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Lufthansa Group has become the first major aviation company to partner with a blockchain provider, in a move it hopes will transform how travel products are sold.
The idea that blockchain technology might one day revolutionize the travel industry has gained traction over the last year or two, but it remains very much in the experimental stage.
What Lufthansa’s new partnership does is show how airlines and hotels might use the technology in the future to drastically reduce distribution costs. And although Lufthansa joins Air France-KLM in exploring what blockchain can do, Lufthansa has gone the furthest among airlines through its new agreement with Switzerland-based start-up Winding Tree.
At this stage, Lufthansa has simply agreed to participate in the pre-sale of of Winding Tree’s cryptocurrency Líf, which would then be used to finance a blockchain digital marketplace for travel.
No details of the size of the commitment have been given and it is difficult to predict how this will all play out. Lufthansa’s financial investment is likely to be modest and if nothing comes of it, not a great deal would be lost.
Of bigger interest is the company’s willingness to investigate a technology that has huge potential to reshape how travel products are sold.
How Blockchain Disrupts
A blockchain is effectively a distributed ledger or database duplicated on multiple computers that allows information to be distributed securely and without being copied. Winding Tree’s blockchain would effectively be an open decentralized database that connects suppliers with those wanting to buy these products, and this in theory, would eliminate the need for intermediaries.
Interestingly, Winding Tree is pitching its new platform as a business-to-business rather than business-to-consumer marketplace. In theory, wholesalers and global distribution systems would be the most impacted if this technology takes off, and then online travel agencies secondarily.
“B2B is key to adoption from the suppliers,” said Maksim Izmaylov, founder and chief executive of Winding Tree in an email. “If no one is selling the inventory, suppliers have no financial motives to list their supply on the platform. So initially we are removing the likes of Amadeus and Travelport, and hope that Expedia and Priceline will see a lot of competition as the largest barrier to entry will be reduced — access to inventory.”
Izmaylov believes blockchain would trigger the emergence of new business models.
“The competition will provide end users with the best service and price,” he said. “We also think that once access to inventory isn’t an issue anymore we will see new ways of monetizing distribution. Everyone has access to the inventory, even open-source OTAs [online travel agencies] could be built on top of it.
“The main difference is that with Winding Tree you are technically always booking directly, even if you’re using an intermediary. The transaction is always fulfilled by the supplier on the blockchain. I can see a future where OTAs will become more search-engine alike.”
Winding Tree is understood to be speaking to other airlines about participating in the venture.
The response from the travel industry to the potential impact of blockchain technology has been predictable. Suppliers have the physical products to sell and are obviously excited about the ability to reduce their distribution costs.
European tour operator TUI Group has started its own hotel-room management blockchain, and is toying with the idea of making it public.
Online travel agents, on the other hand, are keen to talk down the likelihood of blockchain destroying their business model.
Speaking at Skift Global Forum last month, Priceline Group chief executive Glenn Fogel said: “We’re not going to be worrying about it tomorrow or pouring a lot of investment into it. Of course our engineers are curious. But from my understanding, they’re saying ‘there are other things you can panic about.’”