Disrupting Tourism
Multinational travel company TUI Group has recently invested ~€1M in blockchain technology and is already in the process of transitioning their hotel systems to their own, in-house blockchain named BedSwap.
Based in Germany, it’s one of the largest travel and tourism companies in the world, with a portfolio of 1,600 travel agencies and online portals, more than 300 hotels, five cruise lines, five airlines and transfer, excursion and tour services in 115 destinations serving more than 20 million customers.
It’s currently running its property management systems on an internal blockchain and developing public blockchain solutions for additional use cases.
Still, to CEO Friz Joussen, this is a small price to pay, given the annual savings of approximately €100M the new model is expected to generate.
Joussen predicts blockchain will significantly disrupt the travel industry in the coming years, rendering third-party travel monopoly websites like Expedia, Orbitz or Booking.com, unnecessary. As a decentralised database, updated in real time, blockchain’s distribution technology can wipe out the need for middlemen in the travel industry entirely and make booking travel much more cost-efficient for consumers, and profitable for providers.
Unlike some blockchain start-ups that dream of revolutionizing the entire industry, TUI Group wants to use the technology to solve specific problems.
The first use case the company came up with was in its hotel business. TUI has operations in several European countries and each of these source markets operated semi-independently. So the company wanted to use blockchain technology to iron out the inefficiencies and create one database.
On top of that, TUI added a yield management system, allowing the company to swap beds to wherever there was higher demand.
CEO Fritz Joussen said that moving 100 million bed nights to its private blockchain – alongside its other big digital initiative, a cloud-based customer relationship management platform – would help generate half of TUI’s planned 10 percent annual profit increase.
“These are the two mega platforms, which actually will drive the profitability as well,” Joussen told investors Tuesday after the company released its first quarter results.
While TUI’s use of blockchain technology is certainly interesting, is it necessary? One of blockchain’s supposed biggest draws is its decentralized, open nature and if it’s private – like TUI’s is – doesn’t this defeat the purpose?
There’s a ton of debate among blockchain experts as to the whether you should refer to private blockchains as blockchains.
Lawrence Lundy, head of research partnerships at venture firm Outlier Ventures, said it’s unclear without seeing TUI’s implementation to know whether other types of databases might achieve TUI’s goals without having to deal with blockchain’s challenges.
“Fundamentally, if immutability and provenance are pain points, then blockchains, either public and private, could be a good solution depending on the cost, scalability and speed trade-offs that will be required,” Lundy said. “The automation features of some blockchains through so-called smart contracts has the potential to also one day offer up operational savings, but this technology is still very immature.”
The twist in TUI’s case is that its private blockchain may one day become public. A company spokesperson said in an email that in the future it might “open the blockchain for third parties and partners” both on the supply side and the sales side but that it was “still far down the road.”
If this ends up being the case, TUI’s specific use-case could end up being a lot more disruptive than it is today.
“If TUI opened up all of their inventory data and encouraged other smaller players to do the same, you could end up with a sort of hotel inventory data commons available to all. This would reduce the value of the inventory Expedia and Priceline holds and open up the market,” Lundy said.
PhocusWire spoke to Dr. Lukas Schack, TUI Group’s head of blockchain engineering, to find out why he believes this emerging technology is a viable solution.
When did you begin exploring blockchain?
We started in autumn 2016 on a conceptual level. At the time it was having impact on financial applications and we thought what could we do with it, maybe something besides payments.
We wanted to test it in an agile approach. We started with a proof of concept testing a very specific small problem. The basic idea was to carry hotel allotment from one source market to the other.
It’s obvious that inside the TUI Group of course we trust each other, and blockchain is well-suited for business interactions between partners that don’t trust.
But we said, let’s do it in our known environment and learn from it. Learning which technologies to use – we decided on Ethereum because it comes with the smart contract capabilities. We also want to learn which people are capable of doing it. How to build our own internal capacities and so on.
Tell us about this first blockchain solution you created.
Before that we didn’t have any of this transparency throughout the group – we didn’t know which hotel’s capacities were available at which source market.
And then if we had different rates in different source markets ,it was our problem to solve that. Now with this tool we have the opportunity to shift capacity from one source market to another and maybe get better rates for it or are able to fulfill our guarantees in the first place.
It’s live and in production system, and we use it nearly every day. We learned it’s a really good single source of truth. Even though internally we trust each other, from time to time we had some times when it wasn’t clear what was inferred from one source market to the another – it was very manual process with a lot of emails and telephone calls.
Information can get lost. Now we have this one source of truth. It makes the everyday traders’ lives easier. We also learned which capabilities we need to have the solution running in terms of technology and people and so on.
And now will you expand your adoption of blockchain?
We will definitely continue on, but with other use cases. From our learnings with the first project it got clear that we need some type of blockchain core or platform where on top of that we can build any use case. We started building this platform, and it’s still under development right now.
We have some upcoming use cases in mind, and we are in the process of agreeing on one, all relying on the same blockchain stack. It’s Ethererum plus smart contracts plus all the applications around it and the APIs to communicate between the nodes.
Can you give us an example of a use case you are exploring?
One idea is to use blockchain for making contracts with third-party suppliers. What differentiates us from many other travel companies is we have our people in place in the destination and also offer tours and products there like excursions.
And we want to do this with small suppliers – maybe a single person – because we think smart contracts offer a great possibly to make contracts with those individual persons with a very high grade of automation. So those individual suppliers don’t have to go with an army of lawyers to make those contracts.
It’s a very easy onboarding of external suppliers for travel. We are also thinking about a solution for peer-to-peer selling of those excursion products, for example. You could think of it as a marketplace for touristic products – excursions, tours, and so on.
Why is blockchain a good solution for this?
All of it boils down to this trust aspect with individual small suppliers in the destination services space. TUI stands for some kind of quality. So if a customer books a trip with TUI, he does that because he trusts TUI.
If we want to sell excursions in the destination, we also want that customer to know he can trust this person. And the other way around as well. In new markets – Asia – why should those suppliers trust TUI? This trust come directly from the technology stack.
If you agree on the smart contract, which is transparent for all participants, then you can be sure this contract is valid and cannot be changed afterward.
How could blockchain change the experience for the traveler?
The purchasing itself will be the same, but it’s more about the convenience coming with it afterward. This comes from the fact that in the blockchain world you need a unique ID of the customer and the unique ID of the product.
It could be the hotel room. You have the right to use this hotel room for a specific amount of time. When there is a purchase in this blockchain world it means you combine the identity of the customer with the product – the hotel room – and you have it in a digital format and then you can do many functions around it like keyless entry to the room, personalization.
What’s next for your blockchain development?
For the bed-swapping project – on the backend side everything is on our private blockchain. We see for all upcoming solutions a public blockchain.
It has some more challenges coming with it in terms of all the information stored in smart contracts may not be visible to all participants in a public blockchain network so we are still working on a solution for that.
The concrete next steps are to continue developing this platform and then the use case with ancillary suppliers in destination, to create easy onboarding of new suppliers, making it easy bookable for TUI and non-TUI customers.
I think we started quite early, which puts us two steps ahead of some of our competitors which is an advantage. Blockchain still is in its infancy. The technology will develop quickly this year and with that new use cases will emerge in all industries.
We are open for all collaborations. But we also want to still increase our in-house capabilities, since we think it’s a very important part and it will become more important for the future. So it will be important to have in-house abilities.
But of course strong alliances with other parties into this space are also welcomed. We do have a cooperation with Plug and Play, the Silicon Valley incubator, and with those we have a lot of contacts to startups and many in the space of blockchain.
And we have a lot of good proofs of concept with them and we are exchanging some ideas and doing things together.
