In it together

13 April 2019

Within what remain quite niche circles, there has been a lot of excitement surrounding blockchain technology’s potential to revolutionise the hospitality sector, with some even christening it ‘a new internet for the travel industry’ with the potential to end online travel agency (OTA) ascendancy. Will Moffitt speaks to hoteliers, entrepreneurs and academics in an effort to separate hype from reality and asks how close we are to seeing mainstream implementation.

Since 2008, the true identity of enigmatic tech wizard Satoshi Nakamoto has remained a mystery. A list of possible identities includes a Finnish professor, a Japanese mathematician, a deceased American cryptographic pioneer, an Australian computer scientist and, naturally, Elon Musk.

Nakamoto is in fact a pseudonym attributed to a white paper published in October 2008 that first outlined a theoretical model for bitcoin. The paper describes the cryptocurrency as a “peer-to-peer version of electronic cash”, a decentralised system where users exchange currency without going through costly and slow-moving banks.

In order to facilitate this virtual currency without a third-party guarantor, Nakamoto needed to ensure users did not cheat and spend coins more than once. His solution was to entrust responsibility to the whole network, creating a public log of computers that could monitor transactions. Commonly known as blockchain, this unique ledger system is an electronic database, where new data is added to the chain, stamped and protected with a mathematical equation. Because the data is shared among hundreds of computers, it is almost impossible for one individual to alter. At its core it is a verifiable, immutable network for the transfer of information and a technology that could radically alter how currency and data are shared.

One area in which blockchain could be disruptive is in the hotel and hospitality sector, where a small number of hotels and travel companies are experimenting with the technology.

For hotels, blockchain could be an opportunity for a traditionally slow-moving industry to embrace a radical new technology and claw back some control in a market dominated by online travel agents who charge high prices for commission. It also has the potential to enhance supply chains and entice customers through more sophisticated loyalty programmes.

“Blockchain has potential in the hospitality industry to change supply chains, especially for big hotels because they are companies with lots of franchises and management contracts all over the world.”
Dr Andriew Lim, Hotelschool, The Hague

According to Yoohwan Kim, an associate professor of computer science at the University of Nevada who consults with hospitality companies on blockchain strategy, the technology’s biggest strength is that it is founded on trust. “Blockchain is basically just a shared database,” he says. “Traditionally, databases are centralised so one company or one person has control, but with blockchain, multiple people can have multiple copies. So everyone shares the same data. That’s where the trust comes from.”

As Kim notes, “the most revolutionary thing about blockchain” is the idea of smart contracts – computer protocols that can facilitate and verify specific transactions, guaranteeing security while reducing transaction costs.

With open arms

One company that has embraced this new technology is TUI, which invested $1.29 million in blockchain in 2017, in order to improve its inventory management and make it far more efficient.

Martin Schreck, managing director at TUI infoTec, sees blockchain as a problem-solving device, a way of making the company more interconnected and efficient. He describes how the advent of blockchain prompted a wholesale “attempt to understand how such technology could change the TUI business model”.

$60 billion
Amount the global blockchain market is expected to be worth in 2024.
Wintergreen Research

A good example is TUI’s unique Bed-Swap feature, a blockchain-enabled system that monitors records of hotel bed inventories in real time.

For Schreck, the creation of a private internal blockchain was a natural fit. “The reason we did it privately is because we wanted to learn more about this technology in a secure environment and the content those mechanisms have on a blockchain scenario can be tested when you’re doing that,” he says.

The Bed-Swap system identifies travel periods when the company’s capacities are most at risk because occupancy of certain hotels is low. Beds can then be offered across international markets where demand is high.

“We can rate other markets, and, for example, our UK market franchise can give up 20 or 50 rooms for a period of time to somebody else in the group,” Schreck says.

“Right now we are implementing it in more markets because it’s running quite well,” he says, “but I think it’s a mix of making sure the technology is working and getting the right data on it.”

While Bed-Swap is a distinctly private enterprise, TUI’s latest blockchain project is a public system that has upgraded its Destination Experiences platform, a database full of thousands of activities that were traditionally entered manually, then transferred to the booking section of the TUI website.

Through blockchain, guides or agencies can directly post activities on a supplier platform that blockchain technology transfers to the website. Activities are added in real time, allowing customers to sign up spontaneously, while TUI staff members are no longer required to fulfil this time-consuming administrative task. For Schreck, this feature could give rise to “future market places where suppliers offer their product and customers directly enter in on it”.

“If that happens,” he says, “we have built a good basis whereby blockchain then could become a disruptive technology for the tourist industry in the long term.”

Grow back stronger

For Dr Andriew Lim, professor of technopreneurship and innovation at Hotelschool The Hague, blockchain is more likely to benefit larger hotel groups like TUI where it can increase efficiency in internal administrative processes. “Blockchain has potential in the hospitality industry to change supply chains,” he says. “Especially for big hotels because they are companies with lots of franchises and management contracts all over the world.”

In Lim’s case, blockchain could give rise to private networks solely accessible to stakeholders, property owners, franchisees and suppliers.

“Bear in mind that, with blockchain, the main advantage that can be gained is transparency of data and transparency of transactions,” he says. “This means that you can set up an automatic agreement for prices based on your economies of scale that all your franchisees and clients will be able to follow.”

Blockchain could also provide an innovative way of tracking produce from suppliers, allowing hotels to monitor their stock. In a similar capacity, US food outlet Walmart has installed an IBM blockchain-based tracking system to track produce from suppliers. The company cited an E. coli outbreak in romaine lettuce that affected more than 200 people as an indicator that it needed a more transparent method of monitoring its stock.

While he believes that supply chains are the most likely avenues to be improved by blockchain, for Lim, one way in which the technology could disrupt the market is by offering hotels a loyalty system that rewards customers for direct bookings.

“For the consumers and guests, the advantages are that it’s more privatised, it’s much more secure compared with the OTAs, and the data that they provide to the hotel has much more integrity, because they know that it will only end up with the hotel, instead of being shared with third parties,” he says.

For some, this is where blockchain has the most potential to be a disruptive force – challenging larger travel intermediaries that charge high commission rates on hotels by offering customers a more enticing reward system.

Axel von Goldbeck, a partner at DWF and an adviser on technology models in the property sector, believes a token-led reward system could become “a valuable asset and a potential way of cutting out online travel agencies”.

This system could birth a more flexible currency format where points could be exchanged between customers and potentially across hotel chains.

“You could sell these tokens on a secondary market or they could be designed more flexibly so that you could use them for multiple purposes. You could use an airline token for booking a hotel and so on,” he says.

Starting blocks

KeyoCoin is a start-up company based in the US that is already implementing a blockchain-powered reward system. The company incentivises travellers to use independent travel businesses, adding them to a centralised loyalty programme where tokens can be used across hundreds of hotels and independent travel operators around the world.

Matt Baer, CEO and founder of KeyoCoin, says the company is “offering a true alternative to those providers that are sick of dealing with large OTAs”, endeavouring to “hand power back to independent travel businesses and give value back to consumers”.

“The problem with such a heavily intermediated market,” he says, “is that every middleman eats along the way, so prices tend to be high, and the hotel offering the service feels far away from their customer, receiving less income and having less of a one-to-one relationship.”

For Baer, loyalty programmes can be a “headache to set up and operate”, especially for smaller hotels that “don’t have a global footprint, and have all sorts of restrictions and limitations that make them a pain for travellers to manage and redeem”.

$1.29 million
Amount TUI invested in blockchain in 2017.

As with most blockchain enterprises, the KeyoCoin model has a decentralised system, allowing hotels and travel businesses to “incentivise a much wider range of revenue-generating actions”. Users can access this marketplace through KeyoPass, a mobile app that harbours over 12,000 boutique hotels, tours and souvenir shops.

Percentage of customers who demonstrate loyalty to the hotel brand that offers the highest number of rewards.
IMI Corporation

This micro-rewards programme should attract new customers and incentivise them to fulfil tasks that help customer engagement, such as leaving a review or sharing their experience on social media, but it remains to be seen just how popular this enterprise could be. In a similar manner to KeyoCoin, Winding Tree is a Swiss-based, non-profit organisation that aims to use blockchain to create a “next-generation decentralised travel platform”.

Once again, the company manifesto talks of using blockchain to “cut out the middleman”, creating a single marketplace, where hoteliers, travel agencies and customers can interact, spurring direct hotel bookings alongside the creation of more OTAs.

This sounds innovative, but even the manifesto admits that challenges exist, namely due to the infancy and inefficiency of the technology. As the paper clarifies, “blockchains are still not capable of supporting the load that the entire travel industry requires”. Even the most advanced form of blockchain, Ethereum, can only handle between 10 and 20 transactions a second, a rate that will not fulfil the company’s grand ambitions.

For Kim, this is arguably blockchain’s biggest problem. “Blockchain technology is not mature,” he says. “It’s dynamic and constantly changing… even with one blockchain, it changes all the time. Ethereum publishes new versions constantly, so it’s kind of like shooting at a moving target.

“That increases the cost and the risk because your working software may be broken tomorrow. It normally doesn’t happen with websites, but with blockchain that could happen. So because of this instability issue it is harder to generate investment.”

If, however, hotels and travel companies are willing to invest, these new blockchains will be even more sophisticated than current versions – faster, more dynamic, more secure and capable of simultaneously processing millions of complex transactions in real time.

As Kim clarifies, “Within five to 10 years, there will be blockchain winners emerging. If hotels are using this technology, then it could radically change the structure of the industry.”

Privacy Policy