Cryptocurrencies and blockchain technology have taken the world by storm, reinventing how businesses think about payment technology. The commercial aviation sector is no exception; in fact, airlines are using the opportunity of new technology to develop innovative solutions to age-old problems.
In 2019, Norwegian Airlines announced a proprietary cryptocurrency exchange called Norwegian Block Exchange (NBX). Initially developed to help facilitate payments in the airline industry, NBX has evolved to encompass other sectors. As NBX says in its own words, “we want to play a big role in mainstreaming cryptocurrency and facilitating the shift to digital assets.” Meanwhile, it envisions that its payment platform (called NBXpay) will propel “Norwegian Air Shuttle to the forefront of practical innovation by enabling currency-agnostic payments and reducing transactional fees and lags in the process.”
Payments are just the tip of the iceberg when it comes to how airlines could use cryptocurrency and its underlying blockchain infrastructure. Everything from inflight eCommerce and luggage tracking, to maintenance and operations, can be brought under the crypto umbrella. Here’s how.
How Blockchain Could Be Useful to Airlines
A blockchain is the technological backbone of any cryptocurrency like Bitcoin. Think of it as a ledger, like an accountant would keep, where all transactions are publicly recorded and stored. Cryptocurrencies like Bitcoin and Ethereum are “tokens” on a blockchain, representing mutually agreed-upon value between transacting parties.
But blockchains aren’t just about moving cryptocurrencies around. They can be used for non-monetary transactions and decentralized data storage that businesses can use for a multitude of purposes. What the Swiss government refers to as “utility tokens” can be used for things like tracking inventory and even voting in elections.
In aviation, these potential uses of blockchain include tracking shipments and baggage, processing frequent flyer points, alliance trading and transactions, facilitating shopping transactions (including ticket purchase), and even improving on-time departures by simplifying handoffs and coordinating logistic dependencies.
“Blockchain has the potential to become the new currency on the global stage and complex ecosystem airlines transact on,” explains Andrew Mohr, Head of Innovation at Panasonic Avionics. “It can help airlines improve transparency, transactions, operational efficiency, and trust.”
Specific applications of cryptocurrency and blockchain can be separated into two buckets: Passenger experience and operational efficiency.
For example, the International Air Transportation Association’s (IATA) recent Blockchain in Aviation report notes how blockchain could streamline the identity management of passengers, enhancing the passenger experience and privacy protection. Passengers would be less susceptible to fraud, and the friction of processing paper passports and relying on human identity checks would be greatly reduced.
Operationally, blockchain allows airlines to track the status and location of valuable assets such as cargo or parts needed for maintenance/repair/overhaul (MRO) processes in a reliable and immutable manner as they change hands. But it remains to be seen how these initiatives will play out in the real world for airlines.
“Most blockchain projects in the industry are at an exploratory stage,” says Eric Léopold, author of the report and IATA’s Director of Transformation, Financial and Distribution Services.
“Having a significant impact on airline bottom line requires a critical mass adoption of a new ecosystem based on blockchain as opposed to existing infrastructure.”
The IFE system will become a digital transaction platform that can be used to assist with everything from travel outcomes to new business outcomesAndrew Mohr
Head of Innovation at Panasonic Avionics
How Crypto Lowers Transaction Costs
One of the biggest waves blockchain technology can make for airlines is reducing the cost of online commerce. In that vein, Norwegian’s NBX initiative is designed to first address one of the biggest inefficiencies that airlines cope with regards to inflight payments: Processing fees.
These fees typically range between 1.5% and 2.5% for credit card purchases, and intermediary banks then often hold back a percentage of that revenue to mitigate potential chargeback risk. By eliminating the need for a credit card, airlines not only increase revenues on ancillary items they already sell, but even small offerings become viable. Premium IFE content, for instance, could be purchased at as little as one dollar and still be profitable to airlines once the barrier of credit card fees has been removed.
A similar principle extends to frequent flyer miles and rewards points. By placing miles and points on the blockchain, passengers can seamlessly earn and use points while at the same time relieving airlines from the burden of transaction fees and some of the costs of administrating loyalty programs.
“The coolest thing that blockchain enables is cryptocurrencies,” says Léopold. “In the future, we may see a convergence between virtual currencies like frequent flyer miles and cryptocurrencies.”
“The customer experience may look like a mobile app wallet, storing miles and coins for a seamless payment experience like scanning a QR code. In the same way current wallets manage multiple fiat currencies—dollars, euros, and pounds—future wallets will also handle new kinds of currencies,” Léopold continues.
Tomorrow’s Blockchain-Powered IFE
Blockchain technology holds the promise of adding new functionality to IFE systems, from facilitating greater monetization of entertainment content, to making it a digital travel hub for passengers to track their luggage in real-time.
“The IFE system will become a digital transaction platform that can be used to assist with everything from travel outcomes to new business outcomes,” says Mohr from Panasonic Avionics. The first use case that he’d like to see put into play is giving passengers inflight transparency into the chain of custody of their checked luggage.
“Blockchain has the power to fundamentally change the anxiety paradigm of trusting airlines with your bags,” Mohr says. “The use of the IFE system as a luggage tracking portal will also help airlines in tracking and resolving issues, while increasing customer satisfaction and operational cost efficiency.”
Lowered transaction costs associated with cryptocurrency could also transform how airlines seek to monetize entertainment content via IFE systems. Movies, music, and games could be offered on an à-la-carte basis to passengers at a cost low enough for consumers, but with the ability to still generate profits for carriers.
Mohr predicts that bringing aviation’s blockchain-powered future to life will take a combination of implementation of industry-wide standards, cooperation with governing bodies, and commitment to active participation in developing real applications. “Airlines may have to create, or be a part of, a new blockchain ecosystem that creates new opportunities for businesses, as well as provide a better experience for all passengers,” he concludes.