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Fare Transparency: Will the Customer Decide?

IATA Resolution 787

World Travel, Inc. Spring Symposium

May 17, 2013

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Introduction

• Purpose & objectives

• Exclusionary IATA process

• Two versions of reality: public statements; IATA documents

• Burden of proof on IATA

• IATA application before DOT

• IATA needs to provide DOT foundational documents

• The customer usually decides on which true innovations to

embrace

• Horizontal competitors agreeing to a market plan is a problem

• Nothing for customer to embrace, i.e. customer cannot drive

innovation

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Historical Theme

1983 1997 2000

Airline Abuses: The Club &

Departments of Bias

RegulationsDiminish GDS

Advantages

Airlines Spin Off GDSs

Airlines Have Used GDS Ownership And Subsequent Interactions With GDSs To Limit Choice, Price Transparency And

Robust Airline-To-Airline Competition

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Historical Theme

1983 1997

20062004

2000

Airline Abuses: The Club &

Departments of Bias

RegulationsDiminish GDS

Advantages

Airlines Spin Off GDSs

GDS Segment Deregulated

Airlines Have Used GDS Ownership And Subsequent Interactions With GDSs To Limit Choice, Price Transparency And

Robust Airline-To-Airline Competition

First Marketplace “Negotiation”

NDC

2013

AncillaryFees

Withheld

200820032000

DCA3Orbitz

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Interest Alignment Change

1983 2000

Airlines, Their CRSs And Travel Agencies Developed Close Economic Alignment Of Interests While Travel Departments’

Interests Were Somewhat Divergent

CRSs

Airlines

Agencies Travel Depts.

TRAVEL DEPARTMENT INTERESTS

• Agencies representing travel depts.• Agency service, purchasing and MIS• All the content all the time

CRS, AIRLINE, AGENCY INTERESTS

• Economic interests of all three parties intertwined

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Interest Alignment Change

2004 2013

After TMC Compensation Switched To The Customer, The U.S. Deregulated GDSs In 2004 And Airlines Sought To Fragment

Content, Reduce Fare Transparency and Comparison Shopping, Alignment Of Interests Changed

GDSs

TMCs

AirlinesTravelDepts.

GDS, TMC, TRAVEL DEPT. INTERESTS

• Full content, publicly published• Travel manager control of airline offers• Business & personal data protections

AIRLINES’ INTERESTS

• Less fare transparency• Degraded comparison shopping• Profile-based unique offers

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Airlines’ Problem

The airline industry has decried publicly a problem

it describes as the “commoditization” of airline

services caused by the current system of publicly

available and transparent fares.

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We’ve done a great job of improving efficiency and bringing

down costs, but we’ve handed that benefit straight to our

customers,” Tyler says. “As soon as someone’s got a cost

advantage, instead of charging the same price and making a bit

of profit, they use it to undercut their competitors and hand the

value straight to passengers or cargo shippers – and you’ve

got to ask why? I think one of the reasons is that the way we

sell our product forces us to commoditise ourselves. Tony

Tyler, Director General, IATA - Flightglobal - July 24, 2012

IATA Goals

“

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IATA Goals

…this [current] model is focused only on finding the lowest

ticket price. This has resulted in the commoditization of air

travel…Airlines are trying to escape the commoditization

trap through differentiation, and merchandizing…The

solution is the New Distribution Capability (NDC)… Tony

Tyler, Director General, IATA Abu Dhabi 2012

“

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• Will the existing system of publicly available and readily accessible fares through all channels continue to exist in parallel with the NDC system?

• Will the NDC regime permit airlines to price discriminate against (a) price insensitive consumers and/or (b) individual travel agencies?

• Will consumers who refuse to yield personal information as contemplated by NDC still be able to comparison shop legitimate (not "rack rate") alternative fares without the component bundles?

• What will be, and who will bear, the costs to the retailer of implementing the NDC regime?

PaulIssues Raised By NDC

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• Airlines-only new business model development began 2011

• Geneva in July 2012: R787 drafted, industry told of direction

• Abu Dhabi R787 approval in October 2012

NDC Process

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• Binding agreement among 240 airlines many of which are horizontal competitors

• New industry business model for the pricing and sale of tickets

• Enabling technical standard in the works

• NDC pilot

• Application for R787 approval before the U.S. DOT

• Questions and concerns from ACTA, ASTA, ASATA, BTC, ECTAA, GBTA, SPAA, WTAAA, other market participants

Process Results

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"While World Travel, Inc. agrees that a process for developing a data interchange using Extensible Markup Language parentheses ("XML") is likely beneficial, the Application does not clearly set forth the true impact of the New Distribution Capability ("NDC") on end-user consumers (i.e., individual consumer travelers). World Travel, Inc.

There are too many questions without answers. Will NDC create any real benefit for the corporation who is paying for travel? Or is this just another attempt to reduce airline distribution costs at the expense of the buyer in the form of reduced price transparency and more complexity in the distribution process itself? Global Business Travel Association (GBTA)

We send people, but they walk in and the decisions have been made and the performance is dead on arrival. To make technical decisions you need more than just airline distribution heads. Jeremy Wertheimer, Google Travel Vice President

The Alaska Air Carriers Association implores the United States Department of Transportation to unconditionally deny Resolution 787 from IATA. We oppose any infringement on individual rights, especially when the information is not needed to purchase a ticket, can give preferential treatment to some, and can result in discriminatory practices against others who may not have the same buying power. AACA

“

Questions & Concerns Raised

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The New York Times - Editorial - March 3, 2013

It seems clear that the standard, as described by the group, could also be used to present higher fares to, say, a business traveler who airlines determine could pay more because she travels between New York and Dallas every week.

Airlines will also have a big incentive to present much higher basic prices when customers shop anonymously to encourage them to provide more information about themselves in order to see “special deals.”

They may be counting on the new airfare pricing standard to increase revenue and profits. It is hard to see how this approach could result in more competition or anything but higher costs for many travelers.

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Questions & Concerns Raised

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Personal data demands are intrusive and include but are expressly not limited to:

• Name• Frequent Flyer numbers [all carriers]• Contact details [email address]• Age• Marital status• National origin• Travel shopping history [all carriers]• Travel purchase history [all carriers]• Whether the purpose of the trip is business or leisure• The identity of the travel agency used

Privacy Concerns

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• Authenticated shopping based on deep use of personal identifying information about who is seeking service

• GDSs, travel agencies, technology companies must transmit required personal information to NDC carrier prior to an offer being returned

• Carrier can refuse to return offer

• Carrier returns only what it wants the consumer and specific travel agency to see

What Is The New Model?

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Today

Anonymous-shopping

Personal information provided after the offer

All options returned to traveler

Current Vs. New Model

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Today

NDC

Anonymous-shopping

Personal information provided after the offer

All options returned to traveler

No anonymous shopping

Personal information-based offers

Select options returned

Current Vs. New Model

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U.S. Example

Monopoly Markets Competitive Markets

American Airlines US Airways Delta Air Lines United Continental

American Airlines US Airways Delta Air Lines United Continental

NDC &Current Process

NDC Only

Hybrid Model

How Might Implementation Work?

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GAP 1: Resolution 787 just a technical standard

GAP 2: Anonymous shopping will be supported

GAP 3: NDC will operate in parallel with current distribution process

Examination of IATA’s DOT filing and press statements vis-à-vis its documents and presentations reveals gaps and inconsistencies

IATA Communications Gaps

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PUBLIC STATEMENT (Breaking Travel News)

GAP 1: Resolution 787 Just A Technical Standard

There has been a lot of confusion and dare I say misinformation about NDC. The first thing to make clear is that NDC is an IATA-led industry initiative to define a new messaging standard between airlines and travel agents.

IATA Director General Tony Tyler, 4-15-13

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IATA Communications Gaps

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PUBLIC STATEMENT (Breaking Travel News)

GAP 1: Resolution 787 Just A Technical Standard

IATA DOCUMENTATION (2012 IATA Abu Dhabi PDG meeting)

There has been a lot of confusion and dare I say misinformation about NDC. The first thing to make clear is that NDC is an IATA-led industry initiative to define a new messaging standard between airlines and travel agents.

IATA Director General Tony Tyler, 4-15-13

In making this proposal for a new ‘Enhanced Airline Distribution’ resolution, it will cover only the concept of the business requirement, being a foundational resolution to provide an industry framework for ‘authenticated shopping’. This new Resolution 787 as shown in Attachment B_P7….becomes a platform that will enable further resolutions and messaging standards to be developed as further business requirements are evaluated.

“

“

IATA Communications Gaps

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GAP 2: Anonymous Shopping Will Be Supported

PUBLIC STATEMENT (In Letter To The New York Times)

“...the “new distribution capability” messaging standard being developed by the International Air Transport Association will not require passengers to provide any more personal information to receive a fare quote than they do today.

IATA Communications Gaps

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GAP 2: Anonymous Shopping Will Be Supported

PUBLIC STATEMENT (In Letter To The New York Times)

“...the “new distribution capability” messaging standard being developed by the International Air Transport Association will not require passengers to provide any more personal information to receive a fare quote than they do today.

“IATA DOCUMENTATION - (2012 Geneva IATA meeting; 2012 PDG meeting)

1. The traveler makes a request2. The Aggregator interrogates the Airline Profile

a. To determine the minimum criteria required in a request

i. If the airline’s minimum criteria is not provided by the traveler and/or aggregator, then the airline does not support the request. The shopping request will not be sent by the aggregator

ii. If the airline’s minimum criteria is provided by the traveler, then the airline supports the request and the shopping process can proceed.

“

Enhanced Airline Distribution shall: allow individual carriers to determine its own prices and the nature of those products offered, depending on who the requestor is and what they are requesting. This will require authentication and the provision of historical data based on previous transactions...

IATA Communications Gaps

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GAP 3: NDC Will Operate In Parallel With Current Process

PUBLIC STATEMENT (In filing to U.S. DOT)

Again, anonymous shopping requests will be supported in the new data standard, and the current EDIFACT system will be maintained in parallel.“

IATA Communications Gaps

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GAP 3: NDC Will Operate In Parallel With Current Process

PUBLIC STATEMENT (In filing to U.S. DOT)

IATA DOCUMENTATION (Resolution 787; 2012 Montreal IATA meeting)

Again, anonymous shopping requests will be supported in the new data standard, and the current EDIFACT system will be maintained in parallel.“

“ With due consideration for established business processes, procedures and current system functionality, there should be no constraints driven by any requirement for backwards compatibility. Airlines may wish to establish a roadmap for migration showing justification for backwards compatibility only if there is a defined business need.

“

IATA Communications Gaps

Airlines are trying to escape the commoditization trap through differentiation, and merchandizing…The solution is the New Distribution Capability (NDC)… Tony Tyler, Director General, IATA Abu Dhabi 2012

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NDC could cause consumer harm due to: • Invasion of privacy

• Increased industry costs passed on to the consumer

• Higher prices paid

Consumer Impacts

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Privacy• Non consent drives significant negative consequences

• Data broadcast to countless airlines (travel history, age,

marital

status, nationality)

• Enables knowledge of price sensitivity

• Requires divulging personal data prior to seeing a privacy

policy

• Not necessary to enter a contract

Consumer Impacts

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• New travel agency technologies

• Airlines paid for content

• Manual TMC/ travel department workarounds for MIS

reporting, compliance tracking, other

Costs

Consumer Impacts

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• System-wide fare levels not disciplined by comparison shopping

• Ancillary fees not disciplined

• Price discrimination against price-insensitive travelers

• Airline new entry frustrated

• Tacit reduced competition among airlines

Prices

Consumer Impacts

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PHL$605

$372

$375SLC

DEN

PHX

The non-stop airline does not know I am a business traveler who always flies non stop between PHL & PHX; therefore, the non-stop price is disciplined by the connecting prices.

This is the airline problem IATA seeks to solve.

Anonymous Shopping Benefit

Prices

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PHX$1,000PHL

Airlines know I am a business traveler who always flies non stop and who belongs to the non-stop airline’s loyalty program only; therefore, there is little incentive for competitors to return connecting flight options and significant opportunity for the non-stop airline to raise prices.

PHL PHX

This is the airline solution IATA seeks to implement.

Authenticated Shopping Problem

Prices

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Authenticated Shopping Problem

With NDC we will have moved from a world where fares were transparent and consumers were anonymous to one where consumers are transparent and fares are anonymous!

Privacy

Name Age

Frequent Flyer numbers

Contact details

Marital status National origin

Shopping history Purchase history

Business or leisure trip purpose

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• Risk-based products such as bank loans require advance

financial information

• No other consumer products industry requires as a condition

of receiving an offer that you profile yourself to the supplier

• That horizontal competitors agreed to this model heightens

concerns

How Do Other Industries Operate?

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Analogy

We liken NDC to an agreement among gasoline dealers on a new distribution model where they take down their posted prices per gallon that all consumers can see, compare and buy.

Instead dealer would quote a “customized price” for each consumer only after she has input her credit card and other personal details. Public prices would come down. 

It is obvious that by reducing the visibility of their prices (and thus the ability of consumers to compare them easily) the gasoline dealers would reduce the pressure on them to keep their prices competitive.

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Advocacy Process

• Analyses and Information Center

• U.S. DOT & DOJ & State AGs

• Congressional Committees

• House Testimony & GAO Study

• Privacy Groups

• NYT Editorial

• 1 Million BTC Emails

• ASTA / BTC Webinar

• Signatory Letter

• American Antitrust Institute

• Docket Recruitment

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• Docket “closed”

• Over 600 individuals and organizations from 6 continents and 24 countries weighed in

• Overwhelmingly against Resolution 787

• DOT Options

• Europe

U.S. DOT Application Status & Next Steps

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Summary

• No collaboration

• The customer and TMC community support innovation

• Concerns throughout the industry

• Considering the business processes, NDC is hardly a

messaging standard

• Can appreciate the commoditization problem

• Binding agreement among horizontal competitors

• Need documentation to determine intent

• Not in the public interest if effect of agreement among

competitors is higher prices

• This is a big moment for the industry

• Stakeholders need to engage in what will be a long slog

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• Stay informed

• Communicate with your airline suppliers

• Send a note to DOT Secretary LaHood

• Tell your State AG to engage

• Assist when there is a call-to-action

Find NDC information and tools for commenting at btc.travel

What You Can Do

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Thank You!

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