As the government of Bermuda joins the list of countries looking to lure cryptocurrencies, the Newstead Belmont Hills Golf Resort & Spa this summer became the first hotel on the island — indeed one of the first in the world — to begin accepting bitcoin.
The decision was driven by owner Larry Doyle, a New York finance executive and early internet mutual fund investor who is now heavily involved in the currency. Doyle is among those who believe that cryptocurrency will upend the business world by significantly lowering the cost of transactions.
Like the internet, he said, “This is just another evolution, and this is going to basically disrupt the banking systems.”
Most hotels and travel companies, however, have resisted — or in the case of Expedia, backed away from — taking bitcoin, given the volatility of exchange rates for the currency, uncertainty about the legitimacy of the many players entering the immature but fast-growing cryptocurrency marketplace and the still very split opinions about whether this is technological revolution or a financial hoax.
That debate aside, however, most experts agree that blockchain, the technology behind bitcoin and other cryptocurrencies, is a game changer, one that has the potential to disrupt the travel industry, particularly when it comes to distribution and the role of intermediaries.
In the shorter term, blockchain also holds promise for, among other things, significantly improving loyalty programs, reducing transaction costs, helping airlines better track bags and monitor their supply chains and perhaps even easing the lines at immigration checkpoints.
Steven Peterson, who leads the travel and transportation group at the IBM Institute for Business Value, said, “This is one of those rare innovations that has the potential to be a rising tide that lifts all boats.”
‘This is one of those rare innovations that has the potential to be a rising tide that lifts all boats.’
Just how significant those changes could be for the travel industry, and how long it will take to develop real-life, scalable solutions, however, is about as predictable as the value of bitcoin.
Maksim Izmaylov, founder and CEO of the nonprofit blockchain-based travel distribution platform Winding Tree, is among those who believe the evolution of blockchain “is as big as the internet.”
“I think the way we do business will be changing drastically because of blockchain,” he said.
‘I think the way we do business will be changing drastically because of blockchain.’
Perhaps. But Phocuswright’s Norm Rose, who is also an adviser to Winding Tree, said the truth lies somewhere between the hype and the naysayers. Like many emerging technologies, Rose said, “it gets overhyped, and then it crashes. Then, slowly, it emerges as an actual, impactful solution.”
A decentralized approach to security
One of the more challenging things about blockchain is simply trying to explain it. It’s a peer-to-peer-based platform that creates real-time digital ledgers that can be accessed and updated by anyone authorized to be part of the transaction.
Marcello Gasdia, a research leader at Deloitte’s Center for Industry Insights, said, “Blockchain is unprecedented because everyone has access to data. Before blockchain, we never had a technology that allowed everyone to keep an eye on what’s going on inside a single system without giving a single person control over that information. The whole decentralized aspect of it is really what makes it a groundbreaking technology.”
‘The whole decentralized aspect of it is really what makes it a groundbreaking technology.’
Groundbreaking, for one thing, because it’s so flexible. Blockchain can be used for everything from house sales and shipping records to travel bookings. The digital ledgers create transparent, encrypted, permanent, inalterable records, while also providing direct payments to sellers, eliminating the middlemen who normally process those payments.
And because the travel industry might have more middlemen than any other sector, Phocuswright asserted in a recent report that “blockchain technology will likely have a major disruptive impact on the way travel suppliers and intermediaries do business.”
Such discussions have sparked many a headline about blockchain’s potential to eliminate the OTAs that have become the intermediaries the hotel business most loves to hate.
Still, most analysts agree that while OTAs and GDSs will have to keep a close eye on the technology and evolve, they are unlikely to go away.
“They may see a portion of their business flipped on its head,” Peterson said. “But there’s not a change on the horizon that I see is going to take any of the players out forever. That’s a fantasyland, in my opinion.”
But because blockchain can lower costs by eliminating middlemen and processing transactions more cheaply, whether that involves commissions or even credit card transactions and international banking fees, Rose said he believes “there is some validity to the rhetoric about removing the GDSs and the OTAs.
“It’s a revolution, but it’s an evolution, as well,” Rose said. “But it’s going to take some time for it to take hold.”
The fate of today’s intermediaries, he said, “is going to be dictated by how they respond to market changes.”
Winding Tree is building an open source-style distribution system based on blockchain that would compete with OTAs, but Izmaylov said talk of the technology eliminating intermediaries is “an overstatement.”
“I would say it creates a level playing field for intermediaries to compete,” he said. “The market will decide what is the right price for the service.”
The idea, Izmaylov said, is to reduce the intermediary costs, like the high OTA commissions that hotels so often complain about.
“Right now, you have, like, five companies controlling the space,” he said. “When you have 1,000, of course things will change.”
A wide range of applications
The OTA debate aside, Guy Langford, a Deloitte vice chairman and its U.S. leader for the transportation, hospitality and services industry, emphasized that there are potential impacts across the entire travel ecosystem as activity increases around the still-nascent technology.
According to Gartner, the business value-add of blockchain will grow to slightly more than $176 billion by 2025 and will exceed $3.1 trillion by 2030.
Langford said he sees the biggest opportunities in loyalty programs and operational efficiencies, such as better tracking of group bookings, bags and flight delays and more efficient management of supply chains.
For loyalty programs, he said, blockchain makes it easier for programs to work with partners by putting all the rewards in a centralized program where consumers can use their credits like cash.
Singapore Airlines is already testing this with its KrisPay miles-based digital wallet, which enables KrisFlyer members to convert their miles into digital currency that is accepted at 18 merchants. The blockchain-based program was developed through a collaboration between Singapore Airlines, KPMG Digital Village and Microsoft.
A number of major airlines, including Lufthansa, have also partnered with Winding Tree, which is using an open source, community-based model to develop a system for distributing inventory without intermediaries. But that system is not yet operational, and there are many opinions about where the industry might first see real benefits from blockchain.
To gain clarity and try to advance the most promising solutions, Lufthansa’s Innovation Hub recently partnered with SAP to launch an “aviation blockchain challenge” focused on three specific areas: ideas that offer clear added value for travelers and make travel more efficient throughout the journey; airline-specific solutions that improve operations; and associated processes and ideas that might improve maintenance and supply chain management.
Reinhard Lanegger, senior venture development manager at the Innovation Hub, said, “What blockchain at the moment really needs is smart people jumping aboard the ship and thinking about specific use cases.”
‘What blockchain really needs is smart people jumping aboard the ship.’
It turns out there are a lot of ideas. In just its first few weeks, the challenge drew more than 100 applications from locations as far-flung as Ghana.
“I didn’t expect it to be that big,” Lanegger said. “And it’s not the First World countries that are leading. It’s really fascinating. All the solutions are in different levels of maturity.”
Some of the earliest uses of blockchain in travel, he predicted, will come in identity management, whereby a traveler and his or her passport or other relevant data are tracked across their journeys, enabling them to simply pass by a camera when they land in a foreign country rather than wait in lines to show their papers and talk to a person.
Other early adoptions, he predicted, will come in maintenance and operations, whereby companies can track parts and other supplies in real time.
A business model challenge
Despite the frenzy over cryptocurrencies and what are probably many yet-to-be-known advances from blockchain, analysts say the travel industry faces many challenges when tapping into its potential. One of the biggest is the industry’s historical and notorious inability to agree on common standards.
“We don’t know how as an industry to coordinate, how to collaborate,” Peterson said. “So it’s more of a business model challenge.”
He pointed to the airline industry and its inability more than 20 years ago to develop a so-called super PNR, or passenger name record, to be attached to airline records. A super PNR would include the traveler’s hotel, car rental and restaurant reservations along with other information.
“That never really materialized,” Peterson said. “You realize very quickly it’s a coordination problem. It’s hard just to get three airlines to share. Then it gets infinitely harder when you add in hotels, car rental companies.”
The hotel industry faces many of the same issues. For years, it has been working through the Hotel Electronic Distribution Network Association to develop common standards for more easily sharing real-time rate and availability information as well as richer content about properties across the distribution systems that feed OTAs and GDSs.
Complicating the issue for hotels is the fact that only 15% of hotels are owned and or managed by a single company, said Rebecca Bucnis, a technology consultant and managing principal of the firm Data to Dollars.
“The fragmentation of the hotel industry provides more pragmatic challenges that are hard to quickly overcome,” Bucnis said. “That’s what made OTAs so attractive in the first place, because they would work across those different systems. When is blockchain going to take over the hotel space? When large-enough players get together to say, ‘We are going to do this together.’”
‘The fragmentation of the hotel industry provides challenges that are hard to quickly overcome.’
Indeed, Peterson said, the travel industry needs a blockchain orchestrator, which he described as “an unbiased arbiter to step forward and say, ‘We will orchestrate as a neutral third party, with the intention to use this technology to lower costs and improve distribution efficiency for everyone, the customers as well.’”
As for if and when the use of bitcoin or other cryptocurrencies might become more widespread, most analysts agree there isn’t any indication they’ll be gaining mainstream traction for a while.
Part of the problem has been the volatility of currencies like bitcoin, whose tokens have ranged in value from less than $1 to $19,000. Expedia accepted it for a while but stopped in May. Asked why, a spokesperson said simply, “We do not feel that we are able to offer the best experience for those using bitcoin. We will continue to evaluate various options to offer travelers flexible payment solutions.”
In Bermuda, at the Newstead Belmont Hills, guests can now pay with bitcoin at checkout in much the same way as using a credit card, by scanning a unique barcode on their smartphone linked to their bitcoin wallet. The payment processor takes care of the rest. Offering the ability to pay on the resort’s website at the time of booking is in the works.
The hotel still bases all its room rates and commission payments to agents on Bermuda dollars, which are converted to the market rate for bitcoin when guests check out using the cryptocurrency.
Doyle, the resort’s owner, said the cost of the bitcoin transaction is currently just pennies compared with the traditional 3% charged by credit card companies.
“If someone has a $1,000 hotel bill, you’re going to pay Visa $30,” he said of hoteliers. “The way they are doing it now is going to become archaic in a couple of years. I’m paying about 12 and a half cents a transaction. That will be down to about half a penny. So you will be knocking it down from $30 to half a penny on every transaction.”
Still, unless you are an independent hotelier who operates in a country focused on becoming a bitcoin leader and who is savvy about the trading of the currency, there is risk.
Right now, Bucnis said, taking cryptocurrency could create huge problems “if you don’t have a currency trader who says, ‘If I don’t trade this in the next five minutes I could lose my shirt on this.’ And if you need a broker, you’re now probably paying a fee to someone who is probably eating your lunch.”
However, as the currency stabilizes, Rose said, travel companies would be wise to consider using cryptocurrencies — and not just for their potential to reduce transaction costs.
“There is a whole culture that has emerged around cryptocurrency,” he said. “It’s more about accessing a market. If you’re targeting millennials, it’s probably a good idea.”