Billing, Settlements and Payments — Blockchain Use Case
This is the next in the series of Airlines Use Cases for Blockchain that shows how airlines can use blockchain to bill, settle, and pay their partners, such as travel agents, other airlines, airport authorities, GHAs, multiple suppliers, and credit card companies.
In the airline industry, billing and settlement processes can be complex and time-consuming, involving multiple intermediaries and partners such as travel agents, other airlines, airports authorities, GHAs, multiple suppliers and credit card companies. Blockchain technology can be used to streamline this process and increase efficiency by creating a decentralized and transparent ledger for recording transactions. Smart contracts can be utilised for Interline agreements, supplier agreements, travel agent’s contracts, airport authority agreements and many more. There are multiple invoices processes in a single day in the airlines business. Streamlining this process becomes an humungous task for the airlines finance department.
A deeper look at revenue accounting for interline agreements
Airline agreements continue to evolve as the industry becomes more complex. In addition to new taxes, fees, and ancillaries, there are new ways to share ticket sales and form commercial partnerships. Current prorate engines are not adapted to these new trends, resulting in low accuracy and more manual work for airlines. Airlines often must share sensitive booking data with multiple players-such as GDSs, travel agents, or other airlines-when selling tickets.
This also results in a complicated web of receipts and payments that must be reconciled. Airlines rely on IATA today because it establishes industry standards and serves as a payment clearing house. The association’s billing settlement plan manages payments between travel agencies and airlines, and its clearing-house solution manages interline billing among the airlines themselves. These settlement procedures can be automated and streamlined by blockchain, which would also keep booking info safeguarded, reduce any disagreements or disputes and negate the need for exhaustive labor-intensive reconciliations.
Interlining allows airlines to offer customers expanded route options and easier rebooking in the event of cancellations. As overall revenue streams become more complex, encompassing not only seat fares but also fees for selection, baggage and in-flight enhancements, capturing revenue also becomes more challenging. And as each partner strives to collect as much as possible, confidence in revenue sharing can dwindle. If multiple airlines and IATA were to establish code-sharing rules with smart contracts and execute and track payments on a blockchain, airlines may be able to adopt more innovative total revenues to account for their share of revenue more quickly.
With three major airline alliances around the world, a revenue-sharing strategy is necessary. There may be numerous connections provided by the alliance, but the revenue share algorithms are unreliable, resulting in delays and conflict between airlines.
Overall, the use of blockchain technology can help to make the calculation of proration for interline and code share agreements more efficient, accurate, and transparent. It can also increase the traceability and audibility of the process and reduce the need for intermediaries, thus reducing costs and improving the speed of financial transactions. Blockchain technology can be used to help calculate the proration for interline and code share agreements in several ways.
Overall Billing, Settlement and Payments for Airlines
The diagram below describes the billing and payments process for the airlines, irrespective of the type of partnership –
· Other Airlines for Interline agreements or Code Share Agreements
· Airport authorities for space rent, electricity, water, utilities, PSF (Passenger Service Fee), Landing fees, route navigation, parking, UDF (User Development Fee) or overflying charges.
· Ground Handling agents for Manpower, Equipment, or both
· Cabin Appearance Partner for Manpower and material
· Ground Support Partner for Equipment Maintenance (Coaches, Vehicles Pushback etc.)
Travel Agents for commissions and service fees
All parties can benefit from blockchain technology in terms of improving billing and settlement accuracy and transparency. Furthermore, it can reduce the need for intermediaries, thereby lowering transaction costs and improving the speed of the financial system.
· Decentralized Ledger: By using a decentralized ledger, all parties involved in the agreement can have access to the same information and can update it in real-time. This would make it easier to calculate the proration based on the most current information.
· Smart Contracts: Smart contracts can be used to automate the calculation of proration based on predefined rules and conditions. For example, a smart contract could automatically calculate the proration based on the number of flights operated by each airline in the agreement.
· Transparency and Audibility: Blockchain provides transparency and audibility of all transactions, thus helping to ensure that the proration calculations are accurate and can be audited if needed.
· Traceability: Blockchain can be used to track each and every transaction from the beginning to the end, making it easy to trace the origin of each transaction and ensure the integrity of the data.
· Real-time Data: Blockchain can help to provide real-time data to all parties involved, which would allow them to make better decisions and adjust their proration calculations as necessary.
In terms of settlement processes, blockchain technology can make a substantial difference to the airlines. In addition to enabling trust-less settlement processes, blockchain technology decreases counterparty risk and leads to substantial cost savings for the settlement.
About Author
With over 19 years of enriching experience in the industry, Aarti Saxenaa is an expert in areas like Business Analysis, Product Management, Customer Engagement and Presales. Throughout her career, Aarti has contributed to the industry via various white papers and articles on topics like RPA and Cognitive Automations, Data Lakes, Artificial Intelligence, Phygital Airports, Innovation in Airlines, Digital Journeys, and Digital Onboarding in Banking and many more. She has been associated with client consulting engagements in multiple geographies. She is working as Associate Vice President — Innovation and Strategy at Xebia IT Architects. Prior to Xebia, she has worked with eminent organizations like Interglobe, American Express in various challenging roles. Her areas of interest span across thought leadership and building modern solutions with Next Generation Technology areas across AI, Automation and Analytics.
