In 2017, Blockchain projects flourished, where ICOs managed to raise billions. 2018 was a crash year for cryptos, even though the sums raised this year were twice as high as the previous one. Blockchain projects promised a lot, however 71% of them still have no working products. The argument was that blockchain is still in its infancy, and many are supposed to deliver their products in 2019. And one of the best places to watch where blockchain will rise again is in the travel industry.
Problems we face
The travel industry is uniquely suited to benefit from blockchain. There are many different players involved, and all need to collaborate seamlessly. When someone wants to travel, they need to deal with airlines, book hotels, find activities, navigate airports and maybe rent a car. They will also have to change their currency so they can shop at their destination.
The hoteliers and airlines also need to collaborate (and compete). Besides running their own website and reservation systems, most of them have found it necessary to collaborate with Global Distribution Systems (GDSs) and Online Travel Agencies (OTAs) to land on more “supermarket shelves” globally. Running these systems adds to the costs on the end customers, but there are also many other hidden fees involved.
For one, we must consider the transaction fees and inefficiencies in the finance and banking industry, especially when different parties from different countries are involved. Another problem is the setup and integration costs that are involved when service providers need to synchronize their disparate, siloed databases. A standard travel-related transaction involves multiple service providers, from GDSs and bedbanks to end-service companies and eventually point-of-sale players. Third, we have the GDPR and the importance of security and privacy. Fourth, we have the problem of fraud, which costs the airlines $1 billion annually.
Finally, we have the “invisible costs.” Services like the GDS are costly, especially for smaller players. This makes the entry barrier significantly higher for them, which means many innovative startups are left in the dark. In addition, the data held by GDSs can be expensive and inaccessible for hoteliers, who could otherwise have more distribution options. Expedia and Priceline have a 93% duopoly, which according to the American Hotel & Lodging Association “hurts consumer choice and the small businesses in our industry, which represent some 60 percent of all the hotels in the U.S., who are struggling to compete as a result of the gouging commission rates charged by the [online travel agencies].”
Blockchain disrupts the duopoly
Blockchain removes the intermediaries and offers a decentralized system where different parties can interact without needing to trust each other, removing a lot of overhead. This has produced real results.
“Our project has outperformed the market with +200% during the bearish market,” says Nikola Alexandrov, founder of LockTrip.com, which offers global coverage to about 100,000 hotels. “The prices on our marketplace are on average approximately -19% cheaper than the cheapest alternative—booking.com.” He continues: “our prices are so cheap, we are not allowed to advertise them in Trivago.”
But the lower costs are just one of blockchain’s benefits—there are many more.
Rita Hunter was sentenced to jail over 14 charges of fraud. Her fake travel company charged people for flight and accommodation services without actually booking them, leaving them out of pocket and without the holidays “they looked forward to and worked hard to pay for.” This is no limited incident.
According to Barry Gooch, chairman of the Prevention of Fraud in Travel campaign, “a significant issue for the travel industry has been the way criminals have been able to commit fraud as a director of one company that is a member of a consortium, then move to another and commit fraud again because there has been no established, legal method of sharing such information.”
Blockchain offers the ideal solution for these cases with smart contracts. As Alexandrov explains, “each booking is locked into a smart contract until the moment of check-out. This gives unparalleled security for the traveler compared to traditional bookings (where once they pay they have no guarantee that they will get the service which they paid for).”
Obstacles and solutions
However, GDS companies claim they offer more services and real-time pricing for distribution than blockchain ever could.
“There will always be a need for someone to aggregate offers and enable multi-sourced shopping. I don’t think blockchain resolves that,” Philip Likens, director of Sabre Labs, told Reuters. Representatives of Amadeus, Travelport and SITA echoed his comments.
Tony Hird, VP Enterprise Business Architecture at Travelport also pointed out another problem: “You can’t have a real-time environment if you have to wait 10 minutes for the transaction to be committed.”
The third problem is the nature of cryptocurrencies: it currently has a learning curve and requires some levels of technical understanding, which keeps it from mass adoption.
Recently, Michael Culhane, CEO of TripX LLC announced it has resolved the security, transaction speed, and compliance problems that have led large enterprises in the travel industry to hold off on the deployment of blockchain solutions. The platform, which is available on a “test” network, allows for a 10-minute registration process and the payoff of commissions being received same-day.
Without blockchain, the cost and complexity of deposits, invoicing, batch processes and reconciliation processes could stretch payment and commission settlements between 30 and 90 days. Culhane estimates that for most large enterprises, such savings could translate to a full percentage point on their EBITDA.
As for the “learning curve” problem, LockTrip is offering a model where users can pay with their credit card—the system will automatically purchase the necessary tokens on crypto exchanges. Users do not feel like they are using cryptocurrencies as everything is taken care of behind the scenes.
Predictions for 2019
The industry benefits greatly from blockchain adoption—but it also seems to be the path the customers are taking. According to predictions from Phocuswire, while Expedia and Booking.com are trying to be a one-stop shop for consumer travel purchases, consumers love to shop around. They like deals, they like to read reviews and they like to get recommendations from their friends. For these reasons, the path they take can involve hundreds of searches across a wide range of sites and apps. The trend will be moving away from centralized portals to find the best deals, and here is where blockchain can make a difference.