Blockchain holds promise, unknowns for hotel industry
Blockchain holds promise, unknowns for hotel industry
08 NOVEMBER 2017 1:31 PM

The hotel industry is learning more about blockchain technology and how it can help with operations, but it requires more understanding to take full advantage of it.

GLOBAL REPORT—Blockchain has become the new buzzword, particularly in the hotel industry, and most people unfamiliar with the technology at least know of its association with cryptocurrency Bitcoin.

Blockchain is really just a database that stores information that its users don’t want to be changed when they add new information, said Armand Rabinowitz, senior director of strategy and workgroups at Hospitality Technology Next Generation. It allows other authorized users access to it so they can see the information without fear of them altering it, he said.

“There’s certainly a lot of capabilities and applications for blockchain for many industries,” he said. “It’s recently kind of peaked in the hype cycle right now, but not enough people know the tactical and detailed requirements for architecture and deployment. It’s still somewhat misunderstood what it can truly do.”

The architecture is somewhat performance-intensive to write information to the blockchain, Rabinowitz said. Every time someone writes information to it, it takes into account the information written to it before.

“As more information is added on top of it, the historical information is that much harder to make changes to without having to rewrite all the blocks of information chained together following that information you want to change,” he said. “That’s why it’s immutable and cannot be changed.”

Over the years, a number of companies have recognized a need for that kind of immutable information ledger, he said, but they didn’t have the ability to scale it across many public users.

Hotel industry applications
In the hospitality industry, there’s no centralized settlement process between hospitality companies, said Sekhar Mallipeddi, consulting director, transportation and logistics at PwC, which leads to some interesting implications for blockchain. For example, hotel companies that sell vacation packages with predefined rates to travel agencies are not receiving their revenue directly from the guests. Blockchain itself is a ledger that can be managed in a way each party can trust and use, he said, and the settlement process is more seamless this way.

The same process or technology could be used for intercompany settlements, he said, such as arrangements between a hotel company and an airline company in which the airline company buys blocks of hotel rooms.

Another possibility would be to use blockchain for settlements of corporate cards or corporate-level trade cards, he said, which could eliminate fees along with simplifying the process.

Blockchain could fundamentally change how data will be validated and access to that data authorized by individuals and/or systems, said Robert Cole, founder of RockCheetah. The presence of a secure public ledger will improve transparency and serve as an inhibitor to nefarious actions by unauthorized actors.

There will be several key areas of the hotel industry that blockchain can affect, Cole said, such as the distribution of authoritative descriptive information, images and video; rates, inventory and availability rules, smart contracts for transient, corporate, group, wholesale and consortia agreements; and contracts for procurement and service-level agreements.

Blockchain can also come into play for guest profiles and loyalty programs, he said, such as member authentication, event tracking and point-value exchange interoperability with third-party programs.

Cole offered the example of a guest searching for a hotel that would offer the right combination of rate, upgrades and rewards for his or her party that requires adjoining king and double-double rooms with an ocean view from a high floor, away from the elevator. With blockchain, the hotel would know the guest was simultaneously eligible for a senior, auto club, Affinity Group, reward program and targeted promotional rate without requiring the guest to remember a special rate plan, corporate ID or coupon code, he said.

By holding elite status in both the hotel brand and affiliated airline programs, he added, the guest might also be eligible for a free room category upgrade, high-speed internet access, early check-in and late check-out with a complimentary breakfast daily for the full party because they had flown a combination of 20 flights and stayed 30 nights over the prior 12 months.

Challenges of the tech
The challenge is to understand how blockchain works and how it can be applied, Mallipeddi said. People tend to use blockchain as a solution for a lot of problems without understanding how it works.

“Let’s say you’ve figured out the problem, the use case and the application to work on,” he said. “You have to find people who know how to use this and have done it and understand the tech and have the staff to do it.”

In addition to the integration challenges raised earlier, the biggest current problem facing blockchain is its speed, Cole said. Requiring proof of work to participate intentionally slows down the process, but replicating blocks across many distributed systems means that top speed is only about seven transactions per second, he said, whereas a more traditional reservation system can handle 250,000 transactions per second.

There will be new forms of blockchain-related technologies emerging, he said, and those might challenge even current internet standards and cloud communication protocols. The cryptocurrency Ethereum blockchain is enabling smart contracting, he said, but the Kademlia protocol (used by BitTorrent, a decentralized peer-to-peer protocol) and directed acyclic graphs, such as Hashgraph, might substantially improve storage and performance.

Blockchain isn’t necessarily more secure than other data storage solutions from an access point context, Rabinowitz said, but the strength of this is the knowledge there won’t be multiple copies of the information provided. There is one original set of information that’s always in sync no matter where it resides, he said.

Repeated issues with hacks and PCI compliance mean blockchain migration will take a while, Cole said. If existing systems used modern technology, were secure and cloud-based, the transition would be much simpler and faster. Those running old legacy platforms that are difficult to interface or update might face “significant platform changes required before adopting blockchain technologies,” he said.

“This is not a simple, standardized, plug-and-play implementation, although perhaps five to 10 years from now, that may be possible,” Cole said.

Exploring the technology
While adoption of the technology is still in its infancy for the hotel industry, Germany’s TUI Group is currently using blockchain in its tour operator business to implement its “bed swap application.” The effort aims to more efficiently move its hotel commitments among its source markets in the United Kingdom, Germany and Nordic countries, said Natascha Kreye, senior manager of corporate communications at TUI Group. It’s an internal process to optimize yield across the group as well as to better learn how to use the technology. The plan is to use blockchain to generate smart contracts with hoteliers and improve the company’s hotel inventory.

The use of the technology allows the company to share data in a safe and efficient way to maximize its inventory returns, she said.

In the future, blockchain technology might have the capability to generate smart IDs to personalize the company’s offers or simplify checking in at hotels for guests, she said.

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