Airline Group Turns to Blockchain to Bypass Entrenched Distribution Systems

These are very early days, but the airline-owned Airlines Reporting Corp.’s new experimental blockchain, and others like it, could lead to efficiencies for corporate travelers, but also — importantly — distribution alternatives to bypassing the global distribution systems.

Let’s be very clear: A potential bypass of the distribution incumbents is not going to happen anytime soon. The death of global distribution systems such as Sabre, Amadeus, and Travelport have been prematurely forecast for the last 20 years. They are an integral part of travel commerce on a global basis, online and offline, and they aren’t going anywhere anytime soon despite intermittent disruptions. 

The U.S.-based Airlines Reporting Corp., or ARC as it’s most commonly known, announced this week that it fielded a private blockchain proof of concept with United Airlines and blockchain solutions provider Blockskye. Through the blockchain, using ethereum technology, ARC and United reported and settled United Airlines ticket transactions. ARC provides ticket transaction settlement services between airlines and travel agencies and travel management companies.

Traditionally, according to Dickie Oliver, ARC vice president and chief information officer, the organization uses relational databases that tie into front-end applications to settle transactions, including ticket modifications, and then ARC sends customers reports or exchanges information through APIs (Application Programmable Interfaces).

Blockchain is geared to streamline and democratize the process.

“We provide a ledger-based solution that ensures the highest level of data quality because nothing gets on the blockchain unless everyone participating on the chain agrees that a new transaction is legitimate,” Oliver said. “Our customers will have instant access to transactions on the blockchain and can work with those transactions through their own systems.”

Oliver said the blockchain could theoretically give travel agencies, both corporate and leisure, quicker access to higher quality data “where it’s guaranteed that the agency and the airline are looking at exactly the same data.”

Jeff Christensen, managing director of distribution and ancillary pricing at United Airlines, said the proof of concept, if eventually implemented on a larger scale, could save business travelers time when collecting receipts for expense reports so they could be more productive.

But Oliver of ARC said that in addition to providing airlines and travel agencies access to higher quality data, “we believe that airlines will have access to more efficient and cost-effective distribution alternatives that will be advantageous to corporate customers, as well. The use of smart contracts on the blockchain will also drastically reduce the reconciliation efforts that exist today between all parties.”

Many travel industry sectors are looking to blockchain to gain a distribution edge. Airlines such as Lufthansa, global distribution systems, including Travelport, and tour operator TUI Group, are all hoping that blockchain would streamline, or bring efficiencies to travel distribution.

TUI Group CEO Fritz Joussen, for example, made waves in 2017, when he argued that blockchain “takes away the monopoly of knowledge from a few platforms.”

Joussen was referring to the potential — very much unproven — that blockchain might chip away at the online travel distribution grip of companies from Expedia to Booking.com and Airbnb.

Of course, companies testing blockchain will have to prove there is a business case for its use, and that it leads to financial benefits. If it costs more to a task using a blockchain than through traditional means, then there is no sense in investing in the new technology, for instance.

Potential Impact

So what would be the potential impact of the ARC blockchain — or similar initiatives — if it eventually went into production.

“If ARC can successfully record and settle transactions using blockchain in the future, it would be faster, more secure and more efficient,” said the American Society of Travel Advisors. “This would apply across the board to agencies of all shapes and sizes using ARC’s settlement and payment products.”

Whether it’s a home-based agent selling luxury vacations or a large travel management company, the travel advisor trade group noted that the agents or business travelers aren’t going to be able to see that the transaction is being settled through blockchain or traditional means.

But, hopefully, they will benefit from the speed, accuracy and other efficiencies.

Denise Jackson, CEO of San Diego-based Balboa Travel Management,  said she thinks the ARC and United blockchain partnership “is a good step forward.”

“It should allow for a more secure and efficient process for the airline and ARC overall,” Jackson said. “With the data being protected and with the process of settlement being theoretically more productive, it should benefit all of us in the long run.”

Marc Casto, CEO of Casto Travel,  referred to the potential and challenges of the blockchain concept.

“Speaking only to the concept of it, this appears a very promising development to bring the world of smart contracting to the airline ticket purchase,” Casto said. “The utilization of blockchain for airline travel has many critical hurdles to overcome, of which adoption by both airlines and ARC is at the top of that list. I am encouraged that both United and ARC are willing to consider this alternate solution, particularly one that could massively reduce fraud, promote ancillary sales, and reduce settlement costs.”

However, the challenges appear daunting.

“With that said, one of the key concerns with blockchain will be speed and timeliness for transactions,” Casto said. “The sheer volume of airline tickets processed on a minute by minute basis presently would crush the processing capabilities of any present blockchain system. Of course, this is still very much in its infancy and efficiencies can be expected in the future.”

ARC said if the pilot proves successful, it would extend participation to other airlines. The next phase of its testing would be bringing corporate travel agencies into the loop, as well, ARC said.