Why airlines are missing out on payment tech that could solve their biggest challenges

In our report, based on a survey of more than 150 airlines with differing business models carried out late in early 2024, a consensus emerged across all groups: acquiring new customers (23%) and ongoing cost pressures (19%) were airlines’ chief current obstacles.

Both bigger-picture concerns can be related to an airline’s payments processes. Payment costs are a major expense for airlines; McKinsey found payments account for 3% of airlines’ total revenue and approximately 78% of the industry’s net profit. In this context, it’s perhaps unsurprising that in our survey, 21% of LCCs and 19% of FSCs highlighted costs as a challenge.

Meanwhile, it is easier for an airline to acquire new customers if it can take the right payment at the right time for the customer in every local market.

Perhaps this explains why “the limited availability of alternative payment methods (APMs) and regional forms of payment” was an even bigger issue than cost for our survey respondents.

It is also worth noting that a wider choice of options helps reduce costs by allowing platforms to compare and contrast the terms and conditions of different providers.

Adding APMs and addressing the other challenges is an obvious business case for payments technology. More than nine out of ten carriers across the sample said better tech would solve all or most of their challenges, with FSCs slightly more bullish about its impact than LCCs.

So, what is holding the airlines back from getting “better tech”?

Historically, payment tech has been fragmented, with different providers needed to cover all touchpoints. Our survey shows airlines work with an average of 4.4 vendors across their payment processes. LCCs use 3.72 vendors, while FSCs use 4.56, which is – perhaps surprisingly – slightly less than the 4.64 used by ULCCs.

Interdependence and interoperability between vendors are challenges for all enterprises, and airlines are no exception. When asked, 40 airlines told us they were considering changing vendors, with nearly half (45%) citing complications in reporting and reconciliation processes as the primary barrier.

Almost as high a hurdle, cited by 43%, was a concern about the return on investment. This should raise some eyebrows. In light of the addressable market outlined in the IATA figures mentioned above, airlines should not need to be convinced about the scale of the opportunity to reduce the impact of payment costs on the bottom line, potentially by changing vendors. FSCs have bigger concerns about this than their LCC peers, but not by much.

Reconciliation and ROI dominated the FSC concerns about switching to a new payment solutions provider (45%) and were also in the top three for LCCs. However, LCCs’ top concern – expressed by 50% of respondents – is how the new tech would integrate with its existing systems. This is also of concern to 38% of FSCs.

Nearly two in five airlines (38%) are considering a change, which refers to a cumbersome vendor selection process. FSCs are more concerned about this than LCCs.

No one is denying that the payments landscape for airlines is complicated. Many moving parts and touchpoints exist, from regulatory requirements to foreign exchange rates. Other airline areas of operation and cost centres might be more urgent or easier to understand.

However, one of technology’s greatest assets is its ability to bring order to chaos. In the payment space, there is a way to embrace consolidation and replace fragmentation, and it’s known as Payment Orchestration.

Payment Orchestration platforms are much more than simply a payment gateway. They are architected using agile cloud-native technologies, artificial intelligence, machine learning and data to manage end-to-end all components of a payment, from authorisation to routing to settlement to reporting.

For airlines, Payment Orchestration Platforms are an effective way to increase acceptance rates through intelligent routing, integrate multiple payment methods, and facilitate more conversions in direct and indirect sales channels.

A Payment Orchestration Platform is, therefore, capable of addressing payment-related pain points and creating and seizing opportunities for FSCs and LCCs alike.

If we look back over the challenges highlighted in this piece, each can be addressed by Payment Orchestration. For example, the limited availability of APMs and regional options – a major headache for 34% of LCCs and 30% of FSCs – can be resolved by a Payment Orchestration platform that makes adding new APMs quick and straightforward.

Similarly, the cloud-based API-centric nature of these platforms puts to bed the concerns expressed by 50% of LCCs about how a new payments platform would integrate with their existing set-up and other vendors. Middleware issues, which led to 45% of FSCs citing concerns over reconciliation as a reason not to change vendors, can also be addressed through APIs.

Overall, the business case for a new way to approach payments – specifically through Payment Orchestration – seems compelling. However, despite the ongoing headwinds, airlines are surprisingly satisfied with the status quo. When asked to rank their satisfaction on a scale of zero to ten, 59% of full-service carriers and 38% of LCCs said eight or above.

It is unclear whether this high satisfaction rate is attributable to complacency or whether airlines don’t understand their options and the benefits of Payment Orchestration.

But when the evidence about the impact of payment costs on the bottom line is so compelling, what is clear is that those airlines with the foresight to embrace Payment Orchestration will carve out a sustainable competitive advantage for themselves, even when the boom times wane.