or iPhone, or even an older model versus a newer one, can offer useful insights into crafting personalized offers.

Lastly, trip-specific characteristics submitted by shoppers at the time of booking, such as destination, travel duration and purpose, are equally relevant. Trip purpose is especially useful because many travelers have multiple “travel avatars” such as business, family or leisure travel. With these insights, suppliers and distributors can tailor the right offer at the right time and place.

All these insights can help personalize the customer journey throughout the retailing experience, but there are three moments of intervention that show particular promise for NDC-enabled personalization: personalized marketing content delivered both before and during the time of booking; contextual continuous pricing; and personalized ancillary offers. 

1. Personalized marketing content: While personalized marketing content has been a goal for airlines and distributors for some time, the implementation of NDC will significantly improve how these firms can target and deliver personalized messaging. By boosting ancillary sales, NDC will help create richer customer profiles, offering deeper insights into travelers and enabling more relevant content. Additionally, identifying a customer at the time of booking whenever they are using an indirect channel will let airlines and distributors serve personalized advertisements and recognize incomplete bookings or abandoned carts.
   
   For example, an airline can tailor marketing offers for a trip to Los Angeles based on a traveler’s demographics, preferences and past purchasing behavior. A traveler with a penchant for summer beach destinations might receive a personalized beach getaway ad, while a family known for visiting mountain resorts and checking in oversized luggage could see a ski-themed promotion. Older customers traveling with young children might be targeted with ads for theme parks. This level of customization isn’t limited to a single persona per traveler. Airlines can adjust the content dynamically to align with myriad travel personas.
   
   Moreover, personalized marketing can extend beyond email to include digital banner ads on third-party distributor websites, tailored in real time to visitor data. This approach allows for targeted interactions as a traveler shops, increasing the likelihood of conversion during the booking phase or after a customer has abandoned the process.
   
   Integrating generative AI into customer communications amplifies marketing potential. Using simple prompts, marketing teams can create varied and engaging advertising copy, creating endless engagement opportunities. As companies better understand their customers and expand their product offerings, the precision and appeal of personalized marketing will only improve.
   
   This approach not only benefits customers by providing more relevant offers but it also boosts airline and agency revenues through enhanced engagement and conversion rates. NDC will transform customer interactions, making each communication a stepping stone toward deeper relationships and greater satisfaction.
   
   
2. Contextual continuous pricing: NDC allows airlines to implement personalized pricing at the time of booking by sharing more detailed data with distribution partners in real time. This permits dynamic pricing based on criteria such as loyalty status, corporate affiliation, travel history or real-time market conditions, a level of personalization that was impossible to achieve in the EDIFACT environment. For instance, airlines can now directly offer exclusive discounts to loyalty program members or provide personalized fare offers based on a traveler’s past booking behavior, such as a special rate for a preferred route or cabin class for a frequent flyer. Alternatively, a customer associated with one of the airlines’ corporate customers can be shown a corporate-preferred rate alongside the standard retail rate. Additionally, NDC facilitates continuous pricing, eliminating the need for traditional fare classes and allowing airlines to adjust prices more dynamically in response to demand. This enhanced price differentiation enables airlines to target specific customer segments more effectively, potentially increasing both sales and customer satisfaction.
3. Personalized ancillary offers: NDC enables the sale of more ancillaries through the indirect channel, leading to a better understanding of traveler preferences for both airlines and agencies. As a result, each can create and sell more personalized bundles. For example, agencies now have deeper insights into traveler preferences, allowing them to tailor their offers with products from other travel vendors—such as hotels and car rentals—that align with the traveler’s interests. Similarly, airlines gain valuable information that enables them to craft more effective bundles and offer the most relevant ancillary products. With NDC, airlines can also ensure their offers are tailored to the traveler’s entitlements. For instance, travelers with loyalty status who already receive complimentary baggage may instead be offered a discount on a second lounge pass, recognizing their preference for lounge access and accommodating their traveling companion. This level of personalization enhances the travel experience and increases the likelihood of ancillary sales.

Moreover, in the upcoming One Order retailing environment, airlines and agencies will have the opportunity to explore a wider range of ancillary products, further enriching the travel experience and the value of customer data. Streamlining the offer-order management process in this environment will facilitate even more customized retailing, leveraging the expanding pool of traveler data to its fullest potential.

While the shift to NDC promises a new era of personalization, expect turbulence. In our work leading digital transformations with major U.S. airlines, challenges often include technological integration issues, organizational change management hurdles and data privacy concerns. A strategic, data-driven approach, robust partnerships, comprehensive staff training and stringent data governance practices are essential for a smooth transition. Embracing a culture of data-driven decision-making will be crucial for optimizing NDC capabilities.

NDC initiates a transformative era in airline content distribution, placing personalization at the forefront. Airlines and third-party distributors can use NDC to enhance customer experiences significantly, from personalized marketing content generation and contextual continuous pricing to tailored ancillary offers. Each point of intervention represents an opportunity to deepen customer relationships and boost revenue. Airlines and agencies that quickly and strategically adapt to these capabilities will see considerable benefits. As the industry continues to evolve, those who master leveraging NDC for personalized experiences will undoubtedly lead the way in delivering next-generation customer interactions, opening new horizons in air travel retailing.

This article is adapted from a keynote presentation given by Kunal Shah at Elevate + TravelConnect (an event hosted by ARC) and the Airline Tariff Publishing Company (ATPCO) in April 2024 for air travel industry leaders.