The global airline industry operates like a massive, complex machine, with its roaring engines symbolizing vitality and progress. Yet beneath this surface lies an undeniable reality: compared to other sectors, airlines have long struggled with thin profit margins. This challenge became particularly acute during the global pandemic. High capital expenditures often constrain carriers from focusing on operational efficiency and innovative business expansion.
To break these constraints and unlock greater investment potential, the industry must urgently transform. In an era where environmental responsibility grows increasingly important, airlines that enhance their retail capabilities will undoubtedly become more attractive to investors while better addressing profitability, customer satisfaction, and sustainability requirements.
The Imperative for Airline Retail Transformation
1. Margin Pressures: Retail as a Path to Profitability
The airline industry has consistently faced profitability challenges. High operational costs, intense competition, and external uncertainties pressure earnings. Traditional ticket sales models often rely on intermediaries, leaving carriers with limited control over pricing and product offerings, thereby squeezing profit margins.
Retail transformation offers airlines a viable path to improved profitability. By selling directly to customers—both tickets and ancillary services—carriers gain greater pricing control and can offer personalized products. This approach also reduces distribution costs and enhances operational efficiency.
2. Evolving Customer Expectations: Personalization Drives Loyalty
As consumers increasingly demand personalized experiences, traditional ticket sales models fall short. Travelers now expect to customize their journeys, selecting preferred seats, baggage allowances, meals, and other services. Conventional distribution channels often lack the flexibility to meet these expectations, leading to diminished satisfaction.
Retail transformation enables airlines to better understand and serve customer preferences. By analyzing purchase behavior and travel patterns, carriers can offer tailored itineraries. Personalized experiences boost satisfaction, foster loyalty, and ultimately drive revenue growth.
3. Technological Enablers: NDC as the Foundation
The New Distribution Capability (NDC), developed by the International Air Transport Association (IATA), represents an industry standard revolutionizing how airlines distribute products. This XML-based technology allows carriers to directly offer services via APIs to travel agencies, corporate clients, and consumers. NDC provides greater flexibility and control over product management, pricing, and distribution channels.
NDC serves as the technological backbone for retail transformation. By adopting this standard, airlines can reduce reliance on traditional distribution channels, establish direct sales platforms, and forge stronger partnerships. The technology also facilitates product differentiation and richer service offerings.
4. Sustainability Demands: Aligning Retail with Environmental Goals
Amid growing environmental concerns, airlines face mounting pressure to reduce emissions, improve fuel efficiency, and promote sustainable travel. Retail transformation can support these objectives.
By offering eco-friendly options—such as flights with higher fuel efficiency or carbon offset purchases—carriers can encourage sustainable choices. Retail optimization also enables better flight planning, reducing empty seats and lowering emissions.
Current State of Airline Retail Transformation
According to T2RL consultancy data, approximately 10% of global airlines (117 carriers) have initiated retail transformation using NDC as their starting point. Early adopters report significant benefits in both cost control and revenue growth, with cumulative gains reaching billions of dollars. Airlines also note substantial improvements in customer loyalty.
Despite these advances, the industry's transformation remains in early stages. Many carriers still depend on traditional distribution models and lack NDC expertise. Comprehensive retail transformation requires organizational restructuring, process redesign, and technological upgrades—challenging hurdles for numerous airlines.
Future Trends: The Path to 100% Offer and Order
The industry will gradually transition to a 100% Offer and Order model, where airlines dynamically generate pricing and service bundles based on real-time customer needs. This approach enables personalized offerings and rapid market adjustments—key to sustainable profitability.
Industry divergence will likely intensify: airlines embracing NDC will reap efficiency gains and value creation, while those clinging to traditional models may face rising costs, limited value generation, and inability to meet customer expectations. Retail transformation has evolved from an option to an imperative for survival and growth.
Strategic Shifts: Reclaiming Distribution Control
Early NDC adopters typically pursue distribution freedom—regaining control over product creation and sales channels while offering travel sellers more content connection options. This autonomy fosters innovation across the sales ecosystem, enabling new business models only possible through digital distribution.
Product and channel control emerge as core competitive advantages. By managing these elements, airlines can better oversee pricing strategies and adapt to market changes—foundations for sustainable profitability.
Lowering Barriers to Adoption
Efforts to simplify NDC implementation focus on optimizing core technologies for airlines of all sizes, enabling rapid deployment without complex, costly projects. Standardizing connection processes with major distributors, aggregators, and sellers allows new adopters to quickly establish partner networks. The vision involves creating an open, collaborative NDC ecosystem benefiting all participants.
Technology Roadmap: AIDM as the Foundation
NDC represents the most viable first step toward Offer and Order transformation, though some airlines may choose alternative paths. The Airline Industry Data Model (AIDM) serves as the technical cornerstone, ensuring solutions align with industry standards and integrate seamlessly with existing systems.
Comprehensive retail platforms support NDC standards while offering functionalities including ticket booking, ancillary sales, customer management, and dynamic pricing strategies. The transition to new technical architectures requires careful planning to maximize benefits.
Industry Outlook: Retail-Driven Growth
As more airlines derive greater value from enhanced retail capabilities, the industry will achieve higher returns, attracting increased investment and enabling long-term sustainable profitability. Retail transformation extends beyond technology upgrades to encompass business model reinvention and value chain optimization.
Success in today's competitive marketplace demands embracing change. Airlines must adopt new technologies, redesign distribution models, and strengthen retail competencies to secure their futures. Industry leaders continue developing solutions to support this digital transformation, collectively advancing toward a more prosperous aviation sector.