Kristian Gjerding, CEO of CellPoint Digital analyses the lasting impact of COVID-19 on the travel industry and its approach to payments.
Few industries were impacted as early and profoundly by the COVID-19 pandemic as the travel and airline industries. As the crisis evolves into new ways of doing business and life in general, it’s impossible to predict when business or leisure travellers will feel safe flying again. Or when airlines will get back to regular operations.
Yet in the midst of every crisis lies great opportunity. And the opportunity today is for airlines to reevaluate their operating systems and technology infrastructure to look for both efficiencies and improved business models. If they start by optimising their payment systems, they can achieve the cost reduction and revenue generation needed to fuel their recovery.
Assess and Adapt
In 2011, the Harvard Business Review declared that companies’ ability to manage uncertainty and adaptability amidst change was the “new competitive advantage.” Back then, they weren’t talking about a global pandemic. But the idea rings true today, maybe more than ever as airlines navigate through a completely unknown environment. Asking tough questions about how they do business and being willing to adapt quickly is key to short and long-term survival.
Right now, the most pressing question for airlines is how to deal with the cash flow strain caused by the sheer volume of refunds and travel vouchers being issued. 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 have been catastrophic for the industry.
Offering vouchers as an alternative to refunds is central to minimising the impact on cash flow. Some refunds are 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.
The value of vouchers
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: Vouchers must offer a compelling alternative and deliver greater value than the original purchase, otherwise they lack the appeal to the customer that a refund might.
- Digital: Travellers expect a high level of digital interaction, like e-coupons and digital wallets. Vouchers should similarly be digitally distributed and redeemed, linked to a customer profile to enable personalised offers, and support one-click payment
- Transferable: Provide options to spend against non-flight products across partner networks, or ancillaries.
To execute on a voucher strategy effectively, airlines need tighter coupling between reservations and payment systems to eliminate costly and cumbersome processes traditionally associated with vouchers. Too often, airlines are often constrained by legacy payment infrastructure, a series of disparate gateways, merchants and acquirers cobbled together across dozens of global regions and held together by ageing software.
This outdated approach to payments doesn’t just impact vouchers; airlines need more visibility into their operations so they can use payments to reduce costs and drive more digital revenue.
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?
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 payment orchestration platforms that can easily calculate margins, determine the offers, what to push to partner networks, and in what currencies.
Payment orchestration allows airlines to unify all components of a transaction under a single control layer. For cross-border merchants like airlines, this means integrating the right mix of regional and global payment partners (PSPs, acquiring banks) to optimise acceptance rates and minimize cost.
It also means automating back-end processes like settlement and reconciliation and incorporating fraud rules and regulatory compliance. Payment orchestration synchronises the flow of data and currency across channels and in concert with existing systems like reservation systems or loyalty programs and harmonises any differences in format. This is particularly important for vouchers, which cross multiple systems within an airline’s operations.
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 methods of payment. Travellers in different markets have different payment preferences. Meeting customers’ expectations in each region allows airlines to boost conversions and reduce abandoned transactions due to payment friction, or lack of available payment method. It also provides more flexibility when it comes to refunds; customers will be more loyal to airlines that can deliver.
A modern payment ecosystem that is governed by a payment orchestration platform simplifies and modernises legacy payment systems. It also facilitates a truly omnichannel approach to payments. This, combined with digitising vouchers and being able to convert different tenders and currencies, will help airlines retain vital cash and adapt to change, while meeting travellers’ needs.
It also creates a competitive advantage for those airlines that harnessed the power of their digital channels to prepare for a radically different air travel landscape.