CHALLENGES

After an initial surge of excitement several years back, reality has now set in. The actual limits of blockchain have become apparent. The key to making the technology successful will be to manage expectations [8], understanding where it can be used effectively and where it can’t. The technology's comparative advantage over what travel managers currently use remains unproven.

Five years ago, the TUI Group executive chairman Fritz Joussen [9] said: “Blockchain can break the near-monopoly control of reservation data by a few giant agencies and global distribution services.” In 2022, this has yet to happen at scale. Systemic change is needed. Right now, niche uses are likely to remain as such.

The corporate travel sector is a marketplace full of vendors - airlines, hotels and customers with the TMCs in the middle. If you want to drive change with blockchain infrastructure, you need to drive change in the marketplace.

Ilan Twig, TripActions Co-Founder and CTO

CONTACT REED & MACKAY

SUCCESS DEPENDS ON COLLABORATION AT SCALE

Many blockchain solutions work best when there is collaboration and adoption at scale. A vision is therefore being touted by blockchain providers [10], where buyers and suppliers deal directly with each other, working with each other’s extended network, based on a common framework, without layers of intermediaries each taking their fee and controlling data.

Industry consortiums could be the most likely vehicles for collaboration on blockchain at scale, since they have the ability to define fees for use more democratically. If private companies are deploying distributed-ledger technology at scale then travel industry players could be held to ransom and deal with the same fee issues and controversies currently experienced.

Consortiums are observed within other sectors. For instance, 20 of the world’s biggest insurers – including Zurich, Hannover Re and Allianz – are part of B3i, a blockchain working group for the insurance industry. They are asking the same questions about blockchain, around use cases, that the travel sector is doing [11].

When utilising blockchain, travel businesses will also need to collaborate and compete at the same time. Therefore, democratic structures hold more potential. There are already organisations trying to do this, such as the Swiss-based organisation Chain4Travel [12], which has transferred the entire intellectual property rights, as well as its financial reserves, to a dedicated foundation. The blockchain will be operated and managed by travel industry partners; no single interest prevails here.

We're following developments around travel-related, blockchain-based use cases closely and with great curiosity. We strongly believe these will eventually scale and that decentralisation and tokenisation will create opportunities for new, successful business models.

- Johannes Walter, Lufthansa Group Head of Channel Partners

CAN BLOCKCHAIN OFFER SOMETHING BETTER THAN CURRENT SOLUTIONS?

Advantages of blockchains are often oversold, because blockchain demands consensus. They can be slow and complex to build, as well as reconcile. Building applications that conduct financial activities and distribute content on top of a blockchain can also be tricky.

The overheads and administration involved in moving a lot of data between all participants, means the use of blockchain is less efficient than centralised databases. This problem gets worse as the number of users rises. Many systems already exist in travel management that reconcile data efficiently and quickly across the globe.

Take airline operations for example. The systems are complex [13], requiring many partners, given the scale of existing platforms. Any shift to something new will take a long time. This has also been the issue for many other industries.

The current middle-men of the travel industry, the major global distribution systems (GDS), have been around for nearly half a century or more. Their systems took decades to develop. Replacing these with blockchain solutions will not be easy.

Also, many singular private companies are trying to develop blockchain technologies. They will themselves decide on the fees they will charge for its use. This has the potential to replicate similar issues experienced in the past with other intermediaries.

The middle-men over the last two decades have grown more powerful in the travel industry. Does the adoption of blockchain technology, that is not consortium-led, lock travel players into a new class of providers that will determine fees?

We see great potential in engaging in a new type of relationship with our customers. We're currently in the very early stages of experimenting and learning and really want to understand the native aspects of the blockchain space, to create long-term value for our customers and partners that aligns with our brand strategy.

Johannes Walter, Lufthansa Group Head of Channel Partners

REGULATION AND TECHNICAL CONCERNS

There are other issues including a lack of technical inter-operability, security red flags, multiple data management and regulatory concerns. For instance, GDPR – the EU and UK’s general data-protection regulation – gives individuals the right to ask for their data to be removed from a company’s servers and imposes big penalties for non-compliance. This is trickier with blockchains that lock in data. Applying blockchains to regulated industries, such as travel, means reassuring regulators that the systems can operate as planned and systemic risks can be minimised.

One good thing is that blockchain aims to decentralise information where only parties directly involved have access to the relevant data. They also eliminate third-party risk since there are no third parties. Data can also only be accessed by, and only makes sense to, those signed up to the ledger. They are the only ones who can decrypt it.

There is also the question of where data sits. Blockchains are global, yet regulations now insist sensitive data, such as personal information, must sit in specific jurisdictions, such as the EU or US. This can be overcome where the blockchain doesn’t contain the data itself but offers up a server address where it sits in a secured format.