Destination Blockchain: Shaking Up Travel Industry and Cutting Costs

Published at: July 1, 2020

The word “blockchain” is no longer perceived as something exotic and super innovative, partly because large companies have found various uses for this technology and customers have begun to understand how it works. On the other hand, the growing adoption and awareness of blockchain has led to the fact that since 2017, many projects have used the technology solely for marketing purposes. The tourism industry is no exception.

Some of the initiatives related to the use of blockchain for traveling failed to materialize, with some cases proving that the majority of decentralized travel projects had nothing to do with the real application of blockchain in tourism. For example, the startup Beenest promised to build a middleman-free, decentralized network of hosts and guests during an initial coin offering. The project appears to have been abandoned, according to comments left by users on the project’s official subreddit.

Meanwhile, the experience of other companies has shown that blockchain is still an immature technology and is inferior to more traditional ones. For example, decentralized platform FlightChain — which logged more than 2 million flight changes between British Airways, Geneva Airport, Heathrow Airport and Miami International Airport — turned out to be more difficult to use than cloud-based data services.

The good news is that there are solutions that are recognized by large travel companies as promising and are being adopted at the state level, primarily relating to air travel and the hotel industry.

Eliminating intermediaries and agent fees

According to a report published by SITA, a provider of air transport communications and information technology, 59% of airlines are implementing pilot or research projects with the goal of integrating blockchain into their internal processes by 2021. Along with the airlines, airports continue their experiments: 34% of them are planning to finalize research and development in this area by 2021. A survey conducted by consulting company Accenture in 2018 showed that 86% of aerospace and defense companies planned to implement this technology within the next three years.

And here, blockchain can be used for a wide range of purposes — from identifying passengers to selling tickets, tracking luggage and managing loyalty programs. Each of these use cases enhances the collaboration between industry stakeholders.

Today, air carriers and airports are getting increasingly fed up with siloed data and multidepartment infrastructure. The biggest obstacle to comfortable, efficiently organized passenger transportation is the isolation of the work processes of airlines, airports, ground handling specialists and regulatory authorities. Delayed flights or overbooking — the consequences of this management model — can cost companies tens or even hundreds of thousands of dollars. So, how can blockchain attempt to solve this problem?

The way out is eliminating the middlemen by deploying a peer-to-peer network. For example, S7 Airlines, one of the largest Russian air carriers, issues and sells tickets through blockchain technology. More specifically, it uses a private blockchain based on the Ethereum protocol that uses smart contracts to exchange data between parties, reducing the settlement time between the airline and agents from 14 days to just 23 seconds. The platform is being actively used now, and according to the data revealed by S7 in 2019, the monthly volume of transactions processed through the blockchain exceeds $1 million.

S7 Airlines became the first air company to deploy blockchain infrastructure to make payments from start to finish — from the ticket booking system to the bank’s payment system. In a press release, S7 noted that the introduction of the platform allowed it to increase the transaction speed and reduce paper workflow while guaranteeing the safety of operations. Jennifer Willy, the editor of Etia.com — a platform that provides the travel community with the latest travel-related information and education — told Cointelegraph:

“Blockchain tech has resulted in a reduction of transaction costs up to 20% for consumer ticket bookings. Several airline companies including Air New Zealand has employed this tech, which has resulted in preventing over boarding, simplification of the process, and quick & secure payments.”

Last year, Hahn Air, another airline company, also issued airline tickets in collaboration with Winding Tree, a blockchain-based travel distribution platform, and has already conducted its first flight using such tickets. Through the Winding Tree platform, Hahn Air is said to list inventory, manage booking requests and accept payments. Winding Tree has also entered into agreements with numerous well-known airlines, including Air Canada, Air France-KLM and Lufthansa along with its subsidiaries Eurowings, Swiss Air Lines, Swissport, Brussels Airlines, Austrian Airlines and Air New Zealand.

Winding Tree also found a way to bypass commissions taken by hotel services. The team says it has created a specialized blockchain platform that allows people to conduct transactions without incurring third-party fees. Despite the fact that some transaction costs remain, they are not comparable with those in today’s services such as Expedia, Booking.com and Airbnb, where agency fees can range from 10% to 30%.

Last year, Hobo Hotel in Stockholm, a member of the Nordic Choice Hotels group, completed a booking on a public blockchain, conducting the first transaction through Winding Tree. Additionally, tourist giant TUI moved all of its contracts onto a blockchain even earlier. Its BedSwap project created back in 2017 helps hotels with extra inventory and allows all authorized parties to track real-time prices and work directly with the hotelier. Such a system removes the need for intermediaries such as Expedia and, therefore, becomes cheaper for both parties.

Flight delayed or overbooked? Blockchain compensates

French insurance company AXA began to use blockchain back in 2017 to automate the compensation payment process for passengers whose flights are delayed. When a customer signs up for flight-delay coverage at the insurance company, its “fizzy” platform creates a smart contract and connects to global air traffic databases. If a delay of more than two hours is recorded, compensation is provided automatically, eliminating the need to file a claim and reducing the processing time of the application.

In order to make the overbooking compensation experience smoother, software developer Volantio launched its so-called “Flex-Schedule” program. The solution is now used by United Airlines and helps to resolve instances where a passenger is removed from a flight due to the number of passengers exceeding the number of seats.

In cases of overbooking, the system automatically selects flexible clients — those for whom a flight change is less critical — sends them compensation, and allocates them a new flight. This, in turn, maximizes profits for airlines, allowing them to sell highly profitable seats to last-minute passengers.

Known Traveller Digital Identity

The hours spent waiting at the airport and customs clearance can cast a shadow over any trip, but Accenture came up with a digital passport for travelers. Canada and the Netherlands were the first countries to agree to apply this system at their airports, with cooperation agreements reached with Air France-KLM and Air Canada, among others. It was reported that the blockchain identification system developed by Accenture will allow travelers to inform customs and border control about their route and biometric characteristics in advance.

A blockchain will store the traveler’s personal and biometric data, and the status of a “known traveler” will be obtained through the accumulation of attestations or requests that are confirmed by trusted partners, such as border agencies and airlines. It is expected that the new data identification system will significantly reduce the time spent at the airport. Norbert Goffa, the executive manager of ILCoin — a scalability-focused blockchain startup — told Cointelegraph that such solutions can be important given the rapidly growing volume of air travelers:

“World airlines carry more than 3 billion passengers annually and the industry’s annual profit exceeds $600 billion. Analysts predict an increase in passenger traffic by 50% in the next 10 years, which means that companies will face the need to optimize their business processes through automation and technology adoption. The experience of world companies in using the blockchain has shown that this technology has great potential for simplifying the exchange of data between participants.”

Dubai International Airport uses blockchain, but in a slightly different format, as the Dubai’s General Directorate of Residency and Foreigners Affairs, or GDRFA, has signed a contract with the British startup ObjectTech to install biometric tunnels.

This technology is designed to reduce long lines at the airport upon arrival into the United Arab Emirates. It will be possible to register in the country with the help of a preapproved and fully digitized passport, which includes an electronic chip, fingerprints, a scanned aperture and face scan data. Face scanning will be carried out using LIDAR technology, which is already used in autonomous vehicles in Dubai. GDRFA has already launched the “Emirates Smart Wallet” program, which allows passengers to pass through border control using smartphones rather than the traditional passports.

Another blockchain initiative is “Smart Path,” which has been used at the Orlando International Airport to enhance the air travel experience since 2018. The solution combines distributed ledger technology and biometrics to reduce the number of documents necessary for passenger identification.

Get rewarded

Almost every traveler has several airline or hotel loyalty cards at once, but according to a survey conducted by Colloquy, 28% of travelers leave these programs without using their accumulated loyalty points. Having a large number of cards may turn into a burdensome process that requires constant monitoring of promotions, using hard-to-remember codes and so on.

Businesses can move their loyalty programs to the blockchain to reduce costs. Some U.S. companies can spend up to $35 billion per year on such programs, and the introduction of cryptocurrency-based bonuses that are distributed automatically can entail significant savings.

A real-world example of this scheme is a blockchain-powered loyalty program offered by Singapore Airlines that allows its clients to spend their air miles at stores. The company became the first carrier in the world to launch a digital loyalty wallet, dubbed “KrisPay,” based on blockchain technology. By downloading the KrisPay app, users can convert their KrisFlyer miles to KrisPay miles, make purchases with the KrisPay QR code, and choose the number of miles to be used. At the moment, 18 sellers from various industries are working with the platform.

Similarly in 2016, Loyyal used blockchain tech in a universal loyalty system that allowed hotels and air companies to offer their clients more favorable reward programs and reduce costs associated with account reconciliation and payment management. In February, the company signed a three-year production vendor contract with The Emirates Group. In a conversation with Cointelegraph, Evan Luthra, an Influencive “Top 30 Under 30” tech entrepreneur and blockchain expert, noted the smooth experience offered by blockchain-based loyalty systems:

“As someone who spends hundreds of nights every year in Hotels and flights, I see tremendous opportunities for the payments and points systems in use by various different companies coming together to work with each other using Blockchain. Travel is already heavily impacted by Blockchain Technology and we will see a much smoother, faster and overall better experience for the customer.”

So, is blockchain scratching the surface of tourism?

Blockchain has great potential in tourism and is already being used to improve the travel experience. Easy-to-access and low-cost decentralized business models can make it an attractive alternative to traditional systems, with the elimination of middlemen being one of the key benefits.

On the other hand, blockchain still needs to address several serious issues before reaching widespread adoption, such as personal data storage and identification, which can become a stumbling block because in case of improper management, the information can be accessed by third parties. Ian Khan, the director of the documentary Blockchain City, told Cointelegraph that the use of blockchain in tourism has not even scratched the surface:

“The global tourism industry is a multi-trillion dollar industry that has multimillion-dollar inefficiencies and the opportunity for technology companies to create efficiencies and enable seamless financial transactions, and transparency is in the billions. Startups and technology companies with a good value proposition must look at the complexity of how various segments within travel work, and how they can be helped.”