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The rise of the internet has disrupted many industries; but for hotels, airlines and other players within the travel and hospitality sector the disruption has hit perhaps the most important area of all: the direct customer relationship.
Today around 70% of bookings are made through third party websites; either online travel agents (OTAs) such as Booking.com and Expedia.com or via metasearch engines. The trouble for hotel operators and airlines is that this business comes at a price: commission of up to 30% which drains straight from the bottom line.
“The hospitality industry faces many challenges, but the two most important are the need to reduce third party commissions and the related issue of improving customer loyalty,” says Riccardo Campione, Les Roches professor and a pricing and revenue specialist.
For Riccardo, blockchain could be the key weapon in the industry’s fightback against the OTAs and ‘metasearchers’. Having already highlighted the potential of the technology in a blog last year, he expanded upon the theme in a recent interview with CNN Money Switzerland.
“There’s a lot of mystery and jargon around blockchain, but in reality it’s just a very effective distribution system,” he says. “The major hotel operators already have their own distribution systems in place, storing customer data to make transactions easier and smoother. Overlay this with blockchain technology and such systems would be taken to a new level.”
Cutting out the OTAs and their commissions mean direct bookings made through blockchain-enhanced corporate portals can be made cheaper for customers – a virtuous circle in several ways according to Riccardo.
“Lower pricing will push more customers to the portal; revenues and profits go up and that means more money can be invested in SEO – traditionally an area where the third party sites have held the advantage,” he explains.
The revenue case is pretty clear. But if there’s one element that is preventing more widespread adoption of blockchain, it is the heavy setup cost. The vast computing muscle required – and the electricity to power it – does not come cheap.
“However, the big hotel chains such as Hilton, Marriott and Intercontinental tend to adopt a model where costs are centrally accumulated and then allocated hotel by hotel. That’s a perfect scenario from which to make the investment in blockchain,” says Riccardo.
“These groups have the infrastructure and resources in place – now it’s a matter of understanding how this technology can bring them more profit.”
The other key beneficiary of blockchain in hospitality looks set to be the multi-billion dollar loyalty management market.
“Loyalty schemes are already quite well developed, and many allow you to ‘buy’ things across industries. But I think blockchain will be the next big thing in loyalty, because if it can help to generate a secure, global distribution system which tokenizes loyalty – potentially into digital currency – then the various points we generate can start to add up to something truly worthwhile,” says Riccardo.
This is already an established way for hospitality businesses to reward regular customers. Given that this industry has always been very receptive to new technologies and innovations, the stage is set.
“Even the fear of transparency, which has held blockchain back in other industries, is less of an issue in hospitality. Our customer base typically doesn’t care about knowing what others have paid for the same service. And that makes it a wonderfully fertile environment for blockchain technology to be implemented.”
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