Amadeus IT Group, the travel technology behemoth, recently held its Q1 2024 earnings call. At first glance, it was business as usual. Bookings growth was stabilizing after a post-pandemic surge, revenue per booking was robust, and the company reiterated its guidance for the full year. However, beneath the seemingly routine update, a tectonic shift might be on the horizon, one with the potential to redefine the travel distribution landscape.

The hint lies in the understated, almost offhand, mention of Expedia Group embracing Amadeus' NDC technology. This, in itself, is a significant victory. Expedia, as one of the world's largest online travel agencies (OTAs), has made a decision that carries enormous weight. Their choice to implement Amadeus' NDC platform is a resounding endorsement and signals a possible turning point in the industry's adoption of the New Distribution Capability (NDC) standard.

But the truly groundbreaking implication, seemingly overlooked by most analysts, is what this could signify for the future of direct connects. Direct connects, those bilateral links between airlines and OTAs, have long been a source of frustration for GDS providers like Amadeus. These connections, particularly common in the consolidated U.S. market, circumvent the GDS, affecting local booking volumes where Amadeus typically generates lower fees.

Direct connects are resource-intensive, demanding substantial investment and upkeep. Their effectiveness, therefore, hinges on high volume, typically attainable only with straightforward, frequent domestic bookings. This explains precisely why their impact on Amadeus' revenue, while evident in booking volumes, has been minimal thus far.

However, the adoption of Amadeus' NDC platform by a major player like Expedia raises a compelling question. Could Amadeus, armed with its sophisticated, scalable NDC technology, offer a more streamlined and cost-effective solution than direct connects, even in high-volume domestic markets?

An affirmative answer could be transformative. Amadeus has consistently presented itself as the "undisputed NDC aggregator," highlighting the advantages of its global reach, comprehensive servicing capabilities, and seamless integration with airlines and travel agencies. If they can convincingly demonstrate that their NDC platform can manage the complexity and volume of even the most demanding direct connect scenarios, the economic proposition becomes immensely attractive for both airlines and OTAs.

Imagine this: Expedia, instead of grappling with a network of separate direct connects with numerous airlines, utilizes Amadeus' NDC platform to access a vast array of airline content. This approach could potentially reduce complexity, streamline operations, and lower costs.

The benefits extend to airlines as well. They gain entry to Expedia's extensive customer base through a single integration point, diminishing their own technological burden and expenses. Moreover, Amadeus' NDC platform boasts advanced merchandising features, enabling airlines to dynamically bundle and market ancillary services, potentially leading to increased revenue.

The ramifications are profound. A transition away from direct connects and towards a centralized NDC platform could dramatically reshape the distribution landscape, solidifying Amadeus' role at the core of the travel ecosystem.

The Numbers Tell a Story

Amadeus estimates that direct connects in North America, primarily driven by one large OTA, impacted its booking growth by approximately 5% in both Q4 2023 and Q1 2024. This equates to roughly 10 million bookings per quarter.

Assuming an average booking fee of $5, these 20 million bookings represent a potential annual revenue of $100 million. While some of these bookings might be genuinely low-value and unsuitable for GDS distribution, a substantial portion could potentially be reclaimed by Amadeus if its NDC platform proves more efficient than direct connects.

This is a development worth monitoring closely. The Expedia deal is the first domino to fall. If other OTAs follow suit, we could witness a fundamental shift in distribution dynamics, one that dramatically reshuffles the deck in the travel technology game and solidifies Amadeus' leadership for years to come.

"Fun Fact: Amadeus processes over 2.9 million bookings daily, managing more than 90% of the world's scheduled airline seats."