Blockchain in Aviation Industry - Explained

Blockchain has been identified as one of the technologies that may have a significant impact on the future of aviation, among other drivers of change such as new modes of consumption or the privatization of infrastructure.

Karthik Kamalakannan

Karthik Kamalakannan

Blockchain in Aviation Industry - Explained

The Blockchain technology began earning significant traction when Bitcoin was launched and became famous. It is the underlying technology of Bitcoin and other digital currencies such as Ethereum. While these cryptocurrencies have unlocked innovation in the digital currency space, many use cases leverage Blockchain technology for non-currency related areas.

We are very much used to exchanging information across the Internet, e.g., emails, documents, pictures, but when it comes to exchanging value through the Internet, we are just scratching the surface with Blockchain. Anything of value is naturally more prone to fraud and theft, and in the case of some digital assets, measures need to be put in place to prevent double-spending. In this circumstance, Blockchain is sometimes referred to as the enabler of the Internet of value.

People usually do not realize that transactions are part of most of their daily lives. It could be a credit card company recording a flight ticket purchase, a government registering the ownership of a property title, or Apple iTunes recording a movie's purchase. Blockchain technology also enables two or more people or organizations to confidently and securely transfer value (e.g., money, data, or a digital asset) electronically from one person or organization to another with or without fewer intermediaries (e.g., a bank).

Blockchain technology advances with bold promises, evidence of value through traction in some use cases, but also with signs of a wave of hype. This technology provides the environment to manage information and, more importantly, value through digital channels. While there is a lot of focus and coverage related to cryptocurrencies built on Blockchain technology, the range of use cases goes well beyond digital currencies. As a general rule of thumb, Blockchain fits well in areas where there is a need to establish trust between multiple parties.

Generic Areas of Application

Blockchain technology has various ranges of applicability regardless of the industry. The distribution of a wide range of use cases has led to the following non-exhaustive generic areas of application.

1. Smart Contracts

The commercial aviation value chain involves many entities (e.g., 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. The Blockchain technology is suitable to streamline the procure-to-pay process through the use of Smart Contracts.

For example, to manage payment upon delivery of services by encoding the amount to be paid, the services to deliver, and the conditions (e.g., date, service level agreement) in a smart contract. To avoid disputes, automated neutral data sources (i.e., Oracles) can be used to confirm the service's delivery and conditions. This could eradicate the need for monitoring, invoicing, reconciliation, and the settlement process.

In resemblance, the vending machine as a concept is the closest thing to a smart contract, i.e., if a certain amount of money has been inserted and a specific item number has been entered, a particular product is pushed out and delivered. The method is independent, and the contract has been pre-defined in the algorithm of the vending machine.

2. Tokenization

Tokenizing assets has the benefit of easing accounting and reconciliation. Still, it also prevents digital assets from being double spent, e.g., a compensation voucher given to a passenger should not be consumed more than once. Compensation vouchers, especially frequent flier loyalty points, remain on the balance sheet as a liability until the passenger uses them.

3. Provenance

Blockchain can facilitate the tracking of the status and location of valuable assets that change custody with a high frequency; such as bags of passengers, cargo, spare parts, and indeed the aircraft, and in specific if the parties don't trust each other or the individuals and entities within the process. Blockchain technology offers a simple and easy way to record events in a way that is immutable and tamper-proof.

4. Certification

Blockchain technology streamlines the certification process of equipment, individuals, and others, helping the industry maintain high standards for safety and security, top priorities of airlines, and the broader value chain.

The certification would support the authentication process of:

Own staff members. E.g., crew, pilots, airport staff, security, etc.

Partners across the value chain. E.g., fuel into-plane service providers, maintenance repair, ground handlers, and overhaul providers.

Opportunities in Aviation

The commercial aviation industry is a too complicated space. Many organizations are associated with delivering travel products and services, which is sometimes manifested in a single product from a customer perspective. These players are usually collaborating and partnering to be able to co-deliver value and meet the expectation of customers. From the second 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.

1. Frequent Flyer Points

Blockchain can crucially streamline the earning, spending, accounting, and reconciliation of frequent flyer points by tokenizing these assets into becoming digital and pervasive. The continuous rise of passenger load factors is good news and, on the other hand, makes it more difficult for airlines to facilitate the redeeming of points for tickets. In addition to the balance sheet liability issue, the process of earning, redeeming, and exchanging points is ripe for innovation, in particular across alliances.

2. Baggage, Cargo, and Spare Parts

Blockchain facilitates tracking of the status and location of valuable assets such as passenger bags, cargo, and aircraft spare parts in a very reliable and immutable manner as these assets change custody. This, in turn, provides an opportunity to enhance visibility and transparency as these items move across the value chain. These new capabilities could potentially unlock new product development areas, support the streamlining of the process and equip the providers to deal with disruptions.

3. Distribution and Payment

Blockchain allows airlines, travel agents, and others across the distribution space to better collaborate while co-delivering travel products and services. The contemplated changes could extend the distribution reach of all parties involved and increase the efficiency of how travel products and services are aggregated. It additionally can move payment towards being more transparent, real-time, and low-cost.

4. Passenger and Crew Identity Management

Blockchain could organize the identity management of passengers, improving the experience, protecting privacy, and also facilitating airlines and the wider value chain to do business in digital environments.

5. Smart Contracts across the Travel Value Chain

Airlines and other organizations across the value chain trade products and services. Also, contribute significant efforts on contracts, execution of contracts, observing the fulfillment stage, reconciliation, invoicing, and settlement. All these efforts can either be considerably simplified or eliminated leveraging the concept of Smart Contracts. These Smart Contracts could be programmed to be self-executable, triggered by neutral data sources and pre-defined conditions.

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Last updated: January 23rd, 2024 at 1:50:36 PM GMT+0


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