Blockchain: Is it the future for the tourism and hospitality industry?

Introduction

The influence of technology and the Internet on the tourism industry is undeniable. It started with the establishment of computer reservation systems, then global distribution systems, followed by the development of the Internet, which together changed the tourism industry’s supply and demand in kind (Buhalis and Law, 2008). One of the main benefits of the Internet for the demand side is that information searching became transparent for consumers, thus empowering them to make better decisions. On the other hand, it also brought information overload as a result of millions of pages of online information that make it hard for some individuals to process all the available information. For the supply side of the tourism industry, the Internet allowed suppliers to distribute their products directly from their own websites and on third-party online travel agencies (OTAs) and metasearch engines (e.g. Skyscanner and Kayak) as well.

Recently, blockchain and cryptocurrencies have become topics of discussion in both research and industry. Blockchain is expected “to become the fifth disruptive computing paradigm after mainframes, PCs, the Internet, and mobile/social networking” (Swan, 2015: 1). Moreover, in 2016 and 2018, both the World Economic Forum and Gartner (an information technology, research, and consulting company) announced blockchain as one of the top emerging technologies for those years (Calvaresi et al., 2019).

In a nutshell, a blockchain is a distributed database of records of all public transactions or digital events executed and shared among participants, where the information cannot be erased but verified by the majority of participants in the system (Crosby et al., 2016). Blockchain offers four features: shared ledger, security, efficiency, and smart contracts (Dogru et al., 2018). The main feature is a distributed ledger or shared ledger, which means all transactions conducted on blockchain as well as ownership status of assets are available to all blockchain members (Dogru et al., 2018). Blockchain is a secure system since all transactions also have to be verified by a consensus of blockchain members (Pilkington, 2017). The system is also efficient since transactions can be conducted in private, thus removing the need of third parties such as banks or other financial intermediaries. Smart contracts may be one of the most interesting features that can also be applied in the tourism and hospitality field. These contracts can self-execute based on predefined rules without the permission of the owner (Davidson et al., 2016).

Iansiti and Lakhani (2017) perceive blockchain as a foundational technology rather than a disruptive one, since potentially new economic and social systems can be based on blockchain. They also believe that the adoption of blockchain will emerge gradually. Therefore, understanding blockchain and contemplating its impact on the tourism and hospitality industry is essential. The tourism industry must focus not on the technology itself but on how it can be used for the benefit of consumers and suppliers, while at the same time creating new tourism products or systems.

In regard to tourism and hospitality research, there exists only a handful of published studies. Leung and Dickinger (2017) investigate the use of Bitcoin and intention to use it for travel product shopping and reveal that among European travelers the use of Bitcoin for travel product shopping is not yet common, although participants are inclined to use Bitcoin for restaurant and food delivery. Pilkington (2017) argues that blockchain technology can be used in online customer reviews, smart contracts, blockchain-based travel portals, processing of online payments for hotel bookings, and supply chain management. Önder and Treiblmaier (2018) propose that (1) blockchain can create better online evaluations and review technologies, which lead to trustworthy rating systems; (2) cryptocurrency adoption can create new customer-to-customer markets; and (3) blockchain can lead to disintermediation in the tourism industry via new forms of online intermediaries which are blockchain-based, open-source, and decentralized (e.g. Hotel P2P and Winding Tree).

Until now, most blockchain research has been limited to finance, since Bitcoin and other cryptocurrencies have become popular as a volatile and nascent digital asset and—to a lesser extent—as a payment method, thereby directly affecting financial markets. In the tourism and hospitality area, there are some studies such as the ones mentioned above, yet more research is needed to understand the concept and possible applications of blockchain for the tourism and hospitality industry.

The remainder of this study is structured as follows. The next section presents several applications of blockchain in the tourism and hospitality industry. The subsequent section reviews blockchain from a more general economic perspective, followed by a section on the nature of cryptocurrencies. After that, the main challenges of the current COVID-19 pandemic for the tourism and hospitality industry are briefly laid out. Finally, some opportunities for increased blockchain use due to the pandemic being seen as a “forced experiment” in digitization are proposed.

Applications of blockchain in the tourism and hospitality industry

Quintessential examples of tourism industry application are the new travel and hospitality platforms based on blockchain and which also accept Bitcoin or other cryptocurrencies as payment methods. For example, Winding Tree is a blockchain-based decentralized distribution platform, where consumers can access offers from suppliers directly (https://windingtree.com/files/WT_OP_ENG.pdf). This also means that inventory management can be improved by using blockchain-based systems in terms of showing real-time inventory of the accommodation and its prices, which can then be shared by stakeholders (Treiblmaier, 2020).

Another application takes the form of blockchain-based loyalty programs that can be used by hotels, airlines, and any other tourism and hospitality business that offers such programs. When a blockchain-based loyalty program is created, loyalty tokens are issued as rewards to guests in the manner of loyalty points. Moreover, these tokens can be sold or exchanged between others (Dogru et al., 2018). Loyalty tokens of different companies can have different values as well. As a result, this type of loyalty program can also increase competition and service quality (Dogru et al., 2018). For example, Loyyal (www.loyyal.com) is a company that was created for this purpose, and which aims to solve the problem of accumulating enough points for customers so they can use the points in any organization that is part of the blockchain.

Other possible applications can be found in the airline industry—in tracking luggage, for instance. Airlines can create their own blockchain and are thus able to track all the luggage in the system. This helps to locate luggage wherever it may be during transit while reducing the number of lost or misplaced luggage pieces.

Smart contracts are another possibility for the industry. Smart contracts can be created between hotels and travel agencies on blockchain, which can increase payment time between partners and help to sell more rooms due to better real-time information (Dogru et al., 2018). In addition, smart contracts can facilitate the supply chain in restaurants by tracking ordered supplies. It lets the business owner or manager see where the order is and whether there is any delay in the delivery. Should the food supply arrive in bad condition or be contaminated, the offending incident can be tracked precisely since the whole supply chain history is on blockchain. This would also reduce food-related health problems and increase sustainability of the industry. TUI Group has developed a blockchain-based system with internal smart contracts that manages bed capacities in real time with its BedSwap project (Marr, 2018).

There are other potential uses of blockchain in different areas, which may all be applied to the tourism and hospitality industry. These include having digital IDs that can replace passports and all identification-related documents such as birth certificates and driver’s licenses. This could alleviate identity theft and ease the verification of documents (Davidson et al., 2016; Dogru et al., 2018).

Some other benefits of blockchain-based systems for travelers include a rebooking function when prices get lower, transactions with cryptocurrency (N.D., 2017), reselling tickets such as airline tickets (Önder and Treiblmaier, 2018), and availability of cheap package deals by integration of major travel and hospitality portals (Varelas et al., 2019).

In general, it is expected that blockchain technology can replace centralized systems (such as OTAs), which would also be trustworthy and secure (Calvaresi et al., 2019). Moreover, blockchain can improve the coordination between stakeholders. If, for instance, a passenger does not check in for their flight, this can trigger an update of the inventory of the car rental company and availability of the hotel (Treiblmaier, 2020).

Economic aspects of blockchain

In more general economic terms, Catalini and Gans (2016) identify two central cost types affected by blockchain: cost of verification and cost of networking. Blockchain-based digital marketplaces are characterized by low cost of verification, shared network infrastructure, no need for an intermediary operating the platform as would be the case in traditional two-sided markets, increased competition, low entry barriers, and low privacy risk. On the other hand, the authors also highlight blockchain-specific inefficiencies such as the need to rely on external information and existing legal and regulatory concerns (Catalini and Gans, 2016). Abadi and Brunnermeier (2018) conclude that blockchain is not able to fulfill the three qualities of an ideal ledger simultaneously—correctness, decentralization, and cost efficiency—thus leading to a blockchain trilemma.

Swan (2017) discusses four major economic challenges of blockchain adoption. These are the complexity of the technology, its very own technical aspects, concerns about its scalability, and the need for supportive and effective policies. Nonetheless, the author concludes that the overall economic benefits of blockchain (in particular in the areas of identity verification, monetary transfers, property registries, and smart contracts) will outweigh these challenges by remodeling existing economic practices for the Internet age (Swan, 2017).

Using a game-theory approach assuming rational blockchain miners, Biais et al. (2019) point out that the existence of negative externalities implies excessive investment in computational capacity for blockchain in equilibrium, whereby mining the longest chain turns out to be a Markov perfect equilibrium and the blockchain protocol to be a multiple equilibria coordination game. Finally, Arruñada and Garicano (2018) argue that for blockchain to outperform centralized intermediaries, new forms of decentralized governance will become necessary.

A note on cryptocurrencies

Pertaining to blockchain-based cryptocurrencies such as Bitcoin, Ethereum, XRP, and many others (https://coinmarketcap.com/), it should be noted that the term “currency” can be somewhat misleading in terms of interpreting a cryptocurrency as “money,” as those cryptocurrencies are, of course, not issued by banks or any other type of centralized financial institution holding a monopoly for issuing money. While Böhme et al. (2015) already argued early that Bitcoin has the potential to disrupt payment and monetary systems, cryptocurrencies do not completely fulfill the traditional functions of money (Jevons, 1875: Ch. III), irrespective of whether they are used within the tourism and hospitality industry and beyond.

The functions of money as “medium of exchange” (to avoid the double coincidence of wants problem of a pure barter economy) and as “common measure of value” (to allow for absolute prices for different goods and services, but also for assets and liabilities, income and expenses, wealth and debt, etc. thus rendering them comparable to each other by using the currency as numéraire) can be considered fulfilled by cryptocurrencies. Yet this is questionable for the functions of money as “standard of value” and as “store of value.”

The former function cannot be seen as completely fulfilled because cryptocurrencies are not accepted as legal tender in the vast majority of countries (i.e. nobody has to accept a cryptocurrency as a method of payment, for instance, to settle debts), with Japan being one of very few notable exceptions for Bitcoin (Terazono, 2017). For the latter function, its nonfulfillment is very likely for mainly two reasons. First, the nominal exchange rates of cryptocurrencies are typically very volatile as they are heavily influenced by speculative demand, sometimes leading to speculative bubbles. Thus, cryptocurrencies typically lack external stability. Second, while the supply, for example, of Bitcoin is limited, this does not guarantee there will be no (hyper-)inflation in terms of an erosion of the purchasing power of Bitcoin supply once Bitcoin-denominated prices rise due to missing trust in the future viability of this particular cryptocurrency. All of this could result in diminishing acceptance and usage. Consequently, cryptocurrencies can also lack internal stability.

Challenges of the current COVID-19 pandemic for the tourism and hospitality industry

In the vast majority of countries around the world, the spread of the COVID-19 pandemic starting in early 2020 has resulted in a lasting lockdown and other social distancing measures at some point in time (over 100 countries as of the end of March 2020; BBC, 2020). Most flights have been canceled, intracity and intercity traffic has come to a halt, and many countries have introduced travel restrictions, effectively closing their international borders. Furthermore, governments have forced hotels, restaurants, attractions, events, and other tourism-related businesses to close. Essentially, travel and tourism as known prior to the COVID-19 pandemic have stopped during the first and second quarter of 2020 (see Gössling et al., 2020, for an early comprehensive evaluation).

While the reduction of tourism-induced and non-tourism-induced traffic, as well as of industrial production, has temporarily attenuated pollution and congestion levels around the globe, the pandemic has resulted in a sharp decline of world economic activity characterized by a projected contraction of world gross domestic product (GDP) of about −4.9% in 2020, which is worse than during the Global Financial Crisis of 2008/2009 (IMF, 2020a). For Greece, for instance, Mariolis et al. (2020) estimate a decline in GDP ranging from −2.0% to −6.0%, induced only by the reduction of international travel. Regional differences notwithstanding, such a contraction in economic activity has also resulted in a sharp increase in unemployment and bankruptcy levels and other economics distortions, which many countries have already started to fight using different countercyclical macroeconomic policy measures (IMF, 2020b). Yet the success of such policy measures, provided they are carried out competently, will not be immediately visible.

Since most jobs in hotels and restaurants, as well as at attractions, events, and in other tourism-related businesses, cannot be done remotely, the tourism and hospitality industry has been severely affected by these developments. Many attractions have started offering virtual tours, a number of (smaller) cultural and sporting events have moved online to be consumed via video-streaming tools, and many meetings and conventions are now attended virtually via video-conferencing tools. Such solutions, however, can only be considered temporary as they lack the typical touristic experience, which can only be had in person and on location.

Most likely, potential future tourists will have less disposable income due to the probability of having been unemployed for some time, will have to face higher flight prices due to the need of restructuring measures on the part of the airlines that will have survived the pandemic, and will also be characterized by higher levels of risk aversion in such uncertain times (Gössling et al., 2020). This will lead potential future tourists to spend less on luxuries (such as leisure travel) but more on necessities and also to save more money to build up precautionary wealth (Gunter and Smeral, 2016, 2017).

As could be seen during the third quarter of 2020, gradually lifting some of the travel restrictions and ending the lockdown in its severest form has not resulted in global tourism jumping back to its pre-COVID-19 pandemic growth trajectory. Tsionas (2020), for instance, finds that hotels gradually reopening in the aftermath of the pandemic require at least 33% capacity in order to reopen at pre-pandemic profit levels. This also implies that unemployment and bankruptcy are likely to persist in the tourism and hospitality industry for a while. Many countries have now also started to promote domestic tourism for the rest of 2020 (i.e. in the form of “staycations” or “nearcations”) to partially compensate for the lack of international tourists, especially given the threat of a “second wave” of the pandemic and resulting renewed travel restrictions. All these issues make tourism demand scenario planning (not to mention tourism demand forecasting) extremely challenging, given this severe structural break.

Opportunities for blockchain use due to the pandemic

On the other hand, the lockdown has also forced large parts of the population (from other industries) to work, study, and shop from home, resulting in an increased use of video-conferencing tools for professional purposes and of the Internet in general. Since most leisure time has had to be spent within one’s home, the use of video-streaming tools, social media, and video-conferencing tools for private purposes (e.g. online meetings with family and friends, private online cooking, music, or sports lessons, etc.) has risen tremendously. Consequently, the necessity of increasing Internet connectivity and bandwidth has become evident, thus calling for appropriate public investment in such crucial infrastructure, in terms of both mobile 5G and terrestrial glass fiber connections. Also, many established businesses have been forced to “go online” (e.g. traditional restaurants using online delivery services for the first time), many office workers have experienced working from home for the first time (e.g. by attending online meetings, thus also avoiding traditional business trips), and online payments and cashless (and even contactless) payments in stores have been strongly encouraged and therefore become more common.

In short, this example of “forced experimentation” (Larcom et al., 2017) in digitization has resulted in an increased use of digital technologies and also in increased trust and skills in those, even among customers and store owners of the older generation, as well as in countries where cash payment has traditionally played an important role. This unique situation could trigger a boost in digitization, thereby placing blockchain at the forefront of technological development due to its aforementioned favorable features of shared ledger, security, efficiency, and smart contracts (Dogru et al., 2018) when compared to existing digital solutions. Tourism and hospitality applications of blockchain along the lines proposed by Önder and Treiblmaier (2018), which are still in their infancy nowadays, could therefore constitute the technological mainstream in the not-so-distant future.

Recent research (e.g. Gross and Siebenbrunner, 2019) has also shown that the monetary transmission mechanism to the real economy within a multibank financial system using central bank digital currencies (CBDCs) in a completely cashless economy would work analogously to the mechanism in the fiat money system (i.e. money without intrinsic value as opposed to commodity money) currently in place. Thus, international travelers could benefit from having a unified cashless (and contactless) payment system without the need of carrying (foreign currency) cash. Technology-wise, these CBDCs could also be based on blockchain solutions. In fact, the European Central Bank (ECB) has been evaluating the feasibility of using a shared ledger for ensuring the necessary privacy of transactions for a hypothetical CBDC within its EUROchain research network (ECB, 2019).

In addition, establishing a blockchain-based supply chain system especially for the gastronomy industry would be a great opportunity. The idea of the system would be to track the food supply from its origin (i.e. from the farm) to the end customer at the supermarket (i.e. to the fork). One of the biggest advantages of such a system is the tracking of the food supply at each stage of its journey until it reaches the end customer. Thus, food contamination or food-related issues such as the spread of salmonella can be prevented before they actually happen or can be at least contaminated earlier than is currently possible.

Finally, the recent alleviation of pollution and congestion levels in many destinations, in combination with an increased level of digitization and less disposable income, may even trigger a change in attitude toward traveling more sustainably in the future. This attitude change could materialize in reducing abundant meetings incentives conferences and exhibitions (MICE) and leisure trips. For instance, one could substitute expensive and polluting long-haul trips by plane with less expensive and more eco-friendly ones within one’s own country and region by using the train and so on, thus relying more and more on blockchain-based digital solutions. Concerning MICE traveling in particular, the introduction of secure blockchain-based e-voting systems for online meetings and conventions could be one potential future application of blockchain in the tourism and hospitality industry.

Future research can focus on the organizations that have already implemented a blockchain system into their business model. For instance, TUI’s BedSwap application is based on blockchain and its efficiency in terms of occupancy or RevPar is already at par with TUI’s previous model. Since this is a novel topic for tourism and hospitality, there are not many real-world applications yet. Thus, investigation of real-world examples as case studies, efficiency analysis, or customer satisfaction analysis can be interesting topics for future research.