You will no doubt have seen at a travel agency or on board a plane the ubiquitous IATA logo. The International Air Transport Association (commonly known as IATA) has played a pivotal role in passenger aviation and air transport more broadly since its inception in April 1945. Both its supporters and detractors will agree that it has played a truly formative role in the growth and expansion of air transportation from the preserve of the elite wealthy traveller in the early to mid-20th century to an everyday, bus-like experience of today!
My blog post today will try to provide some insight into IATA by examining its history, its evolving mission to a tilt into the future for IATA given the dramatic de-regulation taking place in the industry today.
First some History.
Havana in April 1945 was the birthplace of IATA. It came into being after replacing the previous international agreement for air traffic – also called IATA which came into being in 1919 to manage the world’s first international scheduled flights. At inception, it included 57 member states from 31 countries based mainly in Europe and North America. Since then it has grown to over 230 members from 140 countries and is headquartered in Montreal, Canada. It’s early activities focused, understandably, on safety and technical issues. It’s first major success was the creation of the Chicago Convention created by the UN’s International Civil Aviation Organization (ICAO) which governs air safety and is largely still in place today.
The Rio Conference in 1947 was another major milestone in IATA’s history since it put in place many of the practices still common today: notably in 2 areas. First, interline agreements (handling passengers who fly on multiple airlines during one journey) and debt Settlement between airlines, largely arising from interlining, is handled by the IATA Clearing House, which commenced work in January 1947 and still exists today. Second, rules and accreditation for travel agencies who sell IATA member tickets was started in Rio too.
Changing technologies have played a crucial role in the expansion of IATA’s remit – as bigger, faster and more reliable aircraft were launched, demand for air travel grew dramatically between 1947 and the oil price shocks of the 1970s. As demand increased, automation and the need for standardization developed and again, IATA played a key role as developer of ‘best practice’ for the sector. As more airlines were launched, so too did competitive pressures and here IATA played probably its most controversial role – that of “price coordination“. In an agreement dating back to 1944, international fare prices were fixed through bilateral governmental agreements rather than through market mechanisms since many airlines remained state owned and could only operate bi-lateral routes. Governments offered IATA member airlines a special exemption from competition rules to enable this price fixing behaviour. This behaviour persisted even until today but has progressively been undermined by the simultaneous process towards “open” skies and the launching of airlines outside the IATA membership group. Immunity from competition rules was finally ended in the EU in 2006 and on transatlantic travel a year later. Australia was the last major IATA member state to end the exemption in 2008.
Unsurprisingly the emergence of “Open Skies” and greater competition has undermined the role of IATA as a price setting cartel. In response, IATA began to work on developing ticketing and baggage tracing technology, the former with SITA the industry’s leading IT service provider. SITA and IATA created the e-ticketing system that we all use today and led to the progressive elimination of paper tickets. They also worked together to create the bar-coded/RFID tagging system for baggage significantly improving baggage handling and on-time arrival.
Recently, IATA launched the Simplifying the Business (StB) initiative that focused on five areas: managing the new distribution channels for airline tickets; enhancing self-service options for passengers (check-in, boarding etc); passenger data/security and border control; further reducing baggage mishandling (currently around 1 percent of total bags handled to 0.5 percent); a new e-portal to handle more travel service transactions and sales – not just in air transport. StB is clearly an attempt by IATA to maintain relevance in the industry as LCCs such as RyanAir and AirAsia conquer the de-regulated skies and threaten IATA’s role in the industry.
The Future of IATA
With the dramatic changes in the industry, IATA needs to maintain relevance. The e-portal development as part of StB is a clear and potentially important development for the association. IATA e-Services as the project is called is based on another standard developed by the industry – the Electronic Miscellaneous Document (EMD). The EMD would act like an e-ticket does today – it would be an electronic transaction of non-airline services through travel agencies. Travel agencies are suffering very badly with the disintermediation of airline tickets through direct internet sales by the airlines and so the e-Services/EMD plan would enable them to offer customers complete travel services using one document – the EMD. Thus for example, customers would not need to have separate documents for limousine transportation to and from airports. The EMD could allow passengers to customize their journey, purchasing only the services they want, from fast track security to wifi access. And the travel agencies could handle all these services, maintain market intelligence and take advantage of more efficient billing and control.
A second area of growth for IATA is to compete with the three main global distribution service providers: Amadeus, Sabre and Travelport. These three companies handle flight sales and assigned “booking” or “confirmation” codes for all reservations. IATA’s New Distribution Capability (NDC) initiative aims to eclipse the other GDS providers. Currently when you buy a plane ticket using the internet, it uses a different programming language (XML) from that used by the GDS providers or travel agents (EDIFACT and TELETYPE). The aim of the NDC project is to build a common ‘language’ enabling IATA to set a new standard for ticket sales and distribution. This will give more IATA more control over distribution of not just airline services but potentially other transportation services too (rail, ship etc).
All in all, IATA is a resilient association. While losing its formal price fixing role, it has worked hard to maintain relevance in the industry and seems set to continue this in the years ahead.