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You’ve just booked your next business trip. You got a great deal, or at least you thought so!
What are you actually paying for? The hotel and the flight? Quite the opposite, you’re paying more third-parties than actual suppliers. The problem is that travel agencies continue to use traditional technology from the 50s. Still running on mainframes and using fax machines, travel suppliers are lacking in technology adoption.
From the customers’ point of view, some tech-savvy companies have positioned themselves as the de-facto intermediaries. MakeMyTrip alone has a 50% market-share in India. This concentration of distribution allows them to charge superior margins while having low-economic incentives to innovate. They hold a ‘monopoly of knowledge’ said Fritz Joussen, CEO of TUI, in a recent Skift interview. What are you really paying when you book your business travel is:
If you booked your trip through MakeMyTrip, it’s likely that you booked it through a travel agent. MakeMyTrip shares up to 25% of the total booking value of your travel with the travel agent while still making a profit themselves! Meaning that in some cases less than 70% of what you paid actually goes to the hotel.
When you book an international trip, the currencies in which your transaction is settled depends on the country where the airline resides. If you have a connecting flight over a country to another country, you suddenly are subsidizing all the costs for the various foreign currencies exchanges, making your travel even more expensive. If you did apply for an insurance cover or take a car on rent, you can have more than a handful of currency exchanges for a simple flight, depending on where those companies are located. And of course you, as a customer, are paying for that.
Settlement is a costly process in every industry. In travel the two most common models for intermediaries to operate are on either a merchant model or an agent model. Under the former, the intermediary takes the payment and then settles these with various suppliers on a regular interval. This can leave suppliers, particularly small hotels, with a low cash flow and a high cost of verification. The latter merely transfers the booking data to the supplier, and the consumer then pays when they arrive at the hotel. In the agent model, the suppliers often have a problem in case a consumer wishes to cancel or alter their booking. They need to do so through the intermediary via whom they are booked, as otherwise the hotel would still charge the distribution fee from the intermediary.
When you book a flight, somewhere in the overwhelmingly interesting terms and conditions, which we all read before booking a flight, refund policies are outlined. Depending on where you are flying from and to, different regulations apply. If your flight is delayed more than three hours, you are entitled to a refund. Have you ever received one without asking for it? Asking also doesn’t go a long way. Suppliers know they can discourage a lot of people by simply not paying anything as only a few will actually pursue the matter further with legal action.
Travel is also one of the favorite industries of fraudsters, particularly those targeting credit cards. Hotels and airlines often store extensive amount of information on customers, including address, ID documents, immigration data etc. Pretty much everything you need to bypass a credit card check. Unfortunately, hacks in the travel space are far from common. In late 2016, one of the largest GDSs, Sabre, announced that it had been the victim of a cyber-attack and that their system had been infiltrated, both credit card information and reservation details, which include personal details, were accessed by the hackers.
Today new technologies such as Blockchain promise a solution to many of the problems by providing networking and verification at an extremely low-cost. Blockchain transactions are all recorded, and transactions are final. The fact that the blockchain is immutable solves problems for fraud and settlement.
The use of smart contracts can also enable an efficient and cost-effective way to deal with settlements and refunds. Smart contracts could be coded to automatically release €600 if a flight is delayed for more than three hours and the basic criteria for a refund apply, saving hours or lawyer work and consumers’ time and effort to recover the funds.
A blockchain-enabled distribution landscape wouldn't necessarily radically change the business landscape of travel. However, it would enable true competition and innovation by destroying the current high barrier of entry. Some companies may become redundant, if they don’t offer a valuable service, but then again why should consumers pay for nothing?