Insights 08 June 2020 By: Kristian Gjerding

Rethinking airline refunds, vouchers, and payments in a crisis

Rethinking Airline Refunds, Vouchers, and Payments in a Crisis

As airlines continue their battle for survival, there’s another challenge developing alongside: the acceleration of digital payments.

The transformation of many airlines and travel companies’ digital infrastructure was already underway before disaster struck down the world in March. But is right now the right time to be thinking of accelerating anything, except for getting the world’s businesses open again?

Yes, it is.

Nearly a decade ago, the Harvard Business Review wrote about companies’ ability to manage uncertainty and adaptability amidst change, and how it was the “new competitive advantage.” In the current climate, it may feel like the only option is to preserve cash and cut more costs wherever possible. However, the HBR quote holds as true today, if not more. Airlines are navigating their way through this crisis and re-evaluating how they do business – because they must in order to survive, short and long term.

The airline sector has proven it is adept at changing; 9-11 forced carriers to introduce new safety measures that would give passengers the confidence to fly again. Change is impacting the airline industry once again. Temperature checks, antibody testing, and enhanced sanitizing are all vital steps to ensure passengers feel safe - and are safe to travel.

Stuck in a precarious place: retain cash or retain customers?

But the crisis has also laid bare other changes needed, particularly around digital and payment systems and the issuance of refunds and travel vouchers, which have been mostly untouched by airlines’ legacy systems.

Issuing refunds for air travel has been a hotly contested topic in recent weeks. Airlines for America’s CEO warned it could result in airline bankruptcies; IATA’s CEO issued a similar warning.

In “normal” times, airlines issue refunds on eligible tickets at only a fraction of the estimated $35 billion owed to travellers today. The wholesale refunding of tickets would be catastrophic for the industry, due to the sheer volume.

Offering vouchers as an enticing alternative to refunds is central to minimizing the impact on cash flow. In many cases, however, refunds will be unavoidable. But if airlines can more easily translate one type of tender to another within their ecosystem, there is more chance to retain that value on their books… as well as their customers.

Creating vouchers that hold value for airlines and their customers

Firstly, vouchers must be easier to administer and use. There should be tighter coupling between reservations and payment systems to eliminate current costly and cumbersome processes and help airlines better manage a crisis. Travellers will also expect a higher level of digital interaction, like e-coupons and digital wallets, as they’re used to with companies in other industries today.

Vouchers must offer a compelling alternative and deliver greater value than the original purchase. Some carriers have started giving travellers a % incentive to convert their ticket into a voucher for future use, instead of an immediate refund, but that is just the start.

Creating vouchers for a new travel reality requires a new approach to value-creation – for the traveller and the airline. Vouchers should be flexible enough to meet different traveller needs, and be:

  • Valuable: Offer higher perceived value than flight purchase with mileage deposit to frequent flier account, or the ability to earn extra miles or more on future travel
  • Digital: Linked to a customer profile to enable personalised offers and one-click payment
  • Transferable: Provide options to spend against non-flight products across partner network, or ancillaries

Rethinking airline systems and scalability

The challenge for airlines, apart from the immediate cash crunch and restrained supply, is re-tooling their digital and payment systems, especially with reduced staff. How can they do a lot more with less? And how can their systems be operated by a few, but impact millions?

The answer is creating a payment ecosystem that is more centralised and gives airlines the power to be responsive and scale as their operations recover. That includes being able to quickly turn refunds into future travel opportunities, which they can’t currently do.

Regardless of whether they want to offer refunds or expand their voucher redemption options, airlines need to orchestrate payment systems that can easily calculate margins, determine the offers, what to push to partner networks, and in what currencies.

Why is this so important now? As consumers regain the confidence to travel, they’ll expect airlines to support their needs in multiple languages, currencies, and alternative forms of payment. They’ll expect more flexibility when it comes to refunds and will be more loyal to airlines that can deliver.

By digitising vouchers and being able to convert different tenders and currencies within their ecosystem, airlines can protect their vital cash lifelines while meeting travellers’ needs.

There’s no magic bullet for anyone in the travel sector today. However, airlines with digitally-enabled payment options already have a competitive advantage in the future of travel. That’s why accelerating digital payments today can help airlines better prepare for what comes next.

Learn how CellPoint Digital is helping airlines realise the full potential of their digital channels, here.