Flying in the face of convention — How blockchain will change the airline industry
When Norwegian Air Shuttle’s founder started thinking about the possibilities surrounding blockchain and cryptocurrency, he saw not just the potential for accepting a new form of payment and “normalising” it. Sure, he wanted to make sure that Norwegian would be able — and would encourage passengers — to pay with crypto, but he saw in all the slowly moving parts of legacy financial systems and a landscape as ripe for disruption as the air travel sector he shook up when he launched Norwegian Air Shuttle.
What this means is that it’s not only about payments; it’s not only about doing something new for the sake of novelty. It’s about, in the words of NBX’s Managing Director, “building an ecosystem around the solutions we develop. The ecosystem within the Norwegian group is important, but more than that, the ecosystems in the airline industry as a whole.”
Thinking in terms of ecosystems and the possibilities inherent therein, things started to go from very one note (i.e., make a payment with crypto, which is all well and good) to a future of more complex prospects and endeavours, which we’ll explore further in this post. But forgive us — we’ve written a bit about the “how NBX came to be” before. This time, however, we sought to set the scene for a bigger tableau: where can blockchain, and this ecosystem we refer to, carry air travel (and wider travel industry as a whole)?
Blockchain will disrupt travel-related industries
According to Sabre Corporation, a leading travel technology company, blockchain is one of the big three evolving technologies that will take the travel industry into the future. The tokenised economy is going to help move travel further into the same ‘democratised’ direction that Norwegian has moved mass-market air travel, all while helping the industry streamline and modernise legacy systems. The airline industry, while traditionally resistant to change except in its pricing models, struggles with legacy systems and processes that date back, in some cases, to the 1970s.
Major changes of other kinds are disincentivised by, as consultancy firm Boston Consulting Group observes, “high fixed costs, a tightly regulated industry, and the mission-critical nature of their service”. Similarly, airlines aren’t alone in the travel industry, relying either directly or tangentially on, as BCG points out, “customers (individual, corporate, and cargo), airports, partner airlines, online and offline travel agents, global distribution systems (GDSs), industry associations such as IATA, public authorities, suppliers and service providers, and other travel industry players, such as hotels and car rental companies”. The complexity of these relationships and dependencies may pose challenges but ultimately promise a lot more opportunity.
Unlocking the block with two sides of the same opportunity coin
Crypto promise
One aspect of the airline industry that is not stuck in the 1970s is the fact that the vast majority of travel transactions are now digital. Travel is booked and payments are made online, and often, on the go. In this sense, it may not be a giant leap to incrementally introduce the option of paying for travel with cryptocurrency — starting with people who have experience using crypto, and slowly educating and incentivising later adopters as the cryptocurrency-as-payment method normalises. This is the direction NBX is heading, and quite likely, where most of the rest of the travel industry is already heading as well.
With these developments, we see payment systems and their flexibility open up as well — and this is good for both consumers (choice, convenience) and for airlines:
- Faster/instant payment settlement times
- More secure transactions, less risk of fraud
- Reduced international/cross-border transaction/exchange fees
Many travel aggregator sites have integrated bitcoin and altcoin payment functionality, but this is not the same as an airline integrating a payment system directly — cutting out the middleman, which is sort of the point of crypto in the first place — the fee-gouging stranglehold of the ultimate middlemen — the Visas and MasterCards of the world — has made the payment ecosystem difficult, slow and expensive up to now.
By creating a system that makes it easy for users to pay with crypto, eventually it will be seen as just another choice in the list of ways to pay.
Flock to the block: Blockchain promise
Where true disruption can occur — and here’s where those antiquated systems from decades ago come into play — is where blockchain/distributed ledger technology can revolutionise traditionally cumbersome operational issues. These issues are all over the map, but among the most prominent is the long-standing problem of not having a single source of truth for flight information that is routinely shared among airlines, airports and their customers. This kind of operational data can easily become outdated, with different parties working from different versions of what they believe is the best available data. With blockchain tech, smart contracts can make this mismatch a thing of the past. A joint research project, FlightChain, explores how smart contracts can be used to validate operational data and merge it into a blockchain-based single version, which will always contain the most up-to-date data that will serve as the authoritative reference. But this is only the beginning.
According to the 2018 SITA Air Transport IT Insights report, 59% of airlines have begun blockchain-based research or pilot programs for implementation by 2021. Airports, too, are getting in on the blockchain game. While simplifying passenger identification processes is widely seen as the likeliest application for blockchain tech in airlines and airports, blockchain also poses a wide-ranging host of applications that contribute to making air travel more efficient and safe, reducing costs and making processes more transparent. Some potential examples of blockchain-based applications:
- Loyalty programs/passenger tokens for frequent flyer programs
- E-ticketing
- Custody/baggage management/handling
- Maintenance and repair records
- Processing of airport landing and take-off fees
- Supply chain and logistics applications
The runway to blockchain: Endless taxi or imminent takeoff?
It’s still early days for blockchain in the airline and travel industry, but enough large-scale projects have begun across the various arms of the travel sector. In fact, enough initiatives are underway that at least we know blockchain technology is not going anywhere, and improvements will be made rapidly as the technology is applied more frequently in the real world.
It goes without saying that this write-up is a simplified overview that does not tackle the complexities and challenges of real-world blockchain use. As we put the finishing touches on the NBXchange platform at NBX and start thinking about implementation and onboarding customers, we reflect on what we need to develop next, which naturally leads to more general thoughts about the technology and industry as a whole. For NBX, this of course takes us back to the points we made at the beginning of this article — asking how can we gain new efficiencies and save costs for Norwegian while upending convention and be a leader in developing the kind of technology and partnership ecosystem that will propel Norwegian — and indeed all of air travel — into the future.
Norwegian Block Exchange is hiring. It’s a great time to come on board and make your mark.
