The airline industry is a complex, dynamic, and very competitive industry operating in a high-volume, low-margin environment. In order to operate profitably the layers of business systems that underpin it require extreme efficiency and precision, in multiple areas such as reservations, inventory, departure control, and ticketing.
A recent industry report, commissioned by global travel industry IT Provider Amadeus, highlighted many opportunities to streamline financial processes. The report, by leading market research consulting firm Frost Sullivan, claims that accepting the currency bitcoin can help boost airline revenue, but more importantly, integrating blockchain technology could be “revolutionary” for the airline industry.
“Bitcoin could be much more to airline revenue accounting than just an asset that can be exchanged. The technology behind Bitcoin—the Blockchain—is likely to have a far reaching impact on accounting everywhere. It is essentially a single, extremely secure, transparent global ledger. The network, rather than a third party, validates a transaction. This means that friction (and cost) can be reduced across the network.”
– Frost Sullivan
The report explains that while airlines have done an admirable job of running extremely lean flight operations, their current financial processes are the opposite. This is particularly true with revenue accounting, where airline management needs timely, accurate and consistent data. “Existing systems using offline accounting files or incompatible file types sometimes take a day to prepare, a day to submit, and another day to process,” states the report.
By integrating bitcoin and the blockchain, transactions would be fast, efficient, and secure. This is in main part due to the open and immutable nature of the blockchain. Every last ticket bought with bitcoin can be tracked by an auditor, through each step of the process, giving them not just a high-integrity total, but an incorruptible paper trail for each payment. Bitcoins’ blockchain is also public, so anyone can access with an internet connection, from anywhere in the world.
“As a CFO myself, I am well acquainted with the everyday issues that my peers in companies around the world face: the need for accurate information that strategic decision-making demands and the ever-greater speeds at which this data is required.”
– Ana de Pro, Amadeus Chief Financial Officer
Adopting bitcoin payments will also reduce fraud. According to the report, credit cards in particular present major problem for airlines, alongside identity and frequent flyer fraud, and the problem is increasing. “Compared to other industries, airlines have a narrow window of opportunity to identify and eliminate fraud.”
“Adapting to new payment methods such as Bitcoin will be a competitive imperative. More fundamentally, Blockchain technology could have a revolutionary impact on accounting by offering a single, secure, transparent global ledger.”
– Frost Sullivan
While airlines are aware that bitcoin and blockchain can help boost airline revenue, they have been “slow” to adapt to new payment methods, “due to incompatible payment and revenue accounting systems.”
However, accepting bitcoin payment is easy for most airlines, thanks to the low-cost global payment network, Universal Air Travel Plan Inc (UATP), which partnered with Bitnet in February. The partnership aims to drive bitcoin adoption within the airline and travel industries, by allowing more than 260 international airlines to accept Bitcoin payments.
“Our partnership will make it easier for UATP’s member airlines to accept payments in bitcoin via a lightweight integration that avoids impact to downstream systems and leverages existing UATP reporting and refund interfaces. Bitnet and UATP share the same mission of lowering transaction costs and fraud risk for their clients.”
– Akif Khan, Bitnet Vice President of Solutions Strategy
UATP merchants provide 95% of global airline capacity, including many mainstream brands such as British Airways, Lufthansa, Delta Air Lines and Southwest Airlines.
While mainstream airlines have not individually said they would accept bitcoin, the option is clearly available. In the meantime, a small but growing group of airlines and travel merchants have started accepting bitcoin as a method of payments, alongside traditional payment methods such as Visa, Mastercard, and American Express.
Starting the trend, in November 2013, CheapAir announced that it was the first online agency in the world to accept bitcoin as a method of payment for flights. A few months later, the company started accepting bitcoin for hotel reservations too.
In that same month, the bitcoin trendsetter and British billionaire, Sir Richard Branson, announced that his company Virgin Galactic was accepting bitcoin for its commercial spaceflights aboard SpaceShipTwo.
In June 2014, the leading travel booking website, Expedia, started accepting bitcoin for hotel purchases.
“We’re continually looking at ways consumers want to pay for their travel; bitcoin is a great example of how Expedia is investing early in an array of payment options to give our customers and partners more choice in the ways they interact with us.” – Michael Gulmann, Vice President, Expedia Global Product
In June 2015 a regional Airline from Mexico, TAR Airlines, announced that it had enabled bitcoin payments. A month later, Latvian airline airBaltic started accepting it too. The latest airline to embrace bitcoin, Polish Airlines LOT, started accepting bitcoin in August.
An independent report by leading accountancy and consultancy firm PricewaterhouseCoopers (PwC), “The 2015 Aviation Trends,” suggested that airlines must use “new technology internally to streamline their operations and reduce costs.” The report states that in the commercial aviation sector, while airlines struggle to break even almost every other player turns a tidy profit, including airports, airplane manufacturers, jet engine makers, travel agents, and service companies.
“The airline industry is hampered by slim profit margins, forcing carriers to focus on both cost reduction and revenue growth through better customer interactions.”
– PricewaterhouseCoopers, 2015 Aviation Trends
The International Air Transport Association (IATA) found that direct costs relating to infrastructure, such as using airports and the infrastructure for managing flight traffic, has increased sharply over the past decade. Inefficiencies causing delays and indirect routes also add to these cost.
While the IATA forecasts that total worldwide airline industry will grow 6.7 percent this year, generating revenue of over $760 billion, or 1 percent of world GDP in 2015, profit margins are still razor thin.
Delays caused by inefficient airspace management in Europe alone will cost the industry $2.9 billion in 2015, as well as generating unnecessary carbon dioxide emissions, states the IATA forecast. The time passengers waste in these delays is a consumer cost worth an estimated $4.7 billion.
The security baked into the bitcoin blockchain can also help airlines with some of their major computer security problems, which they’ve recently been experiencing with multiple costly access-based problems.
Southwest Airlines experienced service disruptions last week due to ‘computer glitches,’ and 25 percent of all its flights were delayed, 836 of them at that time. The world’s largest airline, American Airlines, experienced ‘connectivity issues’ last month, delaying 525 flights, and cancelling five.
The current ticketing system is also unsecured, with boarding passes containing a variety of personal and private information. An alarming report from computer security expert Brian Krebs found that anyone, even without any hacking knowledge, could access and control a passenger’s entire account, changing seats, cancelling future flights and resetting pins, with just a boarding pass.
“The next time you’re thinking of throwing away a used boarding pass with a barcode on it, consider tossing the boarding pass into a document shredder instead.”
– Brian Krebs
With a little digging effort online, the passenger’s frequent flyer number can also be obtained, as well as personal information on anyone using that frequent flyer number, including the person booking the flights.
With flight delays, cancellations and security risks, just to name a few, customers are understandably unhappy with airlines. A national independent index, the American Customer Satisfaction Index (ACSI), reported that airlines still remain one of the poorest performers, ahead of only internet service, subscription television, and health insurance. An independent report by IBM agrees that airlines consistently ranks very low for customer satisfaction.
The Frost Sullivan report also suggested that the airline industry could improve their financials by learning from other industries, specifically retail and banking. The players in these industries, including the Swiss mega-bank USB, UK global bank Barclays and Overstock.com, have done plenty of research on blockchain technologies. In time, the airline industry can learn how to benefit from integrating the blockchain into the airline’s multiple systems, and potentially change the way consumers think about the airline industry as a whole.