by Livia Vite
Touted as a solution that brings travel retailing to network carrier airlines for their indirect distribution channel, discussions around the successful implementation of the New Distribution Capability (NDC) standard from the International Air Transport Association (IATA) lacks an essential element: How airlines will get paid.
There is a remedy: Ensure that you implement a B2B payments strategy as part of your NDC implementation. Here’s how.
B2B payments are missing from New Distribution Capability (NDC) discussions
To their credit, IATA has always recommended that NDC be implemented along with a solid payments strategy. Insofar as the standard brings the “direct to consumer” low-cost carrier retail model into the travel intermediary space, the NDC launch has been successful in getting airlines to think about payments.
However, the NDC-driven conversation has focused on B2C payments, even though NDC is designed for indirect distribution via online travel agencies (OTAs), traditional travel agencies, and other travel intermediaries, which are B2B payments and not direct distribution to consumers. So when airlines are thinking about payments in NDC, they need to be thinking about their B2B payment strategy with travel intermediaries, which will help drive their indirect distribution strategy.
Travel suppliers must implement a B2B payments strategy in support of OTAs
Flexible and secure payment options for paying suppliers are a necessary component for any OTA or other travel intermediary that wants to provide a great traveler experience. Similarly, any airline looking to expand its indirect distribution methods by working with travel intermediaries also needs a robust B2B payments strategy that offers B2B payment choice.
While the NDC standard doesn’t need to change, carriers that wish to use NDC to evolve their indirect distribution must make sure they have a B2B payment strategy that will meet the mutual needs of their OTA and travel intermediary partners.
The growing importance of retailing and indirect distribution
The voluntary NDC standard was launched a decade ago to help airlines retail to OTAs and other travel intermediaries which in turn allow those intermediaries to provide better travel retail services to end travelers.
IATA describes NDC as “a data exchange format based on offer and order management processes for airlines to create and distribute relevant offers to the customer regardless of the distribution channel.” Essentially it addresses what was then the industry’s current distribution limitations: product differentiation and time-to-market, access to full and rich air content, and a transparent shopping experience, according to IATA.
Adapting the airline industry to a retail model has been a huge transformational project of the past decade. Modernization efforts vary across carriers, but the impact of COVID-19 has accelerated airlines’ focus on the personalized experiences for end-travelers like tailored fares, products, and payments (on the ground and inflight) that have become expected by travelers.
OTAs and other travel intermediaries already moved to a retailing model many years ago as travelers expected the same kind of quick, simple, and easy online retail experience from travel as they do from buying on Amazon.
NDC enhances the ability of a travel intermediary to sell on behalf of an airline as it nurtures those kinds of seamless, enjoyable customer experiences. This can only benefit all in the travel value chain from the traveler to the travel intermediary to the travel supplier.
Many airlines and hotels are now fueling growth through indirect distribution by selling through OTAs and other travel intermediaries. In fact, the largest travel intermediaries have become so important in the travel distribution ecosystem that, pre-COVID, our review of company performance reports shows the top players were each processing in the order of $100B in total travel volume annually.
In a recent research report, Travel Retailing: The Shift to the Merchant Model that is Redefining B2B payments and Distribution Strategies, we show that the benefits of indirect distribution have existed for a long time, but recent world events, evolution in customer expectations from e-commerce, and the pressure on the travel industry from the global pandemic have accelerated the trend for travel agencies to adapt to changing customer preferences.
Our report found:
- Adoption of the merchant model is increasing around the globe, including in the USA.
- In the merchant model, the travel agent takes the booking and also processes the end traveler’s payment, becoming merchant of record on the inbound consumer payment and therefore needing to make separate outbound payments to each supplier in the booking.
- Travel agencies can choose to accept any locally used form of payment in any currency from the traveler, thus avoiding their reliance on usually limited forms of payment accepted by the supplier.
- The merchant model is a better way to manage payments and enable the high-touch experience sought by end travelers. As a result, many of the world’s largest travel agencies are using it. In some cases, suppliers and agencies work together to incentivize traveler choice and agency payment. OTAs that work with WEX virtual cards for B2B payments under the merchant model can return these benefits back to suppliers.
Now it’s time to take the last step and include methods for how OTAs pay travel suppliers that support their ability to meet traveler needs throughout a dynamic and always changing travel offering.
Benefits for travel suppliers from indirect distribution
While selling direct is still very important for most suppliers, indirect distribution – essentially selling through OTAs and other intermediaries – can deliver a wide range of benefits to hotel operators, airlines, car rental companies, and other travel suppliers such as increased demand, improved efficiencies, and reduced risks. According to a McKinsey report, the airline industry can capture $40B in additional value, with a potential of up to $7 per passenger or the equivalent of approximately 4% of revenue.
Many of these benefits are only available or optimized when travel intermediaries adopt the merchant model. The key benefits of indirect distribution to the supplier are:
- Expand geographic reach into new markets, and benefit from the travel agency’s local brand awareness and regulatory expertise
- Fill capacity through additional demand generated via travel agencies
- Advanced fraud management capabilities as airlines will no longer be able to issue agency debit memos (ADMs) to recover costs of fraud if agents redirect consumers directly to the airline’s payment portal in NDC. This is significant, as IATA research found in 2018 that the airline industry suffers a 1.2% loss of revenue annually to fraud.
- Better traveler experience and loyalty via trip packages, multiple trip components, cross-selling, and up-selling
- Change management and efficient after-sale servicing of customers
Adoption of indirect distribution is generating returns. For example, one international airline executive is quoted in our Travel Retailing report, “We see strong use cases for direct model and for the indirect model. In addition to reaching away markets, we definitely see value in the reach and the servicing piece as well. Agents play an important role in terms of not only promoting our brand but also the availability of services they can book with [us].”
Airlines that connect their indirect distribution and payments strategies will be better positioned for growth
Linking distribution and payments, to give travelers a better payment experience, has long been a priority for airlines’ direct distribution. Many airlines have invested in payment choice, as well as payment security like 3DS and SCA.
That same connection needs to be made between indirect distribution and payments, as it becomes even more important when travel agents are added into the mix. Especially since we have seen OTAs demonstrate an ability to adapt to change and react to consumer demands in the post COVID world, making the customer experience even more seamless. As with direct distribution, payment needs to be treated as the last step to enabling distribution.
IATA has the industry talking about payments, and with NDC this needs to be about B2B payments. It’s important for airlines to work with agents and intermediaries to create a B2B travel payments strategy that complements their B2C one. WEX is seeing more innovation in B2B travel payments between our OTA customers and travel supplier partners. This makes B2B payment choice a critical element to a successful B2B payments strategy.
Travel supplier distribution and payments must be aligned, symbiotic, and connected
Choices made by key players in the value chain affect the entire value chain.
The choice between agency model and merchant model delivers different options and outcomes for the whole travel value chain, from end travelers through to travel suppliers.
B2B payment choice must be a critical part of any airline’s B2B payment strategy to truly deliver the benefits of travel retailing via their travel intermediary partners
Airlines and agencies must work closely together to continue to find solutions that work for both their businesses as well as the traveler. WEX facilitates the establishment of many mutually beneficial solutions with our OTA and intermediary clients and their suppliers to ensure a sustainable model that benefits all parties.
The industry is ready. In fact, payments was named as a high-priority topic for 2022 in last year’s IATA DDRS conference. Let’s be sure that we work together to consider all payments related to distribution, including both B2C and B2B.
Learn more about how WEX Travel enables travel agencies and intermediaries to effectively and securely pay suppliers all over the world to ensure a modern and seamless experience for end travelers, and business growth for themselves.