FOLATUR: NDC continues with market fragmentation and discretionary charges

The passenger air transport market has witnessed progressive concentration at a global level, partly exacerbated by discretionary state aid triggered by the pandemic, partly facilitated by previous authorizations of Joint Business Agreements (JBA's), which allowed coordination in all operational, commercial and financial aspects to the airlines involved. The creation of dominant networks has always been the main objective of the big incumbent players, so that their challenge for new entrants in the sector becomes more difficult.

A welcome technology upgrade through New Capacity Delivery (NDC) is not acceptable when your goal is to kill the competition without competing.
Technological advances have facilitated the direct distribution of air transport tickets by airlines, as well as making it possible to efficiently aggregate the widest range of tickets in a single instance, independent of the airlines and for the benefit of the end consumer. Global Distribution Systems (GDS) and other aggregators are an example of the latter.
 

But it was in the implementation of the NDC that the questioned behavior pattern of the big airlines was manifested again: instead of making the market deeper and wider through the NDC, they are now trying to use this new tool to fragment the markets and drastically reduce the pro-competitive role played by indirect distribution.
 

The latter, which facilitates the entry of new players, faces partial access to the content of the incumbent airlines, charges for the alternative use of GDS and even differentiated prices via NDC. From a global market that today shows all the alternatives, they want to make the consumer deal with a sum of separate parts, difficult to compare and even more difficult to reconcile in effective transactions.
 

IATA Resolution 787, which gives rise to the NDC, refers to “a process to develop a technical standard for the exchange of data on the market using Extensible Markup Language (XML)”.

But, in practice, what is taking shape is not a single marketplace, but several that are separated from each other and simultaneously privileged by each of the vertically integrated incumbent players. Therein lies the central problem that consumers and independent distribution chains face today: they seek to artificially separate markets and thus increase the dominance of already consolidated existing networks, putting an end to independent distribution that seeks precisely to make room for the new entrant and offer the consumer everything that is available in all air players.
 

Which destination has a distribution channel that cannot access all of the airlines' inventory, which is discriminated against by charging fees for using the global GDS, which today cannot technologically deliver the after-sales of airline tickets under the NDC's purview, but manually and that you could even find different prices depending on the distribution channel? What is the fate of a distribution channel whose costs rise at the discretion of those who compete with them and whose service declines due to not having full access to the
available offer?
 

The airlines, having already drastically reduced the distribution commissions that they previously paid to the independent channel, will end up getting all these additional costs referred to to be passed on to end customers. And it is the latter that would have lower direct tariffs “free of distribution costs” compared to those that could be offered by the independent channel, which has had to assume all the real costs that have been discretionarily linked to it.
 

Thus, we are facing artificial ways of generating a cost differential that will end up destroying the independent distribution channel. So you don't compete on an equal footing with independent distribution, but through all these uneven competitive paths, the established airlines seek to overrule it. They kill the competition without really competing.

Violation of the US Department of Transportation's letter and spirit of approval of IATA Resolution 787.
On August 6, 2014, the United States Department of Transportation (US DOT) approved IATA Resolution 787, which gave rise to the New Distribution Capacity (NDC). Among its most important principles, IATA held that the NDC "Facilitate a transparent display of the products offered and their comparison, benefiting the consumer", that "All data would be distributed through all channels, subject to the terms and conditions determined by the airline delivering its content” and that “Any cost attributable to this new business model, from information technology research to its development and implementation, would not be borne by Members who did not wish to adopt it”.
 

One of the essential conditions that the US DOT established in said approval was that, "The approval of Resolution 787 does not constitute an approval of any agreement between IATA members regarding any method or business model of air transport distribution, nor a restriction on the the use of any available channel for air transport distribution, including indirect distribution by actors other than airlines. The approval of Resolution 787 is limited to the creation of an XML communication standard that will allow individual airlines to improve distribution of its products.

Well then, the progressive implementation of the NDC has systematically violated the letter and spirit of said approval, given what has happened in recent years:
 

-Lufthansa, a member of Star Alliance, started charging US$ 16 per ticket to use the GDS on 09/01/2015, which today ranges from US$ 17.5 to US$ 23 per ticket, depending on the GDS used .
-Avianca, a member of Star Alliance, started charging US$ 8 per segment to use the GDS on 04/01/2022 and, as of this year, charges US$ 8 per segment.
-COPA Airlines, a member of Star Alliance, started on 09/01/2022, a charge of US$ 12 per segment for using the GDS and from 04/03/2023 increased this charge to US$ 18 per segment. Additionally, it restricted the GDS's access to its inventory, leaving some of its content for exclusive direct distribution.
-Air France KLM, a member of Sky Team, currently charges $19 each way to use the GDS.
Iberia, a member of One World, started on 11/01/2017, a charge of US$ 10 per segment for the use of the GDS; currently charges $14 per segment on flights within Europe and $19 per segment on flights to and from Europe.
-On 4/1/2023, American Airlines, a member of One World, initiated a new direct ticket sales strategy that openly restricts independent distributors to only partial access to its fare inventory, protected by the market power of its network aerial.
-On May 1st, LATAM, which does not formally belong to any airline alliance, but has among its shareholders Delta, a member of the Sky Team and with which it has a JBA for traffic between North America and South America, the Qatar Airlines, a member of A One World and whose indirect subsidiaries British Airways and Iberia, maintain code share agreements with LATAM, for traffic between America and Europe, informed that it would launch NDC by LATAM which, among other features, would charge US$ 12 by way of use of the GDS
and would reserve the right to restrict GDS access to all of its inventory.
 

The anti-competitive objective of all these conducts by IATA members, indistinctly associated with the three airline alliances and under the JBA agreements, is evident, covering all the major international markets, discriminating against the independent distribution channel and, ultimately, to the detriment of of consumers. By fragmenting markets and penalizing independent distribution by using open GDS platforms, where consumers can compare all alternatives and refine their purchases in real time, it seriously reduces the range of possibilities that until now existed for it and increases the incumbent's market power.
 

The letter and spirit with which the US DOT approved the aforementioned resolution are far from being respected, with the dangerous consequence of consolidating and in fact protecting the incumbent airlines that have already managed to create an air network that is difficult to challenge, by gradually suffocating the independent distribution channel. The latter is now faced with the alarming dilemma of sacrificing the use of open GDS platforms in order to access the inventory of incumbent airlines, operating exclusively through the NDC, which are precisely those with the most extensive networks already consolidated. The independent channel, which is the greatest facilitator for the commercial penetration of new challengers and which expands the possibilities of consumers,
 

Shielded by the pandemic or other circumstances, JBAs were approved, the consequences of which we are now seeing and which are only going to become more negative with the introduction of the NDC in its current form, since the apparently uncoordinated action of many airlines has always gone in just one direction. And this has been persistently contrary to the interests of the consumer.
 

The competition authorities will have to review the entire scenario of the national and international air markets, including eventually the cancellation of past authorizations for JBA's and distribution technologies, such as the implementation of the NDC, which, instead of deepening markets, seek to fragment them . Air markets are clearly being sacrificed to the eyes and patience of any observer.