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IATA New Distribution Capability
ASTA / BTC - American Antitrust InstituteFebruary 8, 2013
Public Policy Discussion Document; Some Slides Are For Illustrative Purposes Only
“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 - February 2013
2
Through The Looking-Glass
Agenda
Background
Consumer Impacts
Discussion
Paul3
Background
Current market – high transparency
Airlines complaining for years that transparency led to commoditized prices – can’t escape competition from low fare competition
Airlines’ 1st move – unbundling
Airlines’ 2nd move – hide fees from consumers using independent distribution
Now comes global airline industry thru IATA– Tyler speech as prelude to vote on Resolution 787 – culprit continues to be commoditization & low prices (historic price-fixing role)
Paul4
Background
Development began Oct. 2011, then Geneva in July 2012, Abu Dhabi in Oct. 2012, Montreal in Nov. 2012 – now in pilot stage
Purpose of New Distribution Capability (NDC) – end commoditization and low prices resulting from ubiquitous transparency
Paul
New Distribution Capability (NDC) FAQ - November 1, 2012Q1 How different will NDC be from the service GDSs offer today?A: NDC will enable airline products to be displayed in a differentiated and personalized way on the travel agent screens, as opposed to a commoditized low fare search display today.
“
5
Background
How?
Get all carriers of consequence on same platform
Adopt a binding resolution and get all influencers to participate
Exclude anyone who might make noise
Call it a standard setting when it is really a business model
Paul6
Background
What is new model?
Authenticated shopping based on deep use of personal identifying information about who is seeking service
Use data to price discriminate against insensitive travelers
Price insensitive Service quality sensitive – no connection
Increase consumer search costs – hard or impossible to efficiently compare prices
Eliminate or shroud generic base fares
No “backward compatibility” Both regimes cannot co-exist Fares and schedules no longer available to the consumer
Paul7
Background
Paul
IATA-Prepared Minutes Of July 2012 Meeting
In the new distribution model, the request will come to the airline and the airline will respond with an offer. The role of the GDS and OTA changes in that they do not have to assemble the offer any more but will have the opportunity to show much richer data carried by the API and show it in a way they can compare airline product.
“
8
Background
What is new model? (cont.)
Facilitate tacit market division by identifying ‘owned’ travelers
Mutual strategic withholding of offers
Eliminate corporate negotiating leverage
Benchmarking
Paul9
Privacy
Kevin
Personal data demands are intrusive and include but are expressly not limited to:
Name
Frequent Flyer status
Age
Marital status
National origin
Place of residence
Travel shopping history
Travel purchase history
Whether the purpose of the trip is business or leisure
10
Example - Business Traveler
Kevin
Today
Virtually all content available Anonymous-shopping All options returned to traveler PHL PHX$605
$373
$372
$373
$372
11
SLC
ATL
MSP
DEN
Example - Business Traveler
Kevin
Today
NDC
Virtually all content available Anonymous-shopping All options returned to traveler
Content heavily restricted Personal information based No anonymous shopping Select options returned
PHL PHX
PHX
$605
$373
$372
$373
$372
$1,000PHL
12
Division of Markets
SLC
ATL
MSP
DEN
Total Consumer ImpactNDC would cause serious consumer harm due to loss of data privacy, higher
prices paid and increased industry costs passed on to the consumer
Privacy
Consequence of non consent drives significant negative consequences
Data broadcast to countless airlines
Enables knowledge of price sensitivity
Not necessary to enter a contract
Requires divulging personal information prior to seeing a privacy policy
Kevin13
Total Consumer ImpactNDC would cause serious consumer harm due to loss of data privacy, higher
prices paid and increased industry costs passed on to the consumer
Privacy
Consequence of non consent drives significant negative consequences
Data broadcast to countless airlines
Enables knowledge of price sensitivity
Not necessary to enter a contract
Requires divulging personal information prior to seeing a privacy policy
Kevin14
Total Consumer ImpactNDC would cause serious consumer harm due to loss of data privacy, higher
prices paid and increased industry costs passed on to the consumer
Privacy
Consequence of non consent drives significant negative consequences
Data broadcast to countless airlines
Enables knowledge of price sensitivity
Not necessary to enter a contract
Requires divulging personal information prior to seeing a privacy policy
Kevin15
Total Consumer ImpactNDC would cause serious consumer harm due to loss of data privacy, higher
prices paid and increased industry costs passed on to the consumer
Privacy
Consequence of non consent drives significant negative consequences
Data broadcast to countless airlines
Enables knowledge of price sensitivity
Not necessary to enter a contract
Requires divulging personal information prior to seeing a privacy policy
Kevin16
Total Consumer ImpactNDC would cause serious consumer harm due to loss of data privacy, higher
prices paid and increased industry costs passed on to the consumer
Privacy
Consequence of non consent drives significant negative consequences
Data broadcast to countless airlines
Enables knowledge of price sensitivity
Not necessary to enter a contract
Requires divulging personal information prior to seeing a privacy policy
Kevin17
Total Consumer Impact
Higher Prices For Air Travel
System-wide fare levels not disciplined by comparison shopping
Ancillary fees not disciplined
Price discrimination against insensitive travelers
Tacit reduced competition among airlines
Travel agencies not offering airline pricing / policy discipline
Loss of robust interline options ($60 / 15%)
Airline new entry frustrated
Corporations not price disciplining through benchmarking
Higher consumer search costs
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
Kevin18
Total Consumer Impact
Higher Prices For Air Travel
System-wide fare levels not disciplined by comparison shopping
Ancillary fees not disciplined
Price discrimination against insensitive travelers
Tacit reduced competition among airlines
Travel agencies not offering airline pricing / policy discipline
Loss of robust interline options ($60 / 15%)
Airline new entry frustrated
Corporations not price disciplining through benchmarking
Higher consumer search costs
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
Kevin19
Total Consumer Impact
Higher Prices For Air Travel
System-wide fare levels not disciplined by comparison shopping
Ancillary fees not disciplined
Price discrimination against insensitive travelers
Tacit reduced competition among airlines
Travel agencies not offering airline pricing / policy discipline
Loss of robust interline options ($60 / 15%)
Airline new entry frustrated
Corporations not price disciplining through benchmarking
Higher consumer search costs
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
Kevin20
Total Consumer Impact
Higher Prices For Air Travel
System-wide fare levels not disciplined by comparison shopping
Ancillary fees not disciplined
Price discrimination against insensitive travelers
Tacit reduced competition among airlines
Travel agencies not offering airline pricing / policy discipline
Loss of robust interline options ($60 / 15%)
Airline new entry frustrated
Corporations not price disciplining through benchmarking
Higher consumer search costs
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
Kevin21
Total Consumer Impact
Higher Prices For Air Travel
System-wide fare levels not disciplined by comparison shopping
Ancillary fees not disciplined
Price discrimination against insensitive travelers
Tacit reduced competition among airlines
Travel agencies not offering airline pricing / policy discipline
Loss of robust interline options ($60 / 15%)
Airline new entry frustrated
Corporations not price disciplining through benchmarking
Higher consumer search costs
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
Kevin22
Total Consumer Impact
Higher Prices For Air Travel
System-wide fare levels not disciplined by comparison shopping
Ancillary fees not disciplined
Price discrimination against insensitive travelers
Tacit reduced competition among airlines
Travel agencies not offering airline pricing / policy discipline
Loss of robust interline options ($60 / 15%)
Airline new entry frustrated
Corporations not price disciplining through benchmarking
Higher consumer search costs
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
Kevin23
Total Consumer Impact
Higher Prices For Air Travel
System-wide fare levels not disciplined by comparison shopping
Ancillary fees not disciplined
Price discrimination against insensitive travelers
Tacit reduced competition among airlines
Travel agencies not offering airline pricing / policy discipline
Loss of robust interline options ($60 / 15%)
Airline new entry frustrated
Corporations not price disciplining through benchmarking
Higher consumer search costs
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
Kevin24
Total Consumer Impact
Higher Prices For Air Travel
System-wide fare levels not disciplined by comparison shopping
Ancillary fees not disciplined
Price discrimination against insensitive travelers
Tacit reduced competition among airlines
Travel agencies not offering airline pricing / policy discipline
Loss of robust interline options ($60 / 15%)
Airline new entry frustrated
Corporations not price disciplining through benchmarking
Higher consumer search costs
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
Kevin25
Total Consumer Impact
Higher Prices For Air Travel
System-wide fare levels not disciplined by comparison shopping
Ancillary fees not disciplined
Price discrimination against insensitive travelers
Tacit reduced competition among airlines
Travel agencies not offering airline pricing / policy discipline
Loss of robust interline options ($60 / 15%)
Airline new entry frustrated
Corporations not price disciplining through benchmarking
Higher consumer search costs
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
Kevin26
Total Consumer Impact
Higher Transaction Fees
New travel agency technologies
Airlines paid for content
Manually compiled MIS reports
Manual travel policy compliance tracking
TMC / agency workarounds
Corporate travel department workarounds
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
27 Kevin
Total Consumer Impact
Higher Transaction Fees
New travel agency technologies
Airlines paid for content
Manually compiled MIS reports
Manual travel policy compliance tracking
TMC / agency workarounds
Corporate travel department workarounds
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
28 Kevin
Total Consumer Impact
Higher Transaction Fees
New travel agency technologies
Airlines paid for content
Manually compiled MIS reports
Manual travel policy compliance tracking
TMC / agency workarounds
Corporate travel department workarounds
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
29 Kevin
Total Consumer Impact
Higher Transaction Fees
New travel agency technologies
Airlines paid for content
Manually compiled MIS reports
Manual travel policy compliance tracking
TMC / agency workarounds
Corporate travel department workarounds
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
30 Kevin
Total Consumer Impact
Higher Transaction Fees
New travel agency technologies
Airlines paid for content
Manually compiled MIS reports
Manual travel policy compliance tracking
TMC / agency workarounds
Corporate travel department workarounds
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
31 Kevin
Total Consumer Impact
Higher Transaction Fees
New travel agency technologies
Airlines paid for content
Manually compiled MIS reports
Manual travel policy compliance tracking
TMC / agency workarounds
Corporate travel department workarounds
NDC would cause serious consumer harm due to loss of data privacy, higher prices paid and increased industry costs passed on to the consumer
32 KevinKevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
33
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
34
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
35
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
36
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
37
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
38
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
39
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
40
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
41
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
42
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
43
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
44
IATA External Communications Strategy
Kevin
Seems Improbable!As over-the-top offensive as NDC appears, how will it not be utterly
rejected by consumers and regulators alike?
Make NDC as an IATA strategic priority to eliminate commoditized pricing
Ensure airlines only, closed-door strategic planning
Power forward with world’s most influential airlines & alliances behind it
Secure a binding resolution - (238 yeas, 2 abstentions)
Seek ATI from Transportation Department
Call it a technical standard when it’s really a new industry-wide business model
Spin personal information is on an opt-in basis
Be silent on the punitive consumer consequences of not opting in
Describe personalization and customization as the ultimate in transparency
Stress that comparison shopping among NDC-carrier offers is alive and well
Don’t mention massive costs that will be ultimately transferred to consumers
Emphasize that consumers are demanding personalization
44
IATA External Communications Strategy
Kevin
Upshots
Don’t need global deal to reduce prices to low-end of market – that is the problem, not the solution
Don’t need global deal on new business model to use customer ID data for pricing
To personalize offers for best customers you don’t need:
Horizontal competitor agreement Binding resolution
New business model ATI
Kevin45
AA-US Nexus With NDC
Merger directly connected to success of NDC
Going from 4 to 3 network carriers
US Airways long a maverick in distribution issues
- 2000, 2001 web fares (Orbitz) - 2006 full content agreement
To the extent the maverick gets swallowed by AA chances increase that no one will break rank
Chances of NDC success radically increases
45
Discussion
The End Of Transparency
Testimony of Dan Kasper from Transcript of American Airlines Bankruptcy Hearing – April 23, 2012
“ What ‘price transparency’ refers to is the fact that with the advent of the internet and internet search engines, suddenly any -- anybody with a couple of key strokes could search fares quickly and inexpensively and find out what the lowest fair available was.
The combination of the spread of low cost carriers and the ease of finding low fares had a dramatic effect on prices; that is to say, brought down prices pretty dramatically.
[Mr. Kasper then quan0fied the effects on fares of LCCs and price transparency.]
This exhibit shows what airline industry analysts called yield...So the 29.38 cents in 1979 and the 15.82 cents here are all calculated on the same 2011dollar. So it's -- it's real apples to apples comparison here…cents per revenue passenger mile is basically cut in half over this period between 1979 and the end of 2011.
Proof of what would happen if pricing transparency were undermined.
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