What the History of Airlines Tells Us About Blockchain Commerce

What the History of Airlines Tells Us About Blockchain Commerce

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We may be nearly 30 years into the internet era but nearly every asset, product and service in the global economy remains an offline asset. From cars to farm tractors to apartments to storage spaces, the truth is the vast majority of the world’s productive economic assets are offline. We don’t know if they’re busy or not, if they need maintenance or if they’re available to be rented. We can’t even find our car keys.

That’s going to end soon. In the coming years, a combination of blockchain, wireless networks and internet of things (IoT) is going to start connecting, digitizing and tracking the world’s stock of productive assets. Every piece of capacity can be represented as a digital token on a blockchain, accessible through smart contracts, and managed and available based on IoT-enabled connectivity. The impact is going to be enormous; some industries are going to be turned upside down overnight, while others might not change much at all. How will we be able to know and predict what will be impacted and how? I suggest a brief study of history.

While the possibility of true digitization has been around for about 30 years, we still have a long way to go. One case study worth considering is the airline industry, which was one of the very first to be fully digitized and has had, to put it mildly, a very rough ride along the way.

In the fall of 2005, I remember landing at San Francisco International Airport on a flight from Dallas. Over the PA, the flight attendant thanked us, as usual, for choosing her airline. She concluded her message with a line that made the whole plane laugh: “We know you had a choice of bankrupt airlines for your flight today and we thank you for choosing us.” At the time, nearly every major U.S. airline was under the protection of Chapter 11 bankruptcy. For some of them, it was their second visit in less than a decade.

While the immediate cause of this particular wave of bankruptcies was a combination of the dot-com collapse and the Sept. 11, 2001, terrorist attacks, the financial situation of the major airlines had been dire for a long time. Since airlines were deregulated in 1979 there has been a steady stream of bankruptcies and mergers as the industry consolidates. This isn’t a story about deregulation, however; it’s a story about digitization.

The airline industry offers a unique and interesting real-world experiment in what happens when you digitize an industry. What makes this industry particularly interesting is that it’s possible to look at the impact of digitization as having effectively taken place from one moment to the next. This is because although digitization of the airline industry took more than a decade, regulations that governed where airlines could fly and how much they could charge meant that no real impact on pricing or economics could be seen while the industry was regulated.

Starting in the 1960s with American Airlines, airlines began a process of converting their reservations systems to fully digital, online systems. By the 1970s, every seat on every flight in the U.S. was part of a continuously available digital market. Travel agents (and eventually consumers) could search the entire national inventory of flights and seats, compare prices and issue tickets entirely online. Though it wasn’t until the 1990s that electronic tickets were implemented, the reservation and purchasing process was nearly completely digital end to end by the mid-1970s.

During this period of digitization, the industry economics remained largely unchanged, thanks to the regulatory environment. Prior to 1979, the Civil Aeronautics Board (CAB) regulated airlines, determining where they could fly and how much they could charge. The CAB also guaranteed a reasonable rate of return, provided there was sufficient passenger demand and limited competition between carriers. The result was an orderly national growth of air travel and a proliferation of different airlines, many of them profitable.

From the end of 1978, the Airline Deregulation Act rapidly phased out most price and route restrictions, and suddenly we had a free and open marketplace in which all the capacity was visible. The result was a bloodbath. Between 1981 and 2000, more than 30 major U.S. airlines declared bankruptcy and most of them . Famous names from the earliest days of aviation disappeared, including Pan Am and TWA. Many of the others merged with the stronger survivors – “strong” being a relative term because nearly all of the industry’s “winners” spent a stint in bankruptcy as well.

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