31st August 2020

Airlines need payments flexibility — at full flight

Liquidity Gains vs Cost Optimizations blog

Now more than ever, every basis point counts. The airlines that will survive COVID-19 will be those that are able to implement more flexible channel incentives, acceptance strategies, and processing models.

As airlines face continued pressure to process refunds swiftly — and are simultaneously struggling to maintain and adapt their services through the current pandemic — you might think that now would be an inopportune time for airlines to re-think their payments strategy. But you’d be wrong.

Now more than ever, every basis point counts. According to Ixaris’ Director of Financial Partnerships, Christian Joseph Agius, the airlines that will survive COVID-19 will be those that can implement more flexible channel incentives, acceptance strategies, and processing models.

Flexible incentives

Historically, airlines’ cost of acquisition has been considerably higher than their cost of distribution. Combine this with the fact that OTAs can still extend airlines’ reach, visibility, and access to new markets and customers, and it’s clear that creating flexible products for Online Travel Agents (OTAs) must remain a strategic priority for airlines. But tailoring incentives for OTAs is equally important. Platforms like Ixaris Payments help airlines incentivise distribution channels by defining payment terms for specific markets, products and sales volumes. Looking ahead, it may even be possible for airlines to incentivise OTAs with favourable payment terms for booking specific routes or flights.

Flexible methods

Not all payment methods are equal. Business virtual card costs vary from 0.45% to 2.2% more than a typical consumer credit card, and different business card types carry different acceptance costs. Airlines should, therefore, engage with OTAs and adopt a flexible payment acceptance strategy that can respond to the nature of the transaction or customer.

Airlines can also take their strategies a step further by considering, accepting other payment methods from strategic OTAs, which could yield mutual benefits for both parties. Interchange must also be looked at as an incentive, meaning airlines need to be able to also adjust this on a per transaction basis.

Flexible models

While chargebacks deliver protection to both buyers and suppliers, during the COVID-19 pandemic many businesses were adversely impacted financially by the cost of processing chargebacks. As the industry moves forward, airlines must use chargeback protection wisely to deliver cover — without delivering adverse financial impacts.

A potential solution is processing airline payments at the time of departure, rather than the time of booking. Consider the following analysis, which shows airline payments’ cost for a €200 booking that is due to depart in 30 days, but is then cancelled:

By authorising payments on the date of the booking, but executing payment on the date of departure, it is clear that airlines can save costs while still maintaining the benefits of card protection. Payment-on-departure also simplifies both the refund process, as OTAs need not rely on the airlines’ efficiency in processing refunds, but rather, OTAs can process refunds themselves, instantly.

If airlines adopted a payment-on-departure strategy, OTAs may also stand to gain considerable savings. By executing payments on departure, the Air Travel Organisers Licensing (ATOL)’s Airline Travel Trust fund would reduce its risk for OTA travel, with a potential positive multiplier effect for the industry as a whole.

It’s time for a change of altitude

When a flight encounters turbulence, pilots can change altitude for a smoother ride. But sometimes, a storm is so large that even more flexibility is required, and the entire flight path is altered. Airlines know the value of flexibility. Now is the time to apply it to their payments strategies.

As experts in travel payments, Ixaris can help. Contact us for a consultation on your airline payments optimisation strategy.

The airlines that will survive COVID-19 will be those that implement more flexible channel incentives, acceptance strategies, and processing models.

Christian Joseph Agius, Director of Financial Partnerships

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