Airline merchant Pain Points

By Mark Patrick

The complexity of today’s payment landscape presents several challenges for airline merchants, impacting their operational costs and financial sustainability. With 2.9 billion payment transactions annually, equating to $1 trillion in value, the global airline industry is no stranger to processing a large volume of payments. However, these transactions come at a substantial expense.

Recent data reveals that airline merchants face a daunting $20 billion in payment-related costs each year, accounting for approximately 3% of their total revenue and 78% of their net profit. Moreover, these payments generate significant short-term financing costs, with 2019 alone witnessing a hefty $2 billion burden, representing around 9% of the overall payment costs incurred by airlines.

One reason behind these challenges is the fragmented payment landscape. Airlines have to deal with a convolution of payment methods, different acquirers, and disconnected systems, which causes operational inefficiencies and customer dissatisfaction. Legacy technology worsens the situation by limiting flexibility and making it difficult to meet changing customer demands and industry trends.

In this article, we’ll delve into the three main challenges airlines face in the payment landscape. We will examine the impact of fragmented payments, legacy technology, and the financial burden they impose on airlines. Furthermore, we will explore how Payment Orchestration can revolutionise the payment experience, empowering airline merchants to overcome these challenges and thrive in an ever-evolving industry.

As we’ve already discussed in more detail in a previous article, managing digital transactions across multiple borders can be difficult for vendors. In 2021, around one in twelve debit card transactions issued in the UK were international, highlighting the scale of cross-border transactions. However, these transactions can create significant challenges for airline merchants, such as navigating fees, complexities, and exchange rate fluctuations.

One major difficulty of overseas payments is the imposition of fees. When processing payments across different countries, airlines often face additional charges from banks, card networks, and intermediaries. These fees can impact the profitability of airline merchants, reducing revenue and affecting their bottom line. Furthermore, the ever-fluctuating exchange rates between international currencies can also hurt the profits of businesses.

Taxation is another factor which varies between countries. For example, a payment may have tax implications in its destination country, requiring the buyer/buyer to think carefully about which taxes they are required to pay for which situations, which can affect the profitability of a potential payment. Although there are taxation treaties in place designed to mitigate the possibility of double-taxation, these regulations are often specific to their country of origin, which means that payees may not always be entirely exempt.

Moreover, the complexities involved in cross-border transactions can lead to operational inefficiencies. Airlines must adhere to various regulations, navigate different banking systems, and handle foreign currencies. These complexities increase the risk of errors, delays, and disputes, causing inconvenience for both airlines and customers.

Fluctuating exchange rates pose another hurdle for the airline industry. As currencies fluctuate, the revenue generated from cross-border transactions can vary greatly. Unpredictable exchange rate fluctuations can affect airlines' profitability and financial stability.

• Distribution channels: Airlines rely on multiple distribution channels, such as direct sales, global distribution systems (GDS), online travel agencies (OTAs), and metasearch engines. It can be difficult to balance the distribution mix, manage relationships with multiple intermediaries, and keep distribution costs at a minimum.
  
  

• Regulatory compliance: The airline industry must abide by a wide range of regulations, such as data protection laws, customs and immigration requirements, and passenger rights. Staying up to date with evolving standards and implementing robust security measures are critical challenges for airline merchants.
  
  

• Competitive landscape: The airline industry is very competitive and it can be difficult to attract and retain customers. That’s why a straightforward checkout process is key to preventing customers from abandoning their carts and using a competitor.
  
  

• Fraud: Airlines are highly vulnerable to fraudulent activity due to the high value of transactions. One such example is chargeback fraud, which sees a customer disputing a legitimate transaction and claiming it’s fraudulent. Chargeback fraud can result in financial losses for the merchant, along with the administrative burdens of disputing fraudulent claims.

1. Global reach
   To help overcome the challenges of cross-border transactions, Payment Orchestration allows airlines to connect with payment service providers with coverage in various regions, meaning they can cater to international customers effectively. This capability helps airlines overcome expensive and complex payment difficulties associated with operating in different markets.
   
   
2. Dynamic payment routing
   Transaction declines and payment chargebacks can impact an airline’s profitability and operational efficiency. Payment Orchestration platforms provide intelligent routing capabilities that dynamically route transactions based on factors such as cost, availability, and customer preferences. Payment routing reduces transaction declines, streamlines the payment process, and enhances the overall transaction success rate.
   
   
3. Simplified integration
   Legacy payment systems often lack flexibility and struggle to integrate with modern payment methods and technologies. With Payment Orchestration, airlines can connect to a unified interface and access a wide network of payment providers without the need for individual integrations. What’s more, Payment Orchestration platforms offer consolidated reporting and reconciliation features, allowing airlines to read and understand data easily without the need for advanced technical expertise.
   
   
4. Payment method diversity
   As previously stated, Payment Orchestration enables airlines to offer multiple payment options, such as digital wallets, alternative payment methods, and even localised payment methods. What this means for airlines is that customer satisfaction levels will increase, along with sales and customer retention rates.
   
   
5. Regulatory compliance
   Airlines need to adhere to several regulations, such as CAA, EASA, and more. Payment Orchestration platforms help airlines maintain regulatory compliance and meet industry standards and security protocols, ensuring that sensitive customer data is protected. Payment Orchestration platforms can also help airlines comply with regional or industry-specific regulations related to data privacy, payment processing, and financial reporting.
   
   
6. Fraud prevention
   Payment Orchestration platforms tackle the fraud challenges experienced by airline merchants by integrating advanced fraud detection and prevention tools such as machine learning and real-time transaction monitoring. These tools enable airlines to detect and prevent fraudulent activities, reduce chargebacks, and protect revenue streams.