TUI's chief executive is nailing his colors to the mast when it comes to blockchain and its benefits for the travel industry. In theory the technology is great — and TUI has already identified an effective way to use it — but will the hype be justified?
TUI Group is one of the few travel companies keen to talk up the power of blockchain technology.
A blockchain is an open, decentralized database, where each transaction recorded is linked and made secure with cryptography. It is perhaps best-known at the moment through the cryptocurrency bitcoin but anything of value can be recorded.
Chief Executive Fritz Joussen is an enthusiastic believer in the technology and its ability to transform the travel industry.
TUI has already dipped its toe in the water by moving some of its hotel technology onto its own in-house blockchain, and this is only the beginning, he says.
Skift spoke to Joussen for the second time this summer about blockchain to try and find out why he thinks it will be such a game-changer for the travel industry.
Here are our biggest takeaways from the most recent conversation.
1. The end of travel intermediaries?
Perhaps it is unsurprising that few companies are talking about it – at least publicly – given the fact that at its core blockchain is about decentralizing information.
The Internet was supposed to set information free and in its early days this might have been the case but gradually power has become more concentrated.
In theory, blockchain poses a huge threat to the many businesses that act as a transactional intermediaries because they would no longer be needed.
Accommodations companies, global distribution systems, online travel agents and travel management companies dominate the intermediary space. Blockchain, according to Joussen, lowers the barrier to entry of new players.
Sabre, Expedia, and Airbnb don’t really own hotel rooms or airplanes, and mostly just own their brands and tech. And how useful would those brands be if a better form of distribution technology came along?
“When I found this blockchain thing two years ago, I thought this is cool. Because it is changing the paradigm. You open the market, and you are not trying to earn money,” said Joussen.
(As a counterpoint, there are plenty of skeptics who doubt blockchain’s real-world utility.)
2. Blockchain fits with TUI’s asset-heavy strategy
One of the reasons TUI is happy to get onboard with blockchain is because it doesn’t really cannibalize its business.
For years it has been working on building up its supply of differentiated content such as hotels and experiences that can’t be found elsewhere. The theory here is that as travel become more commoditized, a company needs to be able to offer something that differentiates it from the competition.
“I’m increasingly building profit streams from content… Therefore, my distribution which was formerly the core business to operate, is less and less important. The disintermediation risk that the OTAs [online travel agents] come in and destroy my business, is less because I just build a hotel, or a cruise ship, and that is actually my core business, and I just have direct market access,” Joussen said.
3. Blockchain is cheap… and the savings are huge
TUI’s investment cost less than €1 million ($1.29 million), a tiny sum, especially when you consider that the company sold its accommodation wholesaler Hotelbeds for $1.3 billion. Joussen is convinced that blockchain will make business-to-business services redundant, and if he is right the Hotelbeds deal would go down as disposing of an outmoded piece of business.
Blockchain also allows TUI to save on IT and back office costs, which would potentially see it save around €100 million ($129 million) per year.
“We started this thing because we wanted to save costs. We had inventory systems for hotel rooms which were actually tied into booking systems. So if we wanted to regroup from one market to another, we couldn’t do it efficiently…” Joussen said.
4. Blockchain can help TUI with new revenue streams
Blockchain technology is perceived by some to have the power to make companies that act as intermediaries redundant. On the other hand, that assumes that the intermediaries wouldn’t be able to adapt or acquire their way out of the mess.
Still, there are ways it can potentially generate money for TUI.
Today’s sometimes-unsophisticated hotel booking systems aren’t easily able to drill down to the single-room level. You can have a certain type of room but not, say, room number 62.
Using blockchain technology could make that a possibility. For example, customers who had previously stayed in room 62 could be asked whether they want to secure it again for a small booking fee.
5. TUI is toying with making its blockchain public
At the moment, TUI’s blockchain, which it uses for its hotel room management, is private. But Joussen said there’s still a possibility that the company might open it up to the public.
This would be a bit of a departure for TUI given how insistent it has been on driving up in-house distribution. But Joussen said it would mean that TUI would be able to sell beds in markets it perhaps wasn’t as big in.
“[Y]ou can start in territories like China where we don’t have a distribution. You start publishing stuff. Making it available where it doesn’t hurt your sales,” said Joussen.
Interestingly, Joussen said TUI was approached by IBM’s chief executive about TU(‘s blockchain.
“I did an interview half a year ago somewhere, and that was read by Ginni Rometty from IBM, and she gave me a call. She was in New York, and she wanted to know what we wanted to do with it. Her interest was: Did we want to spin it off at a certain point in time?” said Joussen.
If this were to happen it would have parallels to what happened to global distribution systems like Sabre, which were developed by airlines. Although given blockchain’s egalitarian nature, it is difficult to see how this would be a money-spinner.
6. TUI still has a long way to go
Although TUI is using blockchain to manages its hotel rooms, not all aspects of the supply chain have been integrated.
“It’s a smart contract blockchain. So we have all our contracts on the block chain, and we use it for hotel swapping. We have embedded it, we have coupled it to our yield systems, so the yield system determines where we want to sell the beds,” Joussen said.
TUI plans to put its full inventory onto the blockchain and then connect this up to the purchasing and property management systems. At the moment, TUI still employs people to sell rooms but in the future, Joussen said, it will be automated.
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Photo Credit: TUI Group's headquarters in the German city of Hanover. The company is investing in blockchain technology. Christian Wyrwa / TUI Group