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WE POWER TRAVEL NDC: IATAs New Distribution Capability or Nutty Distribution Catastrophe? Michael Premo President & CEO ARC

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W E P O W E R T R A V E L

NDC: IATA’s New Distribution Capability or Nutty Distribution Catastrophe?

Michael Premo President & CEO

ARC

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W E P O W E R T R A V E L

Topics

• ARC Update

• Crunching the Numbers

• FareSight

• IATA NDC: Why, Oh, Why All the Hubbub?

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© 2014 Airlines Reporting Corporation, All Rights Reserved.

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What’s ARC?

Airlines Reporting Corporation (ARC):

• Accredits travel agents in the U.S. & territories for 194 airlines and provides

tools for reporting and payment on ticket sales

• Provides data services to customers interested in better understanding or

expanding their commerce in the travel industry

Owned by 9 airlines

• Incorporated in 1984 as a Delaware corporation

• Predecessor Area Settlement Plan established in 1964

• Governed by board of airlines plus the Chairman and President/CEO

Headquartered in Arlington, VA; sites in Louisville, Tampa & San

Juan

• 395 employees

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© 2014 Airlines Reporting Corporation, All Rights Reserved.

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The ARC Board Family

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Confidential and Sensitive © 2013 Airlines Reporting Corporation, All Rights Reserved.

O U R S H A R E H O L D E R S

NON - S H A R E H O L D E R S

INDEPENDENT

Bonnie Reitz – Chairman

Bob Bagley – Chair, Audit

Committee

Michael Premo

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W E P O W E R T R A V E L

Crunching the Numbers

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ARC Locations 1965-2013

6

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Total Locations STPs

© 2014 Airlines Reporting Corporation, All Rights Reserved.

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ARC Total Transactions (Millions) 1965-2013

7

0

50

100

150

200

250

Mill

ion

s

Total Transactions

© 2014 Airlines Reporting Corporation, All Rights Reserved.

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ARC Total (Billions) 2002-2013

8

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Bill

ion

s

Cash

Credit

Total

© 2014 Airlines Reporting Corporation, All Rights Reserved.

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Travel Agency Segmentation –

Monthly Transactions % Change

9

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Online

Mega

Other

All

© 2014 Airlines Reporting Corporation, All Rights Reserved.

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W E P O W E R T R A V E L

And now a word from our sponsor…

FareSight

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FareSight

• Business intelligence tool targeted at corporate travel

managers (CTMs)

• Uses ARC data to optimize CTMs’ corporate travel programs

• Assess purchasing effectiveness

• Assess policy effectiveness

• Monitor agreement threshold

• Speedy insights and baseline—not against one agency’s

customers but the whole agency market

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FareSight

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© 2014 Airlines Reporting Corporation, All Rights Reserved.

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FareSight

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© 2014 Airlines Reporting Corporation, All Rights Reserved.

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FareSight

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W E P O W E R T R A V E L

Now back to our program already in

progress…

Other ARC Initiatives

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Major ARC Work Activity – 2013/2014/2015

• Revised ARA implementation – July 1, 2013

• Debit Memo Working Group – launched Jan. 2013

• IATA – ARC settlement benchmarking

• Engagement on IATA New Distribution Capability

• Ensure use of ARC ticket stock when U.S. agents sell in NDC

• Replacement of core settlement systems

• Five-year project awaiting ARC Board approval

• Compete in data products

• Explore airline-agency merchandising cooperation and

potential for ARC

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© 2014 Airlines Reporting Corporation, All Rights Reserved.

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NDC

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Today’s Airline Distribution Challenge

• Airlines love, love, love to sell through their web-sites

• Control the customer experience

• Display products and services exactly as they want

• Allow anonymous shopping but if logged-in, deliver customers

customized content based on the airlines business rules

• Least expensive, yes, but more and more it’s about delivering the

brand experience and differentiated products and services

• Problem: many of their best customers buy through the

airline’s sales agents—and those agents use GDSes

• Airlines believe GDSes and agents don’t, won’t or can’t deliver to

the agent or end customer the same differentiated content as

their web-site

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© 2013 Airlines Reporting Corporation, All Rights Reserved.

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One Answer? NDC

• IATA’s New Distribution Capability (NDC) was conceived to

help overcome exactly this challenge

• It is specifically NOT an agency-bypass

• Carriers don’t need NDC to bypass agents!

• They already HAVE web-sites!

• NDC is one approach to try to provide as much of their web-site content and experience to agents

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© 2013 Airlines Reporting Corporation, All Rights Reserved.

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Who is IATA?

• The International Air Transport Association

• The industry’s global trade association

• Sister to Airlines for America (A4A) formerly the Air Transport

Association (the U.S. airline trade association)

• IATA develops and maintains industry standards globally in

cooperation with A4A and ICAO (the International Civilian Aviation Organization)

• Safety standards

• Business standards – luggage bar codes, ticketing and messaging

standards

• Also operates the agency accreditation and settlement system

out side the U.S. (ARC handles the U.S.)

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© 2013 Airlines Reporting Corporation, All Rights Reserved.

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What is NDC?

NDC is an IATA-led collaborative industry initiative that:

• Defines a new messaging standard between airlines and agents

• Enables greater transparency and choice for consumer in

comparison shopping

• Intends to close the gap between direct and indirect channels,

making the indirect channel as customer-centric and retail-like

as the direct channel

Source: IATA

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© 2014 Airlines Reporting Corporation, All Rights Reserved.

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A Few Key Terms …

• IATA’s Resolution 787 (Enhanced Airline Distribution)

• Describes the main business processes required for airlines to create

their own product offer within their own systems, which will be

provided directly by and owned by the airline

• IATA XML Message Schema

• IATA standard to create a Dynamic Airline Shopping engine

Application Program Interface (DAS API) … based on Open Axis

Schema originally created by Farelogix

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Airline Distribution Today

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Availability

Fare Filing

Schedule

Airline

GDS Builds content

3rd

Parties

Agent

Cu

sto

me

r

Source: IATA

© 2014 Airlines Reporting Corporation, All Rights Reserved.

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Airline Distribution Tomorrow?

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Product

Price and

Availability

Engine

Airline

Agent

Dynamic

Airline

Shopping

Interface

Aggregator

Agent

Source: IATA

Cu

sto

me

r

© 2014 Airlines Reporting Corporation, All Rights Reserved.

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NDC Roadmap

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Request for Pilot

Participation

Pilots

Launch YE Pilots

Review

Final Pilots

Review

Capability

Deployment

Industry

Mass

Adoption

Ref. Imp. v1.0

XML v1 XML v2 XML v3 XML v4 XML v5

Reso787 Reso787 v2 Reso787 v3

Mockups

Learning

Risks

2013 - 2014 2015 - 2016 Source: IATA

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The Vision

• NDC is envisioned

to enable carriers

to present

product features, amenities and

ancillary services

and fees in more

robust fashion

• AND still enable

comparison

shopping as

shown in this NDC Demonstrator

created by IATA

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What’s the Controversy?

• IATA submits request for the resolution to be approved by

DOT.

• Not thinking it’s a huge deal

• Does what it does for ALL industry resolutions

• DOT says: Hmm, this looks like kind of a big deal to us.

We classify as Level 3—we want to get public comments.

• All heck breaks loose.

• GDSes, Business Travel Coalition and even GBTA weigh in

against NDC.

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IATA’s Industry Outreach

• IATA’s outreach especially to agents has, by its own admission, been subpar

• Trying to fix that – recent outreach to ASTA / GBTA

• Outreach is via the Data Distribution Exchange (DDX) Working

Group

• Oversight of the NDC initiative

• Task Forces to define requirements to make the NDC standard

work

• Each led by an airline representative

• Pilots still need participant especially agencies

http://www.iata.org/whatwedo/stb/ndc/Pages/pilots.aspx

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The Arguments Against

• It’s the end of anonymous shopping.

• By collecting personal data, carriers will offer higher prices to the

customers they think can afford it.

• IATA admits the resolution is poorly worded. Make them pull it

and resubmit. (And go through this all over again.)

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The Arguments Against

• It’s the end of anonymous shopping.

• By collecting personal data, carriers will offer higher prices to the

customers they think can afford it.

• IATA admits the resolution is poorly worded. Make them pull it

and resubmit. (And go through this all over again.)

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© 2014 Airlines Reporting Corporation, All Rights Reserved.

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The Real Arguments – Mike’s Take

• Agent – “I’m worried about my GDS revenue, and besides, who

will pay me for this extra work?”

• GDS – “Airlines might not want to pay for my pricing engine.”

• Airline – “I don’t think my product gets presented as I would like it

to be.”

• Agent – “My agents want to keep using green screen.”

• GDS – “We can jazz up green screens if they want.”

• Airline – “Ugh! Forget it—send them to my website!”

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ARC’s View

• We support ANY initiative that expands content availability to

agencies and CTDs.

• NDC? Yes!

• Carrier & GDS bilateral agreements? Yes!

• Direct Connect? Yes!

• That said, don’t throw valuable/proven business processes out

accidentally.

• Especially ARC ticketing!

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Danger Zones

• IATA’s DDX Working Group has delegated the work of

developing the business processes to support the NDC

standard to Task Forces

• Shopping

• Booking & Servicing

• Payment and Ticketing

• Reporting, Settlement and Agency Accounting Interface

• ARC working here

• Airline Profile

• Interline

• Each headed by an airline representative

• Mike’s view – too many e-commerce people, too few agencies

and other agency technology partners

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Danger Zones – Business Travel Specific

• Online Travel Agencies likely to be early adopters

• Compete with airline web-sites, need comparable content

• You can already purchase seats on Priceline / LastMinute

• AA only, but settles via ARC unlike any other ancillaries

• Another example of content your travelers want to book outside

your preferred channel?

• Corporate booking tool providers don’t appear terribly

plugged in yet

• Many owned by GDSes – uh oh!

• Appears investment in booking tools is already constrained

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© 2013 Airlines Reporting Corporation, All Rights Reserved.

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Specifically What to Watch Out For

• NDC scope creep

• What beyond the XML standard will change?

• Danger: many airline leads on task forces are from e-commerce

• NDC = do it like the airline website

• Does it ticket via ARC or via airline stock on the website?

• Who controls the PNR?

• Will my mid-office and self-book tools still work?

• “Don’t worry, your GDS will do it all for you.”

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Next Steps

• DOT expected to issue something on NDC this month

• Mike’s view: Probable outcome is approval with some

caveats/ongoing monitoring

• More impactful might actually be upcoming DOT decisions

on “Enhancing Airline Passenger Protections III”

• Decision on transparency of fees; mandate to show in all sales

channels

• Disclosure of travel agency incentives, carriers they do or do

not sell

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Next Steps

• ARC already approached by a major international carrier

about accepting an NDC ticket feed for agency settlement

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Mike’s Final Thoughts

• There are relatively few airlines interested in implementing

NDC

• Requires detailed customer knowledge

• Requires technology investments

• Airline consolidation in the U.S. may be a factor

• If I were an agency, AND the proposition from airlines was

attractive, would it be so hard to connect to 2-3 of my biggest

airlines and use GDS content for all the rest?

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© 2013 Airlines Reporting Corporation, All Rights Reserved.

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Summary

• NDC – pretty good idea actually

• Keeps agents/TMCs relevant to travelers

• One less reason for travelers to go outside your approved

booking paths to buy

• NDC or things that look a lot like NDC are coming

• Some via GDS, some perhaps not

• Definitely the devil’s in the details

• Ask questions and talk specifics on business process

changes with everyone!

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© 2014 Airlines Reporting Corporation, All Rights Reserved.

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W E P O W E R T R A V E L

More Questions? Thank you!

…and don’t forget about FareSight!

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