April 2018, San Francisco
2 top 2017 debates: blockchain buzz and Google grumbles
It’s been a year of fun and games at EyeforTravel in the ever-shifting travel tech landscape, but two really interesting and still evolving stories stood out, writes Pamela Whitby
From the rise of AI-driven data science, to the exploding market for experiences, trends in alternative accommodation, the opportunity for business travel, pricing versus value dilemmas and more, there have been many interesting travel tech developments in 2017.
So as we wind down to Christmas – and wish you all a very merry one - we consider just two that won’t be going away in 2018.
1. The year goes out on a blockchain
At EyeforTravel’s last show of the year, in Amsterdam, there was plenty of buzz around blockchain. It is widely agreed that this emerging technology, and particularly platforms that are public and permission-less, but also those of the private variety (what SITA’s Flightchain is proposing), could impact the travel industry in different ways. Just how much remains to be seen.
To end the year with a bang, late last week Winding Tree announced its first hotel partnership with Nordic Choice. Nordic, which has been innovative with new technologies, will use the Winding Tree’s open-source travel distribution platform to find new ways to distribute inventory.
Christian Lundén, director of future business for Nordic Choice Hotels, says he believes it will be possible to create reservation services from this platform in February next year when Winding Tree goes live.
The industry has responded with interest to the announcement, although some had expected more from Winding Tree’s first hotel partnership. Others wonder how the hotel industry, which is notorious for being slow to innovate, will respond in 2018.
True disruption will require a B2C option as well
Roland Berger consultant Joerg Esser, a former group director at Thomas Cook, believes that while Winding Tree may well simplify inventory aggregation, the ‘last mile’ will, for the moment at least, still have to be covered by somebody. “True disruption will require a B2C option as well,” he says.
Going forward Esser broadly expects profit pools between suppliers and customers to shift from being heavily controlled by intermediaries to what he describes as ‘bone-shaped’. In this environment, both savvy suppliers and other travel industry companies, including intermediaries, can both win.
One thing seems clear, in 2018, suppliers who don't succeed in establishing a direct relationship with customers through, for example, loyalty programmes, which may also be blockchain driven (as Loyyal is offering) will continue to have to pay hefty premiums to new intermediaries accessing customers.
Blockchain also created buzz in the airline space, with Lufthansa and Air New Zealand both signing partnership agreements with Winding Tree. In other blockchain news, 2017 saw airline tech firm SITA, British Airways and airports including – Heathrow, Miami International and Geneva - release a Flightchain whitepaper. The paper explored the potential for how smart contracts on a blockchain could enable shared control of data by airlines and airports; it also considered important issues of governance and scalability.
What Flightchain is proposing is one of those private blockchains to establish a single source of truth – a bit like an intranet, very useful but maybe not groundbreaking in the way that Winding Tree aspires to be. Unlike a public blockchain, where transactions are fully automated and third parties can’t charge arbitrary fees, those in control of Flightchain could still change the rules of the game.
When the Winding Tree platform, which is expected to go live in February, launches, scalability issues – which the Flightchain paper also considers – and which some believe could pose a problem, will be keenly watched.
2. Google, the airlines and the global distribution systems (GDS)
In the airline business, the high cost of GDS fees combined with a desire to own the customer was another reason for continued interest in new distribution strategies. Following in Lufthansa’s steps to introduce a GDS surcharge back in 2015, International Airlines Group (IAG) said it would do the same for tickets booked for British Airways and Iberia flights through a computerised reservation system. However, already some groups like American Express Global Business Travel (GBT) and Flight Centre Travel Group have reached deals to avoid the IAG surcharge.
Everyone has been watching Lufthansa’s moves, and waiting for GDS contracts to come up for negotiation
“Everyone has been watching Lufthansa’s moves, and waiting for GDS contracts to come up for negotiation,” John Warner, a senior consultant in customer strategy for SITA Passenger Solutions Line, told EyeforTravel in an interview.
SITA which works with around 120 airlines including tiny one’s, like Air Jamaica, is increasingly seeing frustration that contracts with companies like Amadeus or Sabre require parity. One of the problems is that some agreements prevent airlines from getting rid of distressed inventory if a hurricane, or some other unanticipated event, strikes.
“Airlines used to be able to use their websites, but with some of the contracts that have been written they are forced to distribute through different channels. If fees are around $15 per segment and they are trying to just dump inventory just to get any money they can, then they are saying what is the point. We are going to lose money now – we’re better off leaving the seat empty,” says Warner.
Another issue for airlines is the exploding look-to-book ratio. Years ago, in some unexplored countries like Mongolia and Myanmar, the look-to-book ratio was in the range of 50 to 1. Today that has grown to over 1,000 especially in high-bandwidth regions like South Korea, where people can search up to 80 times a day, and the next day too, opening multiple websites.
“The cost to airlines is huge, because somebody has to pay for the things in the data centre. Costs are going up even fares are going down, and that’s frustrating especially for smaller airlines,” Warner says.
When it comes to the airlines and the GDSs, Bobby Healy, the outspoken CTO of CarTrawler, however, wonders if the airlines are flogging the wrong horse. Healy who penned Google Flight Search: a dead man walking one of EyeforTravel’s most read stories of 2017, says if we are talking monopolies, then Google is a much bigger, more long-term threat to the airlines.
Admittedly, he says, “if you punish the aggregators - the channels that use the GDSs to book, if you punish them, then yes you push bookings directly to airline.com,” Healy told EyeforTravel in an interview last month.
But if Google’s revenue, which currently comes from these aggregators, then needs to come directly from the airline, then all the airlines have done is enable Google’s flight search. “Yes, it’s a super product, but you have essentially killed your metasearch – you have killed the OTAs and you have replaced everybody with Google at the top of the funnel. And [ultimately] you are going to be paying a whole lot more than the GDS fee to Google,” he says.
Almost nobody has turned around to Google and said no, sorry no, you are not getting our data
By handing over inventory to Google, businesses also hand over their data, which should be a source of revenue, but instead it is a cost. “Almost nobody,” says Healy, “has turned around to Google and said no, sorry no, you are not getting our data.”
Driving traffic to Google may in the short to medium term control costs, but it simply isn’t ‘direct’. More worryingly, it’s changing consumer behaviour, and entrenching the consumer love affair with Google.
The response from Winding Tree CEO and Founder Maksim Izmaylov, a vocal critic of powerful intermediaries, to the question of whether Google poses the bigger, longer term threat, was: “100%”.