Managing Director & Senior Partner; Europe, Middle East, South America, and Africa Chair, BCG X
Is the airline industry fully capitalizing on the digital revolution? With rising demand, strong cost controls, increasing fee revenues, and solid earnings, the case for transformation may not seem as urgent as it might be in other industries. Still, gathering storm clouds indicate a need for change. These include legacy processes inherited from the 1970s, highly fragmented distribution channels, minimal business model innovation beyond cost management, and the uneven use of data and analytics to improve key operating areas.
That all may be about to change, however. Most leading airlines are already experimenting with new digital technologies—such as advanced analytics, robotics, and artificial intelligence—and now blockchain is poised to provide fertile ground for innovation in the industry. With its ability to manage and share data and facilitate digital transactions, blockchain promises to resolve current issues of trust, security, control, and transparency in a complex ecosystem of industry players. Although the technology is still fairly young, airlines are already exploring applications that improve overall performance. Four areas show exceptional promise: customer-related activities; maintenance, repair, and overhaul (MRO); ground operations; and revenue accounting. (See “Where Airlines’ Biggest Blockchain Opportunities Lie.”) What’s more, the technology could usher in a new era of cooperation, collaboration, and alignment within the industry.
Airlines meet the key criteria for blockchain relevance, as the following checklist shows:
On the basis of these criteria, the areas where blockchain will deliver the greatest potential value are customer-related activities; maintenance, repair, and overhaul; ground operations; and revenue accounting. (See the exhibit below.)
The unique challenges that airlines face—such as high fixed costs, a tightly regulated industry, and the mission-critical nature of their service—make truly disruptive change a rare occurrence. Complicating matters is the complex ecosystem of industry players that airlines must deal with. These include customers (individual, corporate, and cargo), airports, partner airlines, online and offline travel agents, global distribution systems (GDSs), industry associations such as IATA, public authorities, suppliers and service providers, and other travel industry players, such as hotels and car rental companies.
Blockchain has the potential to improve the customer experience while also cutting costs and boosting operational efficiency.
Most people associate blockchain technology with cryptocurrencies, such as bitcoin, that provide a way of transferring money anonymously without an intermediary. At its core, blockchain is a ledger that securely records transactions across a network of participants. Blockchain has four key characteristics. It is:
The current systems landscape in the airline industry is archaic and siloed, which hinders the fast and seamless exchange of data within the intertwined and complicated ecosystem of industry players. Blockchain can address these problems. Its shared nature—built on a decentralized approach to data management, security, and information exchange—can sharply improve speed, transparency, and responsiveness. This saves substantial time and money and paves the way for new business models. With blockchain, airlines can:
Blockchain is still a fairly young technology whose full potential has yet to emerge. Current challenges—including performance speed and the best way to approach platform and technology governance—are still being resolved. In the meantime, airlines must explore a wide variety of applications and prioritize those that deliver the most business value from a shared data platform. Two models show promise:
Many observers believe that forming a consortium of partners to run a blockchain is the best way to unlock the technology’s real benefits, although this shared approach is more challenging to coordinate. Because power isn’t consolidated in a single company, governance is more equally distributed, which goes a long way toward overcoming the trust barrier—and enhancing the sharing of information. The airline industry is already well positioned for this approach, given the established alliances and joint ventures among players. For instance, Air France is one of 20 airlines in the SkyTeam alliance, which draws on the flights and connectivity of its member network to offer customers a more seamless travel experience. Similarly, many airlines form joint ventures so that their customers have more options than they would with a single carrier. And across the industry as a whole, airlines have long shared the trusted services of IATA.
Airlines ought to build on this foundation of cooperation and extend it to blockchain technology, which will require broad-based discussion and agreement among industry players and major changes to industry standards. No airline can go it alone given these industry dynamics—no matter how brilliant a proposed solution. What’s more, a trusted governance structure must be in charge of making key blockchain decisions in a fair and reasoned manner, so that no members of the consortium feel disenfranchised. The best approach may be to start small, testing the waters with existing joint ventures and then scaling up as needed.
Finally, the industry should consider how combining blockchain with technologies such as predictive analytics, robotics, and the internet of things (IoT) can create even greater power and synergies. For instance, in industries where health and safety are primary concerns—such as airlines, food, and pharmaceuticals—the combination of blockchain and IoT can improve quality assurance and proof of provenance throughout the supply chain. As with any new technology, the potential for disruption isn’t always immediately apparent. Forward-looking airlines that use blockchain and other digital technologies to fundamentally rethink how they do business will gain the greatest benefits.
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