We’re facing an industry with ever-tightening margins and, more widely, the economic picture is uncertain. Look at the collapse of UK tour operator Thomas Cook in September. After it folded under a weight of debt, the spotlight shone on many of the issues OTAs face like never before, from diminishing rates of return and intense sector competition to macro changes in the wider economy.
I’m sorry to say, though, that the root causes of low margins in the industry are not going away. OTAs will continue to be squeezed by airlines and hotels investing in their direct channels on one side, and price comparison and metasearch sites on the other. At the same time, OTAs want to reduce costs and overheads to help combat these challenges.
Look beyond the industry and there’s uncertainty across the world – the UK being no exception, facing down the political unknowns of a general election and Brexit.
But this doesn’t have to translate to economic doom and gloom for the travel sector. We shouldn’t just throw our hands up and accept a role as passive players in the face of difficult sector and macro factors. Now, more than ever, is the time for OTAs to unlock process efficiencies across the supply chain.
With this in mind, let’s take a closer look at how implementing payments digitisation, automation and optimisation can help OTAs alleviate external pressures:
We all know that any opportunity to improve margins is vital for OTAs. But we’re not tinkering around the edges for small gains here – this is making major changes to payments in a way that can make a huge positive change to an OTA’s margins. For low-margin/high-volume OTAs in particular, payments performance can have such a profound effect that payments strategy needs to be a board matter and a board-level KPI.
Addressing payments performance can have a positive impact on payment fees, FX costs, reconciliation costs and rewards from card spend. Roll all these improvements together and a business can transform payments from a pressure on profit to the source of a much-needed boost.
At Ixaris, we help OTAs achieve exactly that. Our focus on payments performance helps free up cash that can be invested in marketing or improving price competitiveness, and helps companies steal a vital march on the competition.
Consider it like this. A typical OTA’s revenue comes from a small percentage of its booking value. Even though the net cost of a payment is relatively low – often around 1.4% of the value of the payment itself – when the payment is optimised this cost can be transformed into revenue. This revenue could equate to 0.1% of the value of the payment, for example – and the resultant impact on margins adds up to a game-changing 26% improvement.
After making the decision to focus on payments optimisation, an OTA needs to understand what success looks like to them. At Ixaris, we get under the skin of an OTA’s business model, developing a deep understanding of its payments landscape and, taking a consultative approach, determine a solution unique to the business’s requirements.
Take it to the board
It’s likely there will be a gap between where an OTA currently stands and how it sees its best-practice payments picture. Not only will this require building a comprehensive payments strategy to achieve the necessary optimisation, but this then has to get across the line with the board, whose buy-in is integral to successful implementation.
In this way, we are here to help OTAs solve challenges and provide some security and confidence in an unpredictable world. Now is the time to be securing budget for payments optimisation, so get in touch to tell us what’s top of mind for your business so that we can help ensure that you’re in the best possible shape for 2020.
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Aran Brown, CEO at Ixaris
According to one of our recent surveys, 85% of travel industry executives think payments has a strategic role to play in their business, but only 36% are actively measuring their payments performance, let alone doing anything about optimising it.