Over the past weeks we have shown you several use cases on how blockchain can disrupt several industries and change them for the better. Now we’re taking off, soaring above the clouds, as we take a look at how blockchain and Modex BCDB (Blockchain Database) can improve the airlines’ operations and the aviation industry.
The commercial aviation industry is a highly complex space, where a large number of entities are involved in the delivery of travel products and services, which is sometimes manifested in a single product from a customer perspective. These actors are often collaborating and partnering to be able to co-deliver value and meet the expectation of customers. According to IATA statistics, from the moment passengers search online for an air ticket to the time they arrive at their destination, the airline is just one of around 26 business partners involved in the aviation chain.
Adding to the findings of IATA (International Air Transport Association), BCG believes that the unique challenges that airlines face – such as high fixed costs, a tightly regulated industry, and the mission-critical nature of their service – make truly disruptive change a rare occurrence. Complicating matters is the complex ecosystem of industry players that airlines must deal with. These include customers (individual, corporate, and cargo), airports, partner airlines, online and offline travel agents, global distribution systems (GDSs), industry associations, public authorities, suppliers and service providers, and other travel industry players (hotels, car rental companies).
Most leading airlines are already experimenting with new digital technologies – such as advanced analytics, robotics, and artificial intelligence – and now blockchain is poised to provide fertile ground for innovation in the industry. With its ability to manage and share data and facilitate digital transactions, blockchain promises to resolve current issues of trust, security, control, and transparency in a complex ecosystem of industry players. Although the technology is still fairly young, airlines are already exploring applications that improve overall performance.
Analyzing the potential of blockchain technology for airlines, Accenture thinks that the characteristics of the airline industry – and also the broader travel industry (use case) – align very well with the capabilities of the blockchain. Data sharing among multiple actors and touchpoints powers the travel journey. From booking to arrival, players can include airlines, online travel platforms, card providers, airports, immigration, government, hotels, car rental agencies and more.
Each actor requires, collects, stores and often shares traveler and operational information. In fact, a web of complex and seemingly endless data reconciliation is happening behind the scenes of every touchpoint of every traveler’s trip. With so many systems in play – airlines house data in many isolated systems from passenger service to crew management – data exchange is not always smooth. And in the airlines industry, not only are operational integrity and revenue generation at stake when something goes wrong, but so is safety and security.
Smart contracts, cleared for take-off!
The commercial aviation value chain involves many entities (aircraft manufacturers, airlines, travel agents, airports, ground handlers, and other industry suppliers) who depend on each other for products and services to serve the customers. Blockchain technology is suitable to streamline the procure-to-pay process through the use of Smart Contracts. For instance, to manage payment upon delivery of services by encoding the amount to be paid, the services to be delivered, and the conditions in a smart contract.
To avoid disputes, automated neutral data sources can be used to confirm the delivery of the service and the conditions. This could eliminate the need for monitoring, invoicing, reconciliation, and the settlement process. To better understand this, think of a vending machine as a concept – the closest thing to a smart contract. If a certain amount of money has been inserted, and a certain item number has been entered, a certain product is pushed out. The process is autonomous and the contract has been pre-defined in the algorithm of the vending machine.
Reaching new flight levels thanks to blockchain technology
Four areas show exceptional promise when it comes to improving the airlines industry and aviation, as a whole, with blockchain technology: customer-related activities; maintenance, repair, and overhaul (MRO); ground operations; and revenue accounting. Blockchain can address these problems. Its shared nature – built on a decentralized approach to data management, security, and information exchange – can sharply improve speed, transparency, and responsiveness. This saves substantial time and money and paves the way for new business models.
Automate repetitive processes and payments. The ability to create smart contracts – electronic agreements that self-execute according to predefined rules – is generating strong interest in the airline industry. A wide range of transactions can be set up this way, including billing among airlines, billing between travel agents and airlines, determining loyalty settlements, purchasing travel insurance, and paying airport and authority taxes, fees, and charges.
Improving the customer experience. Most airlines are focusing their blockchain efforts here. When members of an airline’s loyalty program travel on a partner airline, reconciling the miles or points flown and getting those credits correctly applied to the customer’s account can be difficult, error-prone, and time-consuming. Smart contracts can simplify and automate the process among airlines, minimize the risk of error, and increase customer satisfaction.
Many applications designed to strengthen customer loyalty are emerging. Singapore Airlines has developed a digital wallet that allows customers to use frequent-flyer miles at participating retail merchants, and Cathay Pacific Airways’ loyalty app lets partners and members use their rewards almost immediately, nearly in real-time. SITA Lab is testing a blockchain application that would allow passengers to create tokens on their devices that would be accepted across airports and borders.
Simplifying revenue accounting and payment reconciliation. When a ticket is sold, airlines often have to deal with multiple players – such as GDSs, travel agents, or other airlines – and sensitive booking data must be shared. This also gives rise to a complex web of revenues and payments that must be reconciled.
Today, airlines rely on IATA, which sets industry standards and acts as a payment clearing-house: the association’s billing settlement plan handles payments between travel agents and airlines, and its clearing-house solution handles interline billing among the airlines themselves. Blockchain could automate and streamline these settlement processes, keep booking data secure, eliminate disputes, and do away with heavy reconciliation work.
Reducing dependence on intermediaries. Airlines have become highly dependent on a handful of third parties that consolidate much of the industry’s decision power—and charge substantial fees and commissions for their services. GDSs distribute available tickets to travel agents, who sell the tickets to individuals and businesses. The top three GDSs control 99% of the market for indirect ticket sales.
Online travel agents account for most airline bookings. By reducing these third-party costs, blockchain can increase revenues among network members. Air France–KLM, Air Canada, Lufthansa, and Air New Zealand have partnered with Winding Tree to develop a blockchain app that will allow consumers to access tickets directly from the airlines. In an initiative backed by Russia’s largest commercial bank, S7 Airlines is using blockchain to sell and issue tickets, as well as to ensure faster payments between airlines and travel agents.
Tracking components and shipments. Given the industry’s focus on safety, knowing the source and ensuring the quality of all the components, parts, and other materials that make up an aircraft are critical. In MRO (Maintenance, Repair, and Overhaul), the complex value chain – which involves manufacturers, component resellers, airlines, service providers, and regulatory authorities – can make getting information on the origin and journey of components a challenge.
Blockchain provides transparency throughout the value chain and an auditable record of the sources and histories of all parts and components. This traceability can also extend to baggage and high-value cargo shipments, which are handled by multiple players, including customers, airlines, transportation companies, airports, and local authorities.
Improving ground operations and on-time departures. By capturing real-time data and tracking completed milestones on the detailed flight checklist, blockchain can help airlines coordinate the activities of all the crew members and service providers (cleaners, baggage handlers, catering providers, and airport ground crews) that the companies depend on for on-time departures and identify the source of any delay.
Ticketing. An e-ticket is, in essence, a database entry – information that would have been printed on a paper ticket dematerialized, stored in and called up from a massive database. The blockchain can tokenize this asset and further dematerialize it. Through the use of smart contracts associated with the asset, airlines can add business logic and terms and conditions around how the ticket is sold and used. This opens the door for tickets to be sold by different partners, and in real-time, from anywhere in the world.
Loyalty. Loyalty is big business in air travel. In traditional loyalty points schemes, travelers often have to wait until points settle and accrue to use them, and they are limited on where they can spend them. By tokenizing loyalty points on the blockchain, travelers can get instant value by redeeming them on the spot. They can also use them more broadly through a specific user community of partners. Think of it as a marketplace or exchange model. With points accepted as “currency” among more providers, travelers get an easier and faster-to-use program that is more relevant to their personal preferences.
Security and identity. Protecting data privacy is a clear issue when it comes to passenger records, flight manifests and crew information. Not to mention the security implications that are in play today’s world if this data is not properly protected. Blockchain technology with a security wrapper creates a very different and less risky way of managing and sharing this information through the use of authorized access requirements.
Maintenance. Blockchain technology can transform maintenance logs, which at best are in cumbersome databases and, at worst, are in paper binders. The blockchain can help the industry ensure that parts procured are legitimate and can offer a “virtual copy” immutable record of the provenance of every part on the plane, every time it has been handled and by whom, from the beginning of the aircraft’s existence. This visibility is profound and can take the practice of maintenance, safety and aircraft security to new levels.
Lost Luggage. The incidence of misplaced luggage is another frequent woe for air travelers whose impact could be reduced with the help of a blockchain. If passengers registered each piece of luggage on a blockchain when they dropped it off and registered it again when they picked it up, it would become much easier to find a misplaced bag or suitcase in the event that it ends up on the wrong flight, the wrong passenger picks it up and so on.
The records would be immutable, providing an unalterable record for tracking luggage as it moves around the world. They could also be shared easily between airlines in the event that an item ends up not just on the wrong flight, but in the hands of an entirely different airline than the one that is supposed to be responsible for it.
Using blockchain to streamline airline finance
Airline leaders are already familiar with robotic process automation (RPA). Another familiar vector of disruptive innovation involves cognitive computing and machine learning. Now, blockchain is making fast inroads, and a lot of finance decision-makers are hurrying along the learning curve, informs Deloitte.
As with other technologies, airline CFOs need more than attractive promises – they need proof of real solutions so they can make the right decisions for their organizations. In the airline industry, where concerns like safety and regulation make it unlikely to find first movers rushing into new technologies, blockchain faces a high bar for proof of concept. A quick look around reveals that some airlines have already found places to pilot blockchain in their own operations. The applications may include:
Parts tracking. Maintaining parts records is about more than bookkeeping. Good tracking preserves value – in fact, a perfectly good part of missing records may have to be scrapped. Unimpeachable records can also help save time and effort in paperwork inspections, such as verifying whether a part has complied with FAA airworthiness directives. As fleets grow and parts become more complex, how can an airline CFO ensure quality and efficiency in this critical function?
Today, an airline may dedicate many resources to different business units to the task. That approach means multiple people tasked with documenting asset lifecycles and the complicated – and mandatory – maintenance that goes with it. Missed information can cost airlines in the form of failed compliance or impaired assets. With the full adoption of blockchain across the parts ecosystem, an application such as Parts Pedigree helps resolve inefficiencies in the documentation of the asset lifecycle.
Additionally, airlines would be able to sell and purchase assets with confidence that the documentation is uncorrupted and the seller has adhered to all maintenance regulations. As trust in blockchain grows, it may be possible to conduct fewer inspections and reduce the workforce needed to audit maintenance. It also offers peace of mind by removing trust entirely from some parts of the equation: For example, if you rely on a third-party platform provider to reflect supplier documentation accurately, your faith in that platform provider is critical. But with blockchain, the documents authenticate themselves, and trust isn’t an issue.
Engine and parts leasing through smart contracts. Airline CFOs like parts leasing – it’s a cost-effective alternative to purchasing in an industry that is notably capital-intensive. But it can be clunky to manage lease agreements with multiple external partners, and the process invites error. While it’s already common for airlines to lease engines based on hours of use, spreading that model to other parts has been difficult because of complexity.
With smart contracts that use blockchain to self-execute transfers of value, the leasing model could apply to more equipment on each aircraft, on a micropayment basis that is standardized and trustworthy. The automation of these supply chain transactions could also eliminate the need to process invoices and payments. The result would be more liquidity and flexibility with fewer resources dedicated to documenting and executing transactions
Interlining and revenue recognition. Interlining lets airlines offer their customers expanded route options and easier re-accommodations when cancelations occur. But settling accounts is complex and tedious, and compliance with the IATA Simplified Interline Settlement standard can be difficult. As total revenue sources become more complex, including not only seat fares but also fees for selection, baggage, and in-flight enhancements, so does revenue recognition.
And with each partner-driven to collect as much as possible, trust can wear thin in the process of sharing revenue. If multiple airlines and IATA were to define code-sharing rules with smart contracts and execute and track payments on a blockchain, airlines could introduce more innovate total revenue drivers with the confidence they could recognize their share of the revenue more quickly.
Airport slot management. Airports have finite slot and runway capacities. An unused slot is a vanished asset. Airline CFOs must forecast and bid on slot needs with an imperfect view of the future. Blockchain has the potential to reach across the silos where the different data sets related to scheduling reside, speed the process of identifying unused gates while there’s still a chance to use them and automate the speedy resale of those assets to other airlines.
That approach means a revenue premium for the seller and an operational assist for the buyer, fewer friction costs within a process, and best of all, fewer delays and cancellations for passengers. To make this work, airlines, airports, and traffic control will need enhanced real-time data capabilities, and airlines will need faster processes to execute changes to planes, crews, and ticketing.
Overbooked flights. Many air travelers learn the hard way that a plane ticket for a given flight doesn’t necessarily entitle them to board that flight. Airlines commonly and deliberately overbook flights, betting that some passengers won’t show up. When more passengers show up for a flight than there are seats available, and not enough passengers volunteer to switch to different flights, some passengers get bumped to a later flight against their will. Blockchain technology and smart contracts could alleviate this risk.
Instead of issuing manual calls at the gate for volunteers to give up their seats during an overbooking situation, airlines could offer passengers the option of booking e-tickets with built-in smart contracts that bump passengers and modify ticketing information voluntarily. This would make the process of finding volunteers less ad hoc and opportunistic. The airlines would know ahead of time who is willing to be bumped, and passengers who want to take a bump would be able to do so without having to be present at the gate prior to boarding.
Airline record keeping. Airlines collect vast amounts of data related to passengers and flights. While a portion of this data has to be reported to authorities like the Federal Aviation Administration (FAA) for compliance purposes, most of it is not stored in a systematic way. A blockchain is an obvious solution for this challenge. It is already being put to use by Aeron, which encourages pilots to log flight data on a blockchain.
Aeron’s major focus is on combating fraudulent record-keeping as a way to improve safety, but it is easy to imagine how blockchain-based storage for other types of data, such as ticketing information and even data as mundane as the layout of a plane’s cabin, could add transparency and efficiency to the industry.
Frequent Flyer rewards. Frequent flyer programs have significant drawbacks. Passengers can typically redeem rewards in exchange for a very limited set of goods and services, which means that the rewards have virtually no real-world value. Airlines also usually require passengers to accumulate a certain quantity of rewards before they can redeem any of them, with the result that passengers who earn only small amounts of rewards within a given time period often cannot use them at all.
And the process of redeeming rewards is usually complicated, especially if you use them to purchase something other than flights. You can’t just browse an online retailer who partners with your airline to redeem your rewards; you have to go through a complex process to use the rewards to buy something from the retailer, if this is allowed at all.
This issue can be even more daunting if – as many travelers do – you live in one country but want to use your rewards to buy something in a different country with a different currency. Issuing flyer rewards as cryptocurrency would mitigate these problems. Cryptocurrency would be easier to use for purchases without a complicated redemption process. Cryptocurrency-based rewards would be easy to use in any country, regardless of the local currency.
Four major airlines, one game-changing technology
Emirates. Sir Tim Clark, President of Dubai-based Emirates Airline, believes airlines need to make drastic changes to the way they treat new technology. In an interview with Business Insider, Clark issued a stern warning to the airline industry on the need to embrace the seismic shift in technology that’s underway: “Guys, there’s a storm coming, and if you don’t get on it and deal with it, you will perish. The company of the 2050s will bear no resemblance to the company of 2018.” The veteran aviation executive, with the airline since its debut in 1985, made these comments in response to a question about the role new technology would play at Emirates.
Speaking about Emirates, Clark used the word “revolutionary” to describe how new tech would affect his airline. “And I don’t say that lightly. It’s not a question about using advanced technology to increase the way you do your business, like ancillary revenue streams, because that’s a given. It’s not a question of not knocking your companies down internally and rebuilding them on digital platforms.
That’s a given for us. It’s not the case for a lot of other airlines. The airline industry, which has traditionally been fairly Jurassic in its thinking, needs to get its act together pretty damn quickly because we are so process-driven.” Tim Clark also believes that tech such as Artificial Intelligence and robotics could be deployed to reconstruct the many processes of an airline in a manner that would create greater levels of efficiency.
Blockchain, a revolution within a revolution
Blockchain is one of the technologies that Emirates is focusing on. In many cases, blockchain is most widely associated with transactions involving cryptocurrencies like Bitcoin. But Tim Clark believes there’s much more to it than that.”Blockchain is a revolution within a revolution! It’s not about how much money people are making by mining Bitcoin. Instead, the most powerful aspect of blockchain is how it’s constructed and the many applications it has beyond cryptocurrencies.
It’s going to transform everything we do and how you and I interact with each other and things around us.” Emirates’ President said he was most interested in how blockchain could be adapted for use in the airline industry. One such application is the IATA Clearing House (ICH). Simply put, it’s the platform where international airlines settle up their bills using a variety of currencies. The Emirates boss believes the ICH is a perfect candidate for blockchain technology.
Singapore Airlines. KPMG in Singapore has worked with Singapore Airlines (SIA) and Microsoft to develop the first airline loyalty program “digital wallet” based on blockchain technology: KrisPay digital wallet. SIA’s CEO: “This groundbreaking development in which we will be using blockchain technology to ‘digitalize’ KrisFlyer miles is a demonstration of the investment we are making to significantly enhance the digital side of our business for the benefit of our customers.
With KrisPay, SIA’s KrisFlyer members can instantly convert KrisFlyer miles into KrisPay tokens that can be spent with participating merchants. The digital wallet not only makes it easier for SIA customers to use miles in their KrisFlyer account, but it also allows SIA to onboard new partners and reconciles payments using blockchain technology.”
“With the blockchain-based digital wallet, it is a straightforward process for participating merchants to connect with the program and for customers to make purchases with their tokenized miles”, said Jan Reinmueller, Head of KPMG’s Digital Village. “The blockchain provides a distributed ledger that time-stamps every customer transaction in real-time, providing significant cost and time efficiencies. To help meet the requirements for the innovative KrisPay blockchain solution, the KPMG Digital Village team brought a wide range of experience in solutions architecture, application build and graphic design and cybersecurity.”
Lufthansa. In order to compile potential applications of blockchain in the field of aviation and to create joint standards for its use, Lufthansa Industry Solutions has launched the initiative Blockchain for Aviation (BC4A). The goal is to bring together all fields of expertise and to collectively sound out the potentials of blockchain technology. Potential participants include, for instance, software developers, aircraft manufacturers, MRO service providers, logistics providers, lessors and regulators.
With blockchain, information is stored in blocks, each of which contains its own history. Because every block is verified and sealed, the information contained in it cannot be changed and is saved in such a way that it is visible for everybody. This transparency makes it extremely difficult to corrupt and manipulate the information and is of particular benefit if different companies are working together and therefore using the same data – for example in aircraft maintenance. In the future, components could be registered in a blockchain after they are manufactured together with all relevant data (serial codes).
If a component is installed in an airplane, this information can be saved again in another blockchain. If the part then malfunctions, maintenance technicians can use the information stored to review the exact number of flight hours and to decide whether to replace or repair the part. If it is repaired, this information can then be saved in a separate blockchain for the component in question.
This makes it possible to seamlessly store documentation across different companies – from manufacturers to airlines to MRO service providers. This is an incredible advance, as it means that the entire maintenance cycle of a single component can be reviewed in its entirety. It reduces the risk for MRO service providers in particular, as they can now use blockchain technology to provide verifiable documentation about the parts they have installed at any time. Other blockchain application scenarios in aviation include the secure management of certification from aviation authorities and technicians’ job cards.
Cathay Pacific has also jumped on the bandwagon with a new campaign called “Unlock More Miles” with a blockchain foundation powering it, as its general manager of IT solutions, Lawrence Fong, said. “We are pleased to partner with Accenture and we will continue to leverage its technology to develop more applications that our customers value. As a start, we are very excited by the first offering resulting from our co-operation the marketing campaign launched by Asia Miles which we expect to be well received.”
About Modex BCDB
Currently, the majority of blockchain solutions present on the market are oriented towards blockchain as a service, limiting themselves to a rigid view and application of the technology. A company or the CTO of a company can come to the realization, after a bit of study that their business can solve several issues and streamline back-end processes by implementing blockchain.
The problem is that in order for a company to implement blockchain technology only through its own tech team, they need to invest a significant amount of time and resources to study what type of blockchain is most suited for their needs, and commence a lengthy process of learning the development specificity of the respective blockchain, as well as scouting for developers proficient in the technology.
Every enterprise is reserved and unwilling to make changes to its database, and for good reason, as data loss or data corruption constitute major risks. Modex BCDB doesn’t work by deleting the existing database, or data entries. The database is maintained intact throughout the process, data integrity is ensured by calculating the metadata of the records and storing it on the blockchain.
Moreover, the system does not restrict access to the blockchain or to the database, so when a developer needs to make a reporting or ETL transformations, they can always perform warehouse analytics by accessing the database directly. This is because Modex BCDB has been purposely designed to be agnostic.
With our solution, clients are able to set up a network, regardless of the type of database employed. In a consortium, each company can maintain what type of database they prefer (Oracle, Microsoft, IBM, Mongo DB), and connect them through a blockchain-powered network to ensure cohesion, availability while protecting corporate interests.
Blockchain company Modex is promoting the adoption of blockchain technology and strongly believes in a future built around blockchain. Modex offers fully integrated services designed to solve the last mile adoption problem of the blockchain and aims to make blockchain user-friendly for every single device or person.
At Modex, we can innovate thanks to our incredible team of experts and we offer services for the entire blockchain technology ecosystem: Marketplace for Smart Contracts, community tools for developers and blockchain as database services for enterprises. In over two years, using cutting-edge technologies and with a clear strategy, Modex has evolved from the world’s first app store for blockchain into a complex ecosystem designed for developers’ needs and enterprises looking for blockchain solutions. Our mission is to spread and facilitate the adoption of blockchain into society and to solve real-world problems using this revolutionary technology.