By Cédric Baudon, Limonetik
Airline companies operate simultaneously as global and local organizations. From a sales perspective, airlines are also truly omnichannel. And if you think about it for a minute, that was the case before the Internet.
Consumers and companies buy airline tickets via a variety of means, from airline counters in airport facilities to Web and mobile applications. Airline sales happen in every country in which the company operates, which means taking into account country-specific payment methods and local practices. While Dutch and German customers prefer wire transfers, Brazilian and Japanese consumers largely use offline payments, while French and British customers rely almost exclusively on credit cards. This obviously has a significant impact on payment management.
Not only does each company need to deal with a highly fragmented sales environment, but they need to take into account a variety of local and global payment methods, each having its drawbacks in terms of fraud exposure or transaction costs. These issues have long been masked by the International Air Transport Association’s Billing and Settlement Plan, which acts as a B2B marketplace between airline companies and sales partners. Prior the development of online commerce, travel agencies were almost the only ones dealing with card-based payments. But as a growing number of emerging low-cost airline companies chose not to join IATA’s BSP, a new approach was required.
While the easiest alternative to the BSP used corporate credit cards as a payment method between airline companies and their sales partners, it’s far from being the most cost-effective. High transaction costs of specific card programs and of corporate cards can eat up to 50 percent of the average profit margin on an airline ticket. A company can deal with this additional burden for high sales volumes but nothing justifies that level of cost, not even the obvious global interoperability advantage associated with credit card payments.
In Europe at least, there are new alternatives, such as credit transfers or direct debiting that would allow a more cost-effective and interoperable approach. But to use such low-cost payment methods for B2B transactions, both airline companies and their sales partners would need to meet on B2B travel-specific marketplaces. Such a platform has yet to be developed but it could have significant benefits. For one, it would reduce transaction costs between an airline and its sales channel. A marketplace also would be beneficial to other key players in the travel industry, including hotels or car rental companies. Reducing B2B transaction costs would turn an unsatisfactory status quo into a mutually beneficial situation for suppliers and distribution partners. What’s more, it could increase sales incentives and budgets to expand to new markets.
From a business perspective, there is a growing evidence that a model focused on corporate cards is already outdated. While it certainly meets the operational demand of a global and interoperable B2B transaction system, the associated cost is a burden on the airlines. The goal of such a platform is not to duplicate the IATA’sBilling & Settlement Plan . It is rather to create a new ecosystem that brings suppliers and buyers together. Such an ecosystem will require input from all parties to be effective.
Many questions remain, including ROI, processes and design, and payment security. The only thing we can say for sure at this stage is that both infrastructure technologies and cost-effective payment methods are out there, waiting for the travel industry to leverage them.
Cédric Baudon, is the travel industry payment expert at Limonetik. He has more than 20 years of experience in developing payment solutions, and is also the co-founder of Baudon Nortier Consulting.
In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.