Blockchain in Aviation: Ready for Take-off?

This guest article was originally published on @lufthansainnov

Blockchain seems to be at the peak of its hype cycle. What’s the status quo and what is the potential impact of blockchain on the aviation industry? We sat down with Reinhard Lanegger, Senior Venture Development Manager and blockchain expert at the Lufthansa Innovation Hub in Berlin:

1. Blockchain technology has been praised for having the potential to disrupt virtually every industry. What kind of impact could it have on the aviation industry?

Blockchain is certainly not a universal remedy. In our industry, it could have a direct impact on the travel experience. One exciting example is secure identity management: Blockchain could enable a seamless, automated process together with biometric recognition. Travelers would then have no need to enter pass data for immigration purposes. At the same time, they would remain in full control of who receives their data. Other potential use cases, for example, include the on-chain reference to secured storage of airline maintenance docs, inter-airline settlement solutions, fully automated travel insurance, or loyalty coins.

2. The Economist has described blockchain as “a machine for building trust.” Looking at the aviation industry, where could we skip the middlemen?

Our development partnership with Winding Tree, a decentralized operated and governed B2B marketplace for airlines and hotels, is just one example of skipping powerful middlemen in the Travel & Mobility Tech ecosystem. Simply put, in the future, airlines, hotels, and other travel service providers could offer their services on Winding Tree’s platform and companies interested in the respective content will only connect to the blockchain based distributed B2B marketplace to get specific offers tailored to their customers’ needs.

Once operational, Winding Tree strengthens the Lufthansa Group’s core direct distribution strategy and thus decrease distribution costs while preserving inventory integrity. As a result, customers could benefit from more competitive pricing and new opportunities within offers from partners.

3. Do you believe that an airline like Lufthansa, which has been in operation since 1955, can break away from traditional business practices and proactively develop new technologies, or will new digital players with relatively little aviation experience set the standard?

The Lufthansa Group has a strong affinity for new tech. We will only implement the latest technology in areas where we can draw on blockchain technologies’s full potential. Moreover, blockchain use cases already have a group-wide platform for testing and implementation as part of the new digital strategy lead by Lufthansa Group Chief Digital Officer, Dr. Christian Langer.

4. How could a traveler benefit from blockchain-based solutions in the long term?

Blockchain fosters transparency and trust by simply cutting out the middlemen. In the end, this leads to price advantages and richer offerings, especially with regard to third-party solutions.

Blockchain-based travel insurance and compensation solutions, for example, will make it easier to deal with claims, compensation and refunds for customers when there is a service disruption. For airlines, such a solution also increases transparency, simplifies the related processes in a very complex supply chain, and significantly reduces handling costs.

5. Even blockchain proponents admit that it could take a while for the technology to catch on. After all, the Internet’s foundational technologies were created in the 1960s, but it took decades for the Internet to become ubiquitous. How long before we see blockchain-based solutions in the aviation industry?

We live in times where the rate of change is exponential. Therefore, I expect blockchain solutions to have a noticeable impact on our daily lives in the near future — even in the Western world, where trust is usually not the most critical problem.

However, adoption will need some time, as there are issues in the aviation industry, like the commitment to transparency and within blockchain technology itself, like scalability, to be solved first. Closed ecosystems use-cases will be the first, experiencing the benefits of distributed secure ledger technologies like blockchain.

6. As discussed, media has reported about the blockchain as if it was a technological solution for virtually every problem — even for areas not yet regarded as problems. If we take a closer look, what does the reality look like?

In general, there is a wide variety of distributed ledger technologies that very often include considerable tech and business challenges. Despite all the hype, decentralization is sometimes not helpful when a central custodian already meets the necessary trust level.

Petro, Venezuela’s cryptocurrency backed by oil, is a real centralized example that challenges the general notion of having decentralized custodians with no single party in charge. The state issues a cryptocurrency to circumvent sanctions imposed by other states and needs cover from the hyperinflation their fiat currency has. The cryptocurrency has the central argument why blockchain was invented vice-versa at its core, a central bank as the market and value controlling entity.

7. To minimize the landscape, can you name three blockchain startups/companies to look out for and why?

I definitely have my eye on Clovyr. They are building a developer tool that simplifies the process of implementation and creation of blockchains. This is a huge challenge right now because a software bug or backdoor can lead to immediate money loss due to the direct monetary interconnection of blockchain solutions. Take MtGox exchange as an example.

Another exciting project is 0x, one of the many decentralized cryptocurrency exchanges. At the moment, in order to exchange conventional money (fiat money) to cryptocurrencies or crypto to crypto, you need a centralized exchange (just like with foreign currency exchanges). As legal companies, they are controlled by a group of people with non-transparent strategies, whom you need to trust to handle your funds responsibly. For example, Mt. Gox was hacked with the help of an employee and lost 850,000 Bitcoins at the time worth $450 m. While some of the currency could be recovered, there is a need to decentralize these single points of failure.

Filecoin is also promising. They are working on decentralized file storage where anyone connected to the Internet can offer their spare digital storage to third parties in a secure way. You are only paid for the usage when you provide the data (small encrypted chunks of data, not individual files) at the very moment when the established owner needs it.

We are happy to announce that we joined forces with SAP.iO to kick-off the first Aviation Blockchain Challenge worldwide to bring awareness to groundbreaking ideas in various fields of Blockchain technology application, and to initiate actual pilot projects in the aviation industry.

Apply here, if you’re up for the challenge!