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Navigating the optimal path for growth.
Payment challenges and opportunities for Latin American airlines.

Across Latin America, travel isn’t just recovering – it’s thriving

The World Travel & Tourism Council (WTTC) estimates that the LatAm travel and tourism sector could add nearly $260 billion to the region’s economy and create almost eight million new jobs over the next ten years. In 2023, more than 86 million international travellers visited the region, and 2024 is expected to be another record year for visitors and travel revenue.

Commercial airlines operating in this region have seen a corresponding boost in passenger volume. Overall traffic figures were up by more than 28% in 2023, with larger regional markets outperforming 2019 volume levels. According to IATA, Latin America's annual load factor rose by 2.1 percentage points to 84.7%, making it the highest among all world regions.

Expanding route networks and new entrants. Investments in route networks are part of the reason for this growth.

OAG data for the summer 2024 season reveals that 462 intraregional international routes are scheduled to operate within Latin America and the Caribbean during this period. Airlines headquartered or operating in this region are also expanding internationally. LATAM Airlines, for example, is opening a route between Bogota and Madrid. Once this is in place, they will be the 5th carrier to offer this route. Copa Airlines recently added two new routes to Mexico and Brazil, expanding the airline’s route network to 85 destinations across 32 nations.

Avianca emerged from Chapter 11 bankruptcy in the wake of the pandemic to fly 32.3 million passengers in 2023 and has now added new routes to Paris, San Salvador, Montreal, and Madrid. The airline is now aiming for a 25% increase in passenger traffic this year, bringing its 2024 volume to 40 million. Aeromexico, which faced its own bankruptcy struggles just two years ago, recently added routes to Raleigh-Durham and Tampa, Florida.

This expansion is fueled by sustained global demand for air travel and a rapidly maturing intraregional marketplace. Similarly, the re-emergence of major carriers from bankruptcy protection following the pandemic indicates the overall health and potential of the LatAm aviation industry.

But new routes and new (and returning) entrants also indicate a rising level of competition. In this environment, expanding effectively and maintaining profitability should be central concerns for any airline operating in the region (in fact, considering that the region’s airlines are facing a collective forecasted loss of $400 million in 2024, profitability likely already is a top priority).

Those who invest now in the systems and solutions that best help them reduce costs, maximise revenue, accelerate their expansion ambitions and optimise their operations will establish a significant competitive advantage for the future.

Overcoming operational and booking challenges across Latin America

How will airlines operating in the region take advantage of regional growth and ensure they’re setting themselves up to compete more effectively?

First, by focusing on a few fundamental aspects of their operations, creating a favourable environment for their expansion strategies, understanding and catering to their passengers’ needs and expectations, both in the booking path and on the journey, and investing in systems and infrastructure designed for optimisation and future-proofing.

Not coincidentally, many of these operational aspirations correspond with the top challenges identified by airline professionals within the region. Earlier this year, we conducted a survey ahead of our comprehensive report on the airline payments landscape, Payments Come of Age: A Global Study of Airlines and Their Payment Technology Needs and Challenges, which captured the opinions and insights of airline professionals operating in all global regions.

LatAm airline professionals share the same overall challenges as their counterparts in other global regions, with the top two being building ancillary revenue (ranked #1 by 31% of respondents) and implementing mobile technology (also 31%). These are followed closely by the limited availability of alternative payment methods (APMs, cited by 29% of respondents) and insufficient foreign currency support (29%).

All four of these top-ranked challenges suggest that improvements in the region’s airlines payment systems can significantly impact their operations. For example, implementing a Payment Orchestration solution optimised for an NDC environment that dynamically adjusts offers based on contextual cues can help Latin American carriers sustainably grow ancillary revenue, their number one challenge. A Payment Orchestration solution that features support for multiple APMs – a crucial capability in a region with a wide variety of APMs in the market, varying from country to country – can help airlines quickly roll out new APMs and meet the evolving expectations of their passengers.

These same payment-oriented solutions can address Latin American airlines’ more specific challenges related to their booking process. Our survey revealed the top two challenges in this area were having a complex booking process that leads potential travellers to book elsewhere (29% of respondents ranked this #1) and having too many abandoned carts/transactions (28%). Given that payments are an integral part of the booking process, providing passengers with a streamlined checkout that offers them their preferred payment method for completing the transaction would address both the complexity of booking and the challenge of dealing with abandoned carts.

Keeping pace with competitors and improving the passenger experience

Helping Latin American airlines overcome key operational and booking challenges isn’t the only way an optimised approach to payments can have an impact. Because the LatAm market is both crowded and growing, developing and maintaining a competitive advantage is arguably more important in this region than in other areas of the world. This is perhaps why the surveyed airlines in this region survey identified their top goal as keeping pace with competitor offerings – the only regional subset to report this as their top goal. Seventeen percent of LatAm airlines said this was their number one goal, compared to the 10% global average.

Surprisingly, for a region struggling to maintain profitability amid high sales volume, “cost control” was ranked lowest among LatAm airlines’ goals, an outlier among global regions. This may be attributable to a comparatively high percentage of airlines in the region operating under a low-cost model or simply indicative of other priorities taking precedence.

However, the divergent nature of the highest- and lowest-ranked goals relative to other global regions illustrates just how unique LatAm is as an airline market. It also hints at the necessity for advanced approaches to payment systems, including the more widespread adoption of Payment Orchestration. This will keep pace with global competitors rapidly adopting the orchestration model and lay the foundation for per-transaction cost control, which will almost certainly rise up LatAm Airlines’ list of priorities in the future.

Just as Latin American airlines differed from their global counterparts in terms of their top goals, they also identified areas of their operations that need improvement. Airlines operating in this region believe their passenger service functions need the most improvement, including boarding processes (48% chose this as #1), passenger check-in (45%) and customer support (43%). The global survey average also ranked these areas highly, but not at the levels the region’s airlines reported. This focus on improving the passenger experience is perhaps better reflected in the areas that airlines throughout the continent are planning to invest in both the near and long term.

Emphasis on and investment in APMs and fintech tools

Overwhelmingly, Latin American airlines plan to invest in technologies that will make it easier for their passengers to pay how they want to and make air travel more attainable. When asked in our survey what types of fintech and other financing tools their airline will invest in within the next 6-12 months, LatAm was the region with the highest percentage saying they would invest in APMs (31% vs. survey average of 22%). This is due in part to the popularity of APMs in the region; alternatives like Pix and Boleto Bancario in Brazil, OXXO and Paynet in Mexico, and Kiphu and Klap in Chile regularly rank with traditional credit cards as consumers’ preferred payment methods. Other passenger-preferred fintech tools like BNPL and price guarantee came in a close second at 26%.

When looking at a longer time horizon (12-24 months), the top 3 reported investment priorities were BNPL, in-app travel credit, and split payment – again, all tools to help consumers fit travel into their stretched budgets.

Airlines operating in LatAm were the most likely to invest in the most popular APMs, such as open banking and account-to-account payments, over the same timeframe (32% vs survey average of 25%). This may be in response to the growing importance of Gen Z in the region, which makes up 22% of the Latin American population and is eager to travel but is still relatively price-sensitive and budget-conscious.

Perhaps explaining their planned investments in fintech tools, LatAm airlines are unsatisfied with their current technology.

While LatAm airlines in our survey were most likely to claim their payment platforms were highly configurable (34%, closely followed by North American airlines at 30%), that’s still only slightly more than a third of airlines in the region.

What is holding them back from switching is a cumbersome vendor selection process (the #1 response, with 57% selecting this as their top reason) and finding solutions that work with their legacy systems (50%). Long implementation time (43%) and complications to reporting and reconciliation processes (43%) also make LatAm airlines wary of switching vendors or providers.

Payment Orchestration is ideal for carriers in Latin America

The combination of data points from our survey shows that LatAm airlines are challenged by payments and booking-related issues, seek to improve the passenger experience, and are willing to invest in fintech and other payment technology as long as they can be implemented quickly and integrate with their existing systems and reconciliation processes. So, how can they address each of these challenges and meet their goals? Is it possible that one comprehensive approach can make their processes easier and simultaneously make travel more accessible to their growing markets?

The answer to both questions lies in Payment Orchestration. Payment Orchestration offers a solution to modernise payment interfaces, reduce abandonment rates, and improve the passenger experience in the booking path. By leveraging Payment Orchestration platforms, airline merchants can streamline their checkout processes, eliminate unnecessary steps, and provide user-friendly interfaces and a range of payment methods that align with customer expectations. This optimisation maximises conversions and increases customer loyalty and repeat business.

Payment Orchestration is also key to future-proofing payment processes, offering a modern alternative to traditional, restrictive payment systems. It supports multiple payment service providers (PSPs), accommodating a growing array of payment methods, including digital wallets, bank transfers, and BNPL services. Payment Orchestration platforms are also 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.

Perhaps most importantly for LatAm airlines, Payment Orchestration provides a solution for efficiently handling and introducing new and diverse payment methods.
With a Payment Orchestration platform, LatAm airlines can consolidate and manage multiple payment options through a unified interface. This simplifies the integration process, reduces technical complexities, and makes adding the APMs most preferred by passengers in different regions or countries easy.

The global airline industry spends over $20 billion on payment costs, or about 3% of airlines' total revenue and 78% of the industry's net profit. Airlines operating in Latin America are not immune from this trend, even as passenger volumes and route networks continue to grow at a remarkable pace. In this environment, Payment Orchestration is the ideal solution for LatAm airlines seeking to make the most of their region’s ongoing growth.

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