Today Travelport announced it has developed a blockchain solution to help to reconcile hotel commissions paid to travel agencies. Travelport, which owns Galileo, is one of the big three global distribution systems (GDS) in the travel sector along with Amadeus and Sabre.
The blockchain application was developed with IBM and travel management company BCD Travel as well as high profile hotel chains such as Hyatt and others. Travelport identified that a major pain point for travel agencies is to reconcile hotel stays booked for their clients. It’s one thing to make the booking, but it’s painful to keep track of client cancellations or people who extend their stays, and the associated commissions.
“Our aim is to put the lifecycle of a booking on the blockchain and we believe doing so will drive transparency, trust, and ultimately booking volume,” said Travelport’s Senior Product Director, Ross Vinograd. It means that travel agencies and hotels can have a shared view of the booking data.
The reconciliation pain point
Vinograd elaborated on the scale of the problem. “We have 69,000 travel agencies transacting with 650,000 plus hotels. While our platform facilitates the transaction, agencies & hotels reconcile commissions offline via an outdated process littered with excel spreadsheets.”
Third parties provide solutions to streamline the reconciliation. But hotel chains could receive a spreadsheet from an agency with 50,000 rows. Of that, 90-95% of the reconciliation is automated for the hotels. “But it’s that last mile of 5% where it just creates a flurry of phone calls and Excel spreadsheets,” Vinograd told Ledger Insights.
As a result, travel agents have a lack of clear visibility into revenues. They don’t know their commissions until 60 days after hotel checkouts. And they lose commissions because of the lack of flexibility in current systems. As Vinograd put it, hotel commissions are vanilla (0%) or chocolate (10%). But if a more prominent agency agrees to a different rate with some hotels, the current systems aren’t flexible enough to cope with that.
What’s in it for hotels?
The pain point for the agencies is evident. But with all ecosystems, there needs to be something in it for all parties. At first, the advantage for hotels is less clear. Some corporate agencies make bookings via Expedia and other online travel agencies (OTAs), rather than direct with the hotels. Expedia runs an affiliate program, so travel agencies have transparency over commissions earned. This means the agencies don’t have any reconciliation issues, and they know their revenues immediately.
Travelport surveys have shown that 34% of travel agents find commission reconciliation and collection a significant detractor.
But hotels don’t like the disintermediation involved with services like Expedia. By making the reconciliation process far more straightforward, the idea is to encourage agencies to book directly with the hotels via Travelport’s system. That way, the hotel knows who the customer is. Ultimately that will drive more volumes through Travelport’s platform.
Plus it gives hotels the commercial flexibility to run promotions for new properties. Hyatt Director Dan Stephenson commented at a conference session that the project “is important to our agency partners, which fundamentally makes it really important to us as Hyatt.” He also confirmed that streamlining the process benefits Hyatt.
Last year Travelport and IBM ran another Proof of Concept to share content about excursions with travel agents. As yet, Vinograd hasn’t seen a strong market acceptance for that use case. In contrast, the reconciliation process is both within Travelport’s wheelhouse and is getting a positive market response.
“You need a catalyst that brings these industry stakeholders together, and I think right now [it’s] reconciliation because of the pain points and millions of dollars inherent on both sides,” said Vinograd.
Currently, the project is a week or two away from finalizing the Minimum Viable Product (MVP) or Proof of Concept. An iterative pilot phase will follow through to the end of Q1 next year. At that stage, Travelport hopes to ramp up adoption.
At the end of May the acquisition of Travelport by Siris Capital and an arm of hedge fund Elliott Management was completed. It valued the combined equity and debt of the company at $4.4 billion. And last month, it announced a new CEO, Greg Webb. In Vinograd’s opinion, the new ownership could help to accelerate the adoption of projects like this one.
Let’s get technical
Travelport is a long-time IBM partner and is also partnering with the technology provider for Artificial Intelligence. Hence the platform is using Hyperledger Fabric. Initially, IBM will host the nodes, but as the project ramps up, it’s expected that some of the hotels will host their own nodes.
“Eliminating the hours spent addressing dollars in dispute or the timeliness and accuracy of information allows all participants to focus on what matters most: the traveler,” said Kurt Wedgwood, IBM Blockchain Leader – Travel.
On the hotel side, some integration via APIs is required. But there’s a fallback scenario where hotels can upload daily data files which will be automatically loaded into the blockchain. While the second choice situation may not be real-time, agencies will still get data within 24 hours rather than the current 60 days.
But for agencies there’s no technology hurdle, they just have to opt-in.
One question is what has Travelport learned from its blockchain experience so far? Vinograd expected hotels to be keen to participate just because it was blockchain. But that wasn’t the case. Vinograd said: “My biggest learning is not to start a conversation with the technology, but start the conversation with the practical problem.”