Could an airline blockchain bypass global distribution systems?

By Hélène Dubos | Technology

Mar 14
Could an airline blockchain bypass global distribution systems?

For decades, airlines and travel agencies have used global distribution systems (GDS’s) to match up passengers with seats on flights and take payment. Companies like Amadeus, Sabre and Travelport have provided customers with a single point of contact through which travel agencies can book seats, as well as services for hotels, car agencies and other players. However, with the recent rise in distributed ledger technologies, a number of commentators have asked whether an airline blockchain would help bypass these traditional ‘middlemen’.

Blockchain has enormous potential for cutting costs and improving many aspects of how the aviation industry works - from baggage handling to the ordering of spare parts (a handful of airlines are already using it for certain activities). However, one of the most obvious areas would be to allow for easier payment between airlines and travel agencies.

Key concepts in airline blockchain

But before we begin, let’s get some key concepts around airline blockchain and GDS’s cleared up:

What is a global distribution system?

GDS’s are, for want of a better word, middlemen. They help process payments between travel agencies and airlines, as well as plenty of other players, and ensure the right information about tickets and money gets sent back and forth. 

Example: Tropical Travel Agency is a tiny agency in a small Caribbean island. They want to sell seats on Exotic Airways flights. However, Exotic Airways are a huge international airline, which makes it difficult for the agency to book flights directly with them. So, instead, they pass their orders through a GDS, whose software locates seats on Exotic Airways’ flights, transfers the money from the customer and ensures the small agency gets their commission.

What is blockchain?

Blockchain can be defined as a distributed ledger. What this means is that for every payment or transfer of value, a new ‘block’ is added to a ledger saying who owes what. This ‘ledger’ is distributed among many people, which means it’s near-impossible to change earlier entries, and that means there is complete transparency over what is owed to who.

Example: Tropical Travel Agency sells a ticket to a customer for a flight on Exotic Airways. This sale is added to the blockchain ledger so that Exotic Airways can also see the sale. Because the ledger is distributed, everyone in the network can see how much has been paid. Exotic Airways will then credit Tropical Travel Agency with their commission. Thanks to the transparency of the ledger, Tropical Travel Agency can trust Exotic Airways to pay and there can be no confusion about who owes what.

As you can imagine, since GDS’s are middlemen, they charge a fee. And therefore, there’s a strong motivation for travel agencies, airlines and other players like hotel chains and car hire companies to cut them out of the process. In this case, blockchain seems like the way to go.

Potential benefits of bypassing GDS’s with airline blockchain

At first glance, using a blockchain system for the airline industry provides plenty of benefits. These include:

  • Less expensive: Without intermediaries, travel industry players can make more money, and offer cheaper tickets and services to their customers too.
  • Reduce fraud: The IATA says that the airline industry loses as much as $1 billion per year due to fraud, plus many more billions on the costs of collecting payment. Blockchain would heavily reduce those payment acceptance costs and all but eliminate fraud.
  • Better cash flow: For small travel agencies in particular, blockchain would be very attractive as they would immediately receive payment for each ticket sold - rather than waiting for the airline to pay them back at the end of the month
  • Easier to enter the market: At present, any startup wanting to get into the travel industry faces enormous barriers to entry, including the need to have large amounts of capital up front, paying to become accredited and cash flow issues. With lower barriers to entry, the airline industry will in theory become more innovative and competitive, and therefore better for customers too.

Barriers to an airline blockchain revolution

But before getting caught up in the hype of an airline blockchain system, it’s worth considering the drawbacks too:

  • A solution in search of a problem?
    According to the IATA’s own analysis of blockchain, “while the value of Blockchain is concrete in certain use cases, the approach should start with a specific problem and remain solution-oriented throughout the process to avoid Blockchain becoming a solution that is looking for problem to solve”.
    While there’s plenty of hype about the things blockchain could do, it’s going to be essential to work out how it solves specific problems for airlines - and if it’s really the right solution.
  • Migrating existing processes
    If the industry is to move wholesale to a blockchain solution, we should not underestimate how much of a huge technological migration this would be.
    Not only will thousands of airlines need to transform entire payment acceptance processes, all the millions of other agencies and businesses throughout the supply chain will also have to migrate to a new model. Until blockchain technology is proven, many industry players will be loathe to move.
  • Cost of computing
    Blockchain is still relatively young as a technology, and while it might save airlines money by cutting out the middleman, the current cost of the computing behind is very expensive indeed.
  • ‘If it ain’t broke, don’t fix it’
    While this might not be the most progressive approach, there’s a strong argument that airlines, travel agencies and many other vendors are basically happy with the status quo - they trust and understand it and it seems to work for them. Why introduce a whole new system when the one at present largely works fine?

Airline blockchain: an uncertain future

Blockchain has garnered plenty of hype as well as disappointment in recent years - not least with the bubble and crash around Bitcoin. Nonetheless, the technology is compelling and clearly offers benefits to many industries - yet the way it eventually comes to be used in the airline industry remains far from clear.

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