EDIFACT Move Unveils United’s Continuous Pricing Strategy Impact

When United Airlines on July 26 announced it would remove in September basic economy fares from EDIFACT-connected channels, the industry seemed to take it in stride, with minimal to no public backlash. This was in contrast to American Airlines’ removal of fares from EDIFACT in April, which caused quite a stir among travel management companies and travel managers.

“I woke up and said, ‘Is this really news?’ ” said ZS travel and meetings manager Suzanne Boyan of United’s move. Boyan began using United fares offered through New Distribution Capability connections in April. “I guess I was not surprised because [United has] been talking about continuous pricing for a year, and they have had fares only available on the website. This is slightly different, they are flat-out removing them. But I see them as pretty similar, just different ways of phrasing the same thing.”

Multiple other sources noted that the move had been in the “rumor mill” for the past six weeks, and therefore wasn’t a shock.

Granted, removing basic economy fares, which make up a small percentage of corporate air tickets—for travel management company AmTrav, that figure is 3.4 percent, according to CEO Jeff Klee—differs significantly from removing what American said would be up to 40 percent of EDIFACT fares, to start. But Doreen Burse, United SVP of worldwide sales, in her memo to corporate clients and TMCs, alerted recipients that this would be the first of other distribution changes to be introduced “in the coming months.”

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The specifics of those changes remain speculative, but they could include additional fares, including those booked by corporate travelers, removed from EDIFACT, and the further addition of fares to the direct and NDC channels to allow for continuous pricing.

Continuous Pricing

The second part of that speculation could occur sooner rather than later. United is in the process of expanding continuous pricing for premium cabins for both domestic and long-haul flights, United VP sales strategy and effectiveness Glenn Hollister in July told BTN. “That will now be seen across the entire network,” he said. “It will roll out slowly, but it has the potential to be in any cabin on any flight in our network now.”

Indeed, some cited continuous pricing as a bigger issue for corporates than the removal of some EDIFACT fares.

“The continuous pricing [United is] doing which affects non-basic tickets is much more impactful right now and probably will continue to be more impactful,” Klee said.

Gant Travel Management president Patrick Linnihan agreed. “Continuous pricing at United has made NDC access at United as important as it is at American, because the NDC continuous pricing is absolutely disruptive,” he said. “So many of us have been using United NDC channels for mitigating the effects of continuous pricing for the past few months, so it shouldn’t come as a shock that they will remove basic economy from the marketplace.”

United uses continuous pricing for NDC and its direct channels, including its website and app. EDIFACT historically has allowed for 26 set fare classes, with no ability to set a price in between. Continuous pricing allows United to set fares at any point between them. That disparity between the channels is where some program friction can set in.

Klee gave an example of one EDIFACT fare set at $50 and the next step up at $90. If United wants to sell the seat at $70, it can do so only through direct and NDC-enabled channels. In EDIFACT channels, instead the fare would be bumped up to $90 because, $70 doesn’t exist there.

Corporate programs using both EDIFACT and NDC would see the new $70 fare. However, programs without direct or NDC access, would see the higher fare, “and that is what causes the friction,” Klee said, explaining that corporate travelers may find the lower fare on their own outside the booking tool.

The carrier introduced continuous pricing last year, and about 40 percent of revenue booked on United’s website, app or NDC-enabled channels now comes from continuously priced tickets, according to Hollister. That number is poised to increase as the airline expands its continuously priced offerings.

“I think what we will end up seeing is more and more … deviation from the GDS,” Boyan said.

“We do not know the timing yet, but there will come a point where it won’t be practical for corporate travelers to be booking United along with many other airlines through legacy booking channels,” said Klee. “If you look at the larger context of this move and other moves by American and other airlines, especially global airlines, it’s making it obvious that there is no turning back. EDIFACT’s days are numbered.”

Spotnana VP of strategy and partnerships Johnny Thorsen agreed. “Long-term, it doesn’t make sense to keep both NDC and EDIFACT live,” he said. “When we get [down] to 50 percent done in EDIFACT, it will probably accelerate. If anyone was doubting this would happen, this is probably the final indicator. … NDC solutions are already 10 years old. We’re seeing big moves on first-generation NDC right now, but I believe before the end of the year, we will see second-generation solutions emerging from some airlines. They will be much more advanced, technology speaking, and airlines will be able to make changes much faster. This is an important time to understand what it means and make it part of the buying strategy.”

Another possible future move regarding NDC could revolve around loyalty programs, suggested Garner consultancy head Cory Garner. That could include customers receiving better offers in the channels where program status is recognized, or an overall better product proposition, he said.

Continued Challenges

While TMCs might have anticipated last week’s United announcement, Garner nevertheless called some of them “complacent” regarding NDC.

“Both American and United have done the work with the GDSs to implement NDC, but yet, TMCs in large part are generally choosing not to consume that NDC content, despite the fact that for years, TMCs insisted upon NDC being in the GDS before they use it,” Garner explained.

“Well, now it’s there, and they are not using it,” he continued. “And TMC customers are paying more because of that. It’s a hidden tax … that is never broken out on a receipt. Whenever the EDIFACT price is higher than the NDC price, on every one of those tickets, the TMC customer is paying more for airfare than they should.”

AmTrav’s Klee said he’s seen companies begin to express more frustration with price differentials. “We were surprised in April at how many companies were willing to accept paying higher fares without a lot of anger or resentment about it,” he said. “Now, we are seeing a growing chorus of travel buyers who are tired of paying more than they need to pay.”

Linnihan noted few if any Gant clients in April were willing to turn on American’s NDC channel, but now he is seeing a “deeper understanding of what the impact of NDC is and seeing more movement and interest in adopting it.”

“There are lots of different fingers being pointed,” Klee said. “Buyers don’t care where the content comes from, they don’t care what the technology is under the hood, but they want the best fares and the best capabilities.”

Boyan does not disagree. “Any buyer should be looking long and hard at the value of their program and where that value is coming from,” she said. “What the airlines have done is quickly diminished the value of the travel management company and the OBT. A lot of us are taking a long, hard look at programs and figuring out: Do we have the right partners? Do we have the right tech stack to bring value to our companies? If I’m not bringing the right suppliers, vendors, partners, then I’m not going to have a job. And I am not going to be written out of this, I can tell you that.”

Donna M. Airoldi www.businesstravelnews.com