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.

Fragmented payment landscape

The fragmented nature of payments creates significant challenges for airlines, affecting their efficiency and financial performance. In 2019, airlines dealt with a massive $93 billion in fees and taxes on behalf of third parties like infrastructure providers and tax authorities. Just the cost of accepting payments amounted to $20.3 billion, about 2.2% of the total payment amount. These numbers highlight the complexity and costs involved in managing payments in the airline industry.

Adding alternative payment methods is another problem faced by airline merchants. It’s no longer enough to simply accept debit or credit card payments. As consumer preferences change, offering a variety of payment options is crucial for attracting and retaining customers.

According to a study of more than 50.9 million online shoppers conducted by Merchant Advice Service, 67% of respondents claimed they found it frustrating when there is a lack of payment methods available. A further 54% of them stated they were discouraged to complete an online purchase if the payment options consisted only of debit or credit cards. With this in mind, digital payment methods such as mobile wallets (i.e., Apple Pay and Google Pay) and PayPal, along with Shop Now Pay Later (SNPL) schemes like Klarna are all great ways for airlines to attract new consumers.

But integrating new payment methods into existing systems can be overwhelming. Each payment method requires technical integration, compliance with regulations, and coordination with different parties. This leads to higher development costs and time-consuming implementations.

Managing relationships with multiple acquirers adds to the challenges in the fragmented payment landscape. Airlines often rely on several acquiring partners to process payments from different regions or currencies.

However, maintaining these relationships and ensuring smooth transactions can be complicated, including the handling of chargebacks. Airlines must navigate various agreements, settle funds across different banking systems, and manage reconciliation processes while maintaining transparency and control over their payments.

Challenges of cross-border transactions

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.

Legacy technology challenges

Legacy technology exacerbates the pain points experienced by airline merchants, hindering their ability to address payment-related challenges effectively. According to recent data, airlines have the potential to unlock an additional $14 billion in value by strategically addressing their payment systems.

Outdated payment systems present numerous limitations and inefficiencies. These legacy systems often lack the flexibility and adaptability required to keep pace with the evolving payment landscape. They may struggle to support new payment methods and technologies, resulting in cart abandonment and missed opportunities for revenue growth.

Furthermore, legacy technology can be cumbersome and time-consuming to maintain and operate. Airlines may find themselves burdened with complex integrations, multiple vendors, and outdated infrastructure, leading to increased costs and inefficiencies. These outdated systems may also lack the security measures to protect sensitive payment data, leaving airlines vulnerable to cybersecurity threats and non-compliance risks.

Other key challenges

  • 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.

The role of Payment Orchestration

Payment Orchestration emerges as a powerful solution, enabling them to optimise their payment ecosystem and overcome existing pain points. With Payment Orchestration, airlines gain the flexibility and scalability needed to thrive in the ever-evolving digital landscape.

Payment Orchestration platforms offer airlines the ability to adapt to changing customer preferences and emerging payment methods. By consolidating multiple payment providers into a single interface, these platforms provide airlines with the flexibility to offer a wide range of payment options to their customers.

Whether it's traditional credit cards, mobile wallets, or alternative payment methods, Payment Orchestration enables airlines to meet the diverse needs of their passengers, resulting in increased conversion rates, lower cart abandonment rates, and customer satisfaction.

Additionally, Payment Orchestration platforms offer scalability, allowing airlines to handle increasing transaction volumes without compromising performance. These platforms leverage advanced technology and infrastructure to ensure smooth and secure payment processing, even during peak periods of high demand. As a result, airlines can confidently handle large volumes of transactions without experiencing slowdowns or system failures, providing a seamless experience for their customers.

One of the key advantages of Payment Orchestration is its ability to seamlessly integrate new technology with existing systems. Airlines often have legacy infrastructure in place, and implementing new payment solutions can be a complex and time-consuming process.

However, Payment Orchestration platforms are designed to integrate smoothly with existing systems, eliminating the need for extensive modifications or disruptions. This streamlined integration enables airlines to adopt new payment technologies and enhance their payment ecosystem without the hassle of costly and time-consuming development.

Top 6 benefits of Payment Orchestration for airlines

  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.

Say goodbye to all of these pain points with CellPoint Digital

Payment Orchestration emerges as a crucial solution in overcoming the pain points faced by airline merchants in the payment landscape. To streamline your payment ecosystem and address the challenges discussed, work with CellPoint Digital.

CellPoint already has all the expertise to help you succeed and boasts a proven track record of implementing Payment Orchestration for several international airlines, including Icelandair, Virgin Atlantic, Arajet, and many more. This means that they understand the unique challenges that airline merchants face when it comes to ticketing, reconciliation, and refunds.

With CellPoint Digital's Payment Orchestration Platform, Velocity, you can achieve a streamlined and efficient payment process. Our platform offers a unified interface that integrates multiple payment methods, allowing your customers to choose their preferred option effortlessly. By eliminating the complexities of managing various payment methods, you can enhance the overall customer experience and drive higher conversion rates.

Moreover, CellPoint Digital provides seamless integration of new technology with your existing systems, enabling you to adapt and stay ahead in an evolving payment landscape. Whether it's adding alternate payment methods or managing relationships with multiple acquirers, our platform offers the tools and expertise to simplify these processes and optimise your payment ecosystem.

So, contact us today to revolutionise your payment process and unlock new opportunities for your airline business.