The shock the travel industry has experienced is driving many to look at different ways of doing things post-pandemic.
There is a greater need than ever to remove costs from processes and gain efficiencies, so that the industry can recover from the COVID-19 crisis and get back to work on growth, rather than survival.
Some believe cryptocurrencies have many applications in travel and their use could potentially aid the industry's recovery as well as setting it up for a better future.
In a Q&A with Rohit Talwar, CEO of foresight consultancy Fast Future, PhocusWire explores the potential for cryptocurrencies to create new opportunities for the industry.
Talwar shares some of the insights from his forthcoming book which looks at the crypto economy in more depth.
You talk about the idea of a crypto-based decentralized marketplace for travel, what's your thinking there?
What we are seeing is the rise of cryptocurrencies. People understand we can do things differently, you can take a lot of cost out of your businesses to a point where you're creating what are called decentralized autonomous organizations, which literally have no employees.
They exist entirely in software and whoever creates them then hands them over to the community of people who hold the tokens. They then propose developments or enhancements to the platform which is a very different model but it strips a lot of the cost out.
In a lot of parts of travel there are layers of costs that go to various intermediaries so we're seeing examples of people saying we can do this differently. Travala is one example. It provides an online platform and accepts more than 60 cryptocurrencies. It's earning more than $1 million a week in revenue and 70% of its bookings are in crypto. Because of partnerships with companies such as Expedia and all sorts of others, it has access to three million products.
What Travala is saying is that if you pay with cryptocurrency, you can join its loyalty system and earn more rewards. So you're starting to lay the foundations for something really interesting. There are others such as Cheapair for airlines and Alternative Airlines, which accepts something like seven cryptocurrencies right now and lets you buy from 600+ airlines, so you getting players coming in saying we can do things differently and we can do this at a much lower cost.
We're seeing a lot of players creating these decentralized marketplaces, taking out a lot intermediaries, and allowing things to happen in a very different way. The thing about Travala is that it has very low overheads, because it has automated much of the process, reducing costs, and allowing people to pay in crypto.
There are two benefits - taking out costs and serving a growing market. The latest survey shows 25% of U.S. adults said they would like to pay for travel in crypto.
The numbers are starting to become fascinating, there are something like 300 million cryptocurrency holders in the world. It's a generation coming through that wants to do things differently.
The industry needs some new solutions and some radical thinking about how to do things. One of my favorite examples right now as a marketplace is a platform called Sandblock. It's a loyalty exchange program for companies to create their own token and enable consumers to swap, for example, Avios for M&S tokens.
The credit card companies have really jumped on this. Visa took $1 billion in the first half of the year just in crypto payments and we're seeing dedicated crypto-based credit cards. A new game is emerging, a new way of thinking about the marketplace.
What are the risks as well as the opportunities?
One of the big things with paying with crypto is you have the potential for gains in the value of the underlying currency. Yes there are some risks but if I'm a travel provider and I take some of the payments in crypto there's a good chance they could grow in value over time.
Bitcoin is the best performing financial asset in history, each year the lows are higher than the previous year's lows. The risk in traditional financial markets are pretty equivalent if you wanted to invest there.
People are recognizing the kind of upside you can get is unlikely to be repeated in traditional financial markets. Over time the value of the crypto market is likely to increase - all the big financial institutions are coming in and bringing high net worth clients in, more and more corporates are coming in and many more companies are setting up crypto teams whether to set up their own currency or work out how they're going to accept it.
Choice Hotels, for example, is allowing people to exchange crypto for its loyalty points so it's only likely to grow. We're right at the beginning of this and even regulation won't take the market away.
The question for the travel industry is does it want to be behind the curve or ahead of it? New players are coming in and taking chunks of the industry at speed. They can come up with a design, build it and launch it in the time that a traditional company can organize the first meeting to discuss the concept. It doesn't mean the ideas aren't there, it's just that the process of decision making can be quite conservative.
So, we're seeing people coming in from the outside bringing new propositions and challenging the existing sector, which is struggling to get its heads around what is possible.
Some travel players have tried working with cryptocurrencies in the past for payments. Why do you think it has not caught on?
Predominantly it's nothing to do with crypto. It's to do with the mindset of the particular organization, where the existing players think about the marketplace in a certain way. This requires a very different thinking process, a different way of looking at the market.
A lot of online travel players are also some of the most conservative companies out there, they came in as disruptors but are now very tied to their platforms. They don't get it, they don't know how to make it work in their organizations and are asking if they can partner with the new entrants. That is the way a lot of people will go rather than trying to do it themselves.
Part of reason it did not catch on before must also be consumer confidence...
Consumers are starting to get involved and starting to have faith as they see the big financial institutions and corporations entering the space. However, for a lot of people, the buying and selling process seems complex and it is going to take their bank or building society to establish a gateway into these things and give people access and take away the complexities. Inevitably, these intermediaries are going to take a significant chunk of the return.
The adoption rate is faster than adoption rate of the internet, we got to 300 million users much faster than we did with the internet. People will begin to understand more about what it is and we will start to see growing interest of buying more goods and services with crypto.
The other thing I think you will see is social tokens or brand tokens where a big brand sees it as a way of locking in a loyal community. Disney, for example, could launch a token for its customers who are then in its ecosystem and can buy all that Disney offers.
Disney can give its coin holders extra discounts and rewards, and the great thing for them is payments are in 'DisneyCoin' so they are not having to pay credit card fees. They can get other vendors coming in such as airlines, doing exclusive deals for customers and be paid in Disneycoin inside the marketplace.
The value of those coins could also appreciate over time. As customers get more and more rewards, they are incentivized to do more of their procurement within the Disney platform.
The question for the travel industry is does it want to be behind the curve or ahead of it? New players are coming in and taking chunks of the industry at speed.
So, with all of this happening there is a kind of a natural shift people being moved into this space whether they want it or not.
The idea of a lifetime subscription is also being talked about...
One of the private air travel players, Surfair, is saying that if you place a subscription with us, you can have air travel on demand. The more you travel the more rewards you get and it can partner with other players as well so you can use those rewards with these third parties.
Right now no one is saying if the crypto you pay with grows in value, we will share the rewards with you but you could see that happening over time. We're starting to see more and more clever models not seen in the conventional markets.
The great thing about doing these things in a decentralized, autonomous way is you don't have to add loads of people to the process, it's just about writing more complex 'smart contracts' so you can expand over time the range of offerings.
The real challenge for the industry is how does it grow now to make up for lost profits. That's where the excitement is for the industry, it can grow revenues without having to grow headcount.
The optimistic view is industry will be back to 2019 passenger levels by 2023. That might be true but it could take a lot longer to get to the revenues and profits they were making then.
Raising finance is a further area for the application of cryptocurrencies... is that because there are all new these new millionaires who want to invest?
Yes and, you have a lot of startups coming up in every sector that are taking the crypto route. Instead of a share issue or private equity raising, what they do is an initial coin offering. To most extents and purposes it's no different to an share offering except that when I buy tokens in a crypto-based airline, for example, I not only have a stake but can use the tokens to buy products and services from it and its partners.
If I have a share of BA, I can't really do anything with it, I have to hope its share price goes up and I get a dividend, whereas suddenly I can do all sorts of things here with the token I've bought in that startup.
There's also a good chance their value will go up in time as their performance goes up. There's much more of a direct relationship between their earnings and my earnings.
We're starting to see established businesses set up side ventures which are launched with initial token offerings and more people seeing it as a much cheaper way to raise finance.
Were you a betting man, who are the winners in this in travel?
I think there are three groups in travel.
The players who offer such a mind-blowing proposition and make it so easy for existing travel companies to get in without having to think about it. The likes of Travala and Sandbox, who Expedia and everyone else can then partner with.
The second group is existing players who create a spin-off, who say they are not going to do this within the normal confines of a brand such as Hilton, because it will take too long, so they set up a spin off, probably a boutique brand, aimed at players in the crypto space, probably premium. It will curate your entire experience - ski trips, festivals etc., through crypto.
The third group will be he players within existing sectors who really go for it. The Dolder Grand, Switzerland, provides a curated experience and what it's saying is that by using crypto it can offer safety, luxury, efficiency and anonymity to customers.
A clever thing it has done as well is partner with a private jet company called Bitflex, which was already taking 50% of its bookings in crypto. You get credits for the Dolder if you buy flights with the airline and vice versa, and you're starting to create a self-reinforcing ecosystem.
There are others like Pavilions Hotels & Resorts that you can book using more than 40 different cryptos and you're getting a lot of airlines doing the same sort of thing.
Is the industry ready for it?
There are people in the industry and in every organization within it who are probably suggesting all the things I have talked about but the industry as a whole, and the management and all the layers of decision making and approval, are probably not ready. It's in the same way that they have not been ready for almost any tech innovation whether internet, cloud, big data, AI - but most will gradually get there.
But some will. The likes of Singapore Airlines and its Kris +, a crypto rewards scheme and, those who want to be ahead of the pack, are already taking action. Emirates is also looking to adopt its own crypto-based loyalty scheme. You could see ultra low-cost, super efficient players like Norwegian, or like some of the ones in the U.S, who have created hyper-efficient business models, saying this is the next logical step.
What will get in the way of all this potentially?
It is the mindset issue. It is the people who like to bring in the yellow card with the word regulator written on it which is a beautiful way of stopping everything. I'd say that in at least 80% of cases I've seen, whilst one company is saying the regulator won't like this, another is doing it anyway.
Regulators might have a bit of an issue with this and how you do your accounting for your crypto. We might also see some of the industry organizations say they're not sure about it but, it's more because they don't understand it.
I think it's dependent on who is at the top of the organization and whether their kids are active with crypto and are influencing their parents.
There's also a mindset thing. The crypto world divides into lots of different camps:
- the tech community who get it, who love it because it's innovation driven, disrupting traditional financial markets and a whole new way of doing things
- early adopters who see this as a way of making their money work harder and potentially changing their prospects
- financial institutions who really don't care what this is, it's just an opportunity to make a lot of money
- people who will go in to it but mainly because they are going to follow the herd and,
- the people who you will almost never convince.
Crypto is starting to open up a lot of opportunities for brands and consumers alike.
It's the transparency it provides, the deep automation, the removal of people and bureaucracy - all things that allow faster, more efficient ways of doing things.