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.