Blockchain has been named as “the priority technology for future exploration” by airport and airline technology chiefs.
The research from SITA as part of its IT Air Transport Insights reveals a number of use cases for blockchain – from identification and ticketing to managing loyalty programs.
Conspicuous by its absence in the research is anything about using blockchain for airline distribution, and that could be for a number of reasons. Some airlines including Lufthansa Group are experimenting with the technology but might be keeping progress under wraps.
Others such as Emirates, or more specifically CEO Sir Tim Clark, have come all out for blockchain driving everything airlines do moving forward and criticizing GDSs as being not fit for purpose.
At the recent Aviation Festival, however, Clark said his former comments may have been a “tad disingenuous” but reiterated his belief that there is a role for blockchain in distribution.
Emirates has been integrating FlyDubai using a “blockchain ledger platform” with “good results” according to Clark, but, “scaling it up is more difficult.”
Scalability is one of the greatest challenges in using the technology. The travel industry is growing, with air passengers alone expected to almost double to 7.8 billion by 2036, according to IATA figures.
Lufthansa Group, an early supporter of blockchain through its partnership with Winding Tree, believes the technology has serious potential to disrupt travel distribution.
Xavier Lagardere, vice president of distribution for the group, says: “It’s the promise of a system that provides trustable transactions in a decentralized fashion without a central intermediary and therefore without cost.”
He says the group has started working on it, but sees it as a mid- to long-term project in terms of its ability to scale and replace any existing distribution mechanisms.
In its simplest form, could current pricing information and airline products and services be held on a distributed ledger?
Lagardere says that he thinks of blockchain as a central marketplace where APIs from either side connect – travel merchants such as airlines and resellers.
He adds that strides in the development of API technology already enable the creation of offers by the group’s airlines, based on customer actions and data, that do not reside in the GDS.
“That vision of delegation of power to the GDS whereby they compose offers and airlines will only file fares, schedules and inventory is not even today’s world, so we should not assume that a blockchain future system will be based on this analogy of yesterday’s world?”
Joining scalability in the list of challenges is cost. Blockchain has promised lower transaction costs, but currently, with the technology in its infancy, the computational power it requires is high.
Lagardere points out that there’s a difference between “targeted implementation” and the promise of blockchain compared to the platforms airlines are experimenting with today.
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Sundar Narasimhan, senior vice president and president of Sabre Labs and product strategy, agrees transaction rates supported by blockchain are still low and says it will be some time before mass adoption in travel. He also stresses that there is the cost of migration to consider, too.
“Migrating existing processes that are already working fairly efficiently to a new technology is quite a different proposition.”
Naturally, he is coming from the GDS perspective, which, he argues, provides value, but he also has the perspective of someone who formerly worked within ITA Software (acquired by Google in 2010).
In 2004, at ITA, Narasimhan worked on the company’s GDS New Entrant, or Genie, one of several bids to replace GDSs.
The Genies more or less came to nothing, and Narasimhan says that airlines have been vocal “throughout history” about the cost of distribution and wanting to restructure the way things are done, but it often boils down to a “negotiating tool by airlines to revisit contractual terms.”
“Once that is past they go back to their ways of doing things because they recognize the value that the various participants provide.”
When it comes to when blockchain might scale and handle the sorts of volumes witnessed in travel, Narasimhan says the answer could be never.
“It’s going to really depend upon fresh, young folks who can go at this age-old problem as well as the level of investment to migrate some of these older systems. That will come down to folks at a higher level making those decisions and following through with the dollar investments required to do the work.
“Then if the business case is not there in terms of the return on investment, a lot of folks don’t end up making those investments. Thats why previous attempts at replacing distribution have started off with a bang and ended up being disillusionment and abandonment.”
Value for money
That might seem like a gloomy outlook for blockchain, and Lufthansa is more upbeat about it – especially around cost.
Reinhard Lanegger, senior venture development manager for the Lufthansa Innovation Hub, points out the difference between a single organization with overheads and development costs versus a blockchain-based marketplace.
A blockchain-based marketplace is commonly owned and is where you turn the middleman into a protocol, making it more automated and open source so everyone can participate and everyone has the incentive to keep charges down.
He acknowledges that there are no guarantees of blockchain being a more efficient distribution mechanism and that there are still some things to solve.
Lagardere says that on top of scale, speed and cost issues, the protocol itself is still a challenge.
“The practice of blockchain is becoming more and more simple. Today it’s still hard to work with, you have to know the protocol in detail. There are more and more specialist teams, but one of the factors that will drive adoption is when software development toolkits or higher-level APIs become available for bread-and-butter developer teams to work with.”
Sabre, meanwhile, is working on a couple of uses cases, but Narasimhan doesn’t see blockchain making it into distribution just yet because of the volume of transactions.
He believes it is more logical to introduce it in “less demanding” areas first such as in back-end processes including settlement and contract negotiations before moving it “up the chain” to booking transactions.
That supports noises made by some airlines, including most recently Air France/KLM, which has partnered with Winding Tree to “test the technology and provide feedback as the development progresses.”
Areas for testing could include baggage tracking, dynamic pricing and offers.
The million bitcoin question…
Both Lagardere and Lanegger are confident blockchain use will come to travel distribution and say it is at a very normal technology development stage currently.
On the one hand, depending on the various use cases, its development could accelerate. And, says Lanegger, the open-source nature of the technology could see people borrowing from each other’s advances and experience. But, the computational problems remain.
Lagardere says: “It’s 10 years old so we just don’t know. A lot of crypto experts are at work trying to solve these problems, so it could be that in six months we see a solution but it could be that this is optimistic.
“It could be two years, but I don’t believe it will be 10 years before we see something usable.”