The potential implications of blockchain on the hotel and leisure industry

What is the blockchain?

A blockchain is a "digital record or ledger of transactions taking place across a peer to peer network."

New records or transactions, known as "blocks", can be added to the database and are authorised by the users by consensus. This removes the need for a trusted third party, or intermediary, to verify transactions.

The information on the database is immutable as soon as it has been authorised by consensus and its data (including records of all transactions ever made on that blockchain) will remain accessible to anyone on the internet. The data is therefore very transparent and practically incorruptible.

What are the potential implications of this technology on the hotel and leisure industry?

There is no doubting that blockchain technology is still in its infancy. Commentators have compared the current state of blockchain technology to the internet in the early 2000s. 

Whilst the internet was clearly a revolutionary concept at the time, nobody could have predicted the scale with which it has grown, and the use-cases that have evolved in the past 15-20 years. In the same vein, the potential use cases of the blockchain are almost limitless.

In the hotel and leisure industry, even at this early stage of its lifecycle, there are a number of areas where the technology could have a real impact (and, in some cases, has already begun to showcase its potential.) We have touched upon a few possible areas in this article. 

• Blockchain ledger as an alternative to OTA'S (online travel agents)

Online travel agents typically receive a commission of anywhere between 10 and 30% on bookings for hotel rooms made via their sites. This can represent a sizeable cost, although of course this is helpful because it publicises the rooms to a much larger audience. 

Given what we know already about the blockchain (i.e. that it can remove the need for a third party intermediary) it is no surprise that a number of innovative hotel companies have been exploring the possibility of utilising the blockchain to reduce their cost base.

TUI Group, for example, is publicly known to be exploring the use of the technology. TUI has operations in numerous countries, each of which are marketed and organised semi-independently of one another, inevitably increasing the company's operational costs. CEO Fritz Joussen is thought to be implementing a private blockchain which has the potential to manage 100 million bed nights, and to cut out (or minimise) the expensive middleman.

• Provenance of food

Over recent years, consumers have become increasingly concerned as to where exactly their food has come from, before it reaches their plate. 

Although it will require the buy-in of the various supply chain actors to implement, blockchain technology could provide peace of mind to a concerned diner, who would be able to access a public ledger showing the entire life cycle of the food, in the case of any concerns. In the light of incidents such as the horsemeat scandal in 2013, this could restore a lot of public trust with suppliers.

• Alternative to current loyalty scheme programmes

According to a recent survey, the average household in the US participates in 29 different loyalty programmes. Such programmes are often criticised for lack of transparency and complexity of use. This weakens a customer's engagement with the programme provider (in this case, a hotel) and is a significant missed opportunity in terms of brand loyalty. 

Proponents of the technology envisage a solution hosted on the blockchain, which would simplify and automate rewards for the customer, boost customer engagement as well as dramatically reduce management costs for hotels. Separate loyalty programmes hosted on blockchains could also be combined very easily, expanding benefits available to members, and facilitating partnerships between companies.

• Tokenisation of assets

As a simple example, imagine that a property, such as a hotel, has a value of £1,000,000. Blockchain technology makes it possible to create transferable tokens, each representing an equal share of the property. 100 tokens could be created, each representing 1% of the property. Or, 1000 tokens could be created, each representing a 0.1% share of the asset. In either case, the value of each token would fluctuate based on the value of the property. 

Ownership of each single token would be intrinsically linked to ownership of that respective share of the property. 

Take the recent example of the St Regis hotel in Aspen, Canada. The St. Regis, Aspen is a well-recognised, 179 room luxury hotel at the base of the Rocky Mountains. In October 2018, asset management company Elevated Returns announced the sale of $18 million worth of securitized tokens (together representing an 18.9% ownership stake in the hotel). The tokens are hosted on a blockchain, with each token representing a proportionate share of the hotel and being capable of secondary trading.

This is a pioneering example of how blockchain technology can be used to inject liquidity into the real estate asset class, and could mark the beginning of an exciting new era.