As companies in the travel and leisure sector look to thrive in the new normal, blockchain-led solutions could prove to be a game-changer
Across the key areas of payments, baggage management, customer loyalty, travel insurance and identity management, blockchain can help unlock significant efficiency and innovation
Despite skill availability and compliance challenges, enterprises are excited about the numerous possibilities that blockchain opens up for the travel industry
As the travel and leisure industry looks to recover from the pandemic and build a new travel ecosystem, blockchain could well prove to be a game-changer – not only in dealing with the status quo but also in navigating through future uncertainties. The decentralized ledger technology has tremendous potential to simplify and bring transparency to how information on every piece of transaction across processes is accessed and stored. Importantly, it eliminates the need for third parties to execute transactions, reduces direct and indirect transactional costs, and safeguards against any kind of tampering.
Considering its secure and reliable nature, many travel companies and governments are on the fast track to adopting blockchain-led solutions. For instance, the Tourism Authority of Thailand is working with the country’s regulator to accept digital tokens for travel.1 With that, it is opening the sector up to a completely new segment of travelers – a growing class of crypto-millionaires.
In fact, with the number of crypto-millionaires increasing to 100,000 in 2021, the luxury travel industry is experiencing a growing demand for highly personalized services enabled through cryptocurrencies.2 LynKey, a global blockchain-led platform that delivers luxury travel experiences, recently launched a project to tokenize and offer Non-fungible Token (NFT) solutions worth over USD 8 Billion, entailing the use of smart digital contracts.3
The blockchain market is expected to reach USD 2,459 million by 2026, registering a Compound Annual Growth Rate (CAGR) of 38.5 percent during the 2021-2026 forecast period.4 A World Economic Forum survey suggests that up to 10 percent of the global GDP will be stored on blockchain by 2027.5 The financial sector has acknowledged blockchain technology as a powerful force, and now other sectors such as travel and leisure are warming up to it.
With its potential for disruptive innovation, blockchain can help tackle some of the most complex problems in the travel and leisure sector, and deliver a better user experience.
Airlines, Online Travel Agencies (OTAs) and hotels currently pay a processing fee of 1.3-3.5 percent to payment processors such as VISA, Mastercard and American Express.6 Blockchain will drive down transaction fees and enable leading industry players to provide feasible options for faster, secure and transparent payment processing services through crypto assets. The current capability of 20 transactions per second of the Ethereum blockchain network is much lower than 24,000 transactions per second of VISA.7 However, this limiting factor will soon be a thing of the past. Ethereum 2.0 is expected to be launched in early 2022 with a capacity of more than 100,000 transactions per second, thus surpassing any of the traditional platforms by a big margin.8
Incidents of missing or misplaced luggage not just affect customer satisfaction but also dent an airline’s reputation. In 2019, 2.8 million bags were mishandled by U.S. airlines.9 Most airlines have centralized databases that are stored at a single location. It takes time for airline staff to search and access information on a passenger’s baggage. Blockchain can demystify these complexities by storing luggage data in an efficient and transparent manner. Passengers can receive live tracking updates of misplaced bags.
Blockchain allows a decentralized reward system that helps enhance Customer Experience (CX) significantly and removes customers’ pain points. The traditional reward system has limited options for using points at hotels or airlines. These points are non-transferable, leading to low redemption rates of earned loyalty points. An effective loyalty program can boost revenue from customers who redeem points by 15 to 25 percent annually.10 With blockchain, all points can be tokenized and exchanged on a decentralized platform for preferred crypto assets or digital tokens from other providers. An Asian airline has recently started leveraging blockchain as part of its frequent flyer loyalty program to offer promotions to travelers.11
Typically, customers pay extra charges associated with a global distribution system as well as an OTA or travel intermediary platform. Blockchain enables suppliers to sell their products or services directly to the end-customer and eliminates the need for intermediaries, significantly reducing costs in the process. The removal of intermediaries could be beneficial for both customers and the service provider.
Blockchain has the ability to improve insurance practices by automating claims processing and detecting fraudulent claims. It can reduce the claims settlement time by simplifying the process. For instance, if a flight is delayed beyond a certain duration, the passenger can directly get the benefit of the purchased insurance without even putting in an insurance claim. The standard process requires submitting documents and following a long process to verify the claim request. A fully licensed and decentralized insurance platform, Etherisc, introduced a blockchain-based flight delay insurance. The product, FlightDelay, autonomously issues policies and executes payouts for travelers who experience flight delays or cancellations.12
Conventional identity management systems are vulnerable to scams, identity thefts and fraud. Losses from identity fraud are growing at an alarming rate – in the US, between 2019 and 2020, losses increased by 42 percent to reach USD 712.4 Billion.13 Blockchain can effectively protect customer data in an encrypted and immutable state, thus preventing fraud. In fact, the IATA has already experimented with the use of biometric technology on several flights between London and Dubai to do away with the usage of paper-based travel documents.14
In the future, this distributed ledger technology will allow traveling without the need to flash personal data or travel documents at various places. A digital address of a certain digit (mostly 32- or 64-digit Hex address) along with the passenger’s finger, face or retina scan will be sufficient to travel. The market for blockchain identity management solutions is estimated to reach USD 11.46 Billion in 2026, growing at a CAGR of 79.2 percent over the 2019-2026 forecast period.15 New advancements mean technology companies are now developing solutions to drive offline verification of pilot licenses using blockchain-based decentralized identity technology.
An aircraft goes through multiple leases, and maintenance and repair cycles. Maintaining the record for each service is a tedious and expensive task for manufacturers, airlines, and Maintenance, Repair and Overhaul (MRO) companies. As much as 90 percent of Aircraft Maintenance Records (AMR) are still done in spreadsheets or in a paper format.16 Blockchain can transform the maintenance records and manage them efficiently. By establishing a single source of truth, it can improve collaboration among manufacturers, airlines, MROs and auditors, who can view and act on each record. Since information recorded in blockchain is immutable, it leads to safe storing of records, without the risk of it getting deleted or manipulated.
Blockchain is a relatively new technology that does pose challenges such as limited trained resources, and legal and compliance uncertainty. Nevertheless, it is gaining ground because of the numerous possibilities it opens up for the travel industry. Many travel and leisure players are proactively investing in this disruptive technology to get the first-mover advantage. We will see many cost-effective, transparent, secure and CX-enhancing innovations around blockchain applications in the travel industry shortly.
Join the conversation
Banking & Financial Services
16 November 2022
27 October 2022
Travel and Leisure
19 March 2022