To reassure or even attract customers, will air transport have to invent new methods of payment and no longer simply offer to pay at the time of ticket purchase? It’s a reflection that has its origins in the COVID crisis, but which, if we look a little further ahead, may have more long-term structural implications for the sector.
COVID has made air passengers financially insecure
With borders opening and closing, flights postponed and cancelled, the COVID crisis has left passengers in total doubt.
Without even mentioning the first phase of strict and violent border closures, he then found himself in a zone of great uncertainty.
When it comes to the possibility of traveling, the truth of one day is not the truth of the next, when conditions of access to a given country can vary from one week to the next, and when airline flight programs are constantly changing, it was impossible for him to plan ahead.
What’s the point of booking weeks or months in advance when you don’t know whether you’ll be able to travel, and under what conditions you may or may not be able to get your tickets refunded?
Airlines’ attitude not understood or appreciated
Yet the rules are simple: if a flight is canceled, the airline must refund. However, the passenger knows from experience that it’s not as easy as that, and the first months of the crisis left him with bitter memories.
Initially, the airlines preferred to transform the ticket value into vouchers for future use, rather than refunding the money. Anti-commercial and illegal behavior? At first, no. You just have to understand that they simply didn’t have the cash flow to make massive repayments, so they put their survival first.
Then the subsidies arrived and they were finally able to gradually fulfill their repayment obligation. But in a very uneven way. To take two cases close to home, while Air France passengers were finally reimbursed as soon as the airline had the means to do so, it was much more complicated with Lufthansa, and even impossible with certain low-cost carriers.
In the meantime, of course, the airlines have adapted their commercial policies: all tickets are now fully flexible, exchangeable and refundable. An essential measure to reassure travelers and encourage them to book in a context of total uncertainty. One of the few positive effects of the crisis, but one which we know will not last, as it is totally orthogonal to the air transport business model.
In fact, we’re starting to see some movement on this side as things return to normal. While Air France continues to extend these passenger-friendly exceptions, this is not the case everywhere. At Lufthansa, the crisis is no longer considered to be a sudden and unforeseeable event, so passengers who buy tickets that are not flexible or who do not take out insurance will have no one to blame but himself if he has to cancel his trip for personal reasons, e.g. if the entry requirements change and he does not meet them.
Because now there’s another phenomenon to take into account: we’re no longer just talking about border closures preventing flights from taking place, but also about the impossibility for a given passenger to return to a country while the flight is operated/
For Amadeus, trust is all about “pay when you fly”.
It was against this backdrop that Amadeus produced a study at the beginning of the summer, explaining that the solution to reassure customers and keep them coming back was “pay when you fly”.
What is the “pay when you fly” concept? This means that passengers only pay when they have actually flown. According to Amadeus :
“81% of travelers say that the increased risk of cancellation is an obstacle to booking travel this year, with the uncertainty of refunds being the main concern.
62% of travelers are likely to opt for the new “Pay when you fly” options to reduce the risks associated with the refund process.“
A salutary approach in the wake of the COVID crisis, but one which we believe should lead the sector to look a little further ahead and rethink its long-term practices.
Upfront payment, a major obstacle to air ticket purchases
When we talk about it around us, the fact that a plane ticket is paid for at the time of purchase, sometimes months before traveling, and not when the service is consumed, is a real hindrance.
Firstly, because the longer the deadline, the more imponderables can make the trip impossible in the meantime, even outside COVID. And not always under conditions that make repayment possible.
Secondly, because for a family it’s often a substantial budget, not in absolute terms, but at the time of purchase. It’s possible to pay for tickets for 2, 3 or 4 people, but not always all at once. That’s why we know people who continue to go through agencies, because between the deposit and the final payment, they can spread the payment over 2 months or even more, if they know their agency well and make a few arrangements.
This is the main advantage of a co-branded credit card like the Air France Amex. Even though we now prefer a “real” American Express, we haven’t given up on it because it allows you to pay for all your Air France tickets in 3 instalments, free of charge!
A scheme that allows families to smooth out the purchase of tickets, or allows people who want to treat others to smooth out the purchase of a business ticket found at a good price over 3 months, making it a viable option.
Although we’re not talking about COVID here, there is a demand.
- Postpone payment until the date of your trip, so you don’t have to worry about unforeseen events, or have time to save money until then.
- Smooth out payments to make them smoother
These practices are very much in vogue in the world of mass consumption, but not so much in the world of tourism, unless you finance your vacation with a consumer credit or worse, a revolving credit, which we strongly advise against.
A specificity of air transport
The airline industry is unique in this respect: it’s one of the few sectors where you pay in full, long in advance, for a product/service you haven’t yet received.
In the consumer goods sector, there’s usually almost simultaneity between the moment you pay and the moment you receive the product or service.
In hotels, you can choose to pay on the spot. Prices are of course cheaper if you decide to pay in advance, as this often represents a welcome cash flow for the hotelier (he also sometimes collects in low season when he has fewer people for a service to come in high season).
In air transport it’s impossible except :
- When a co-branded credit card allows you to spread your payments over time at no charge (like the Air France Amex)
- If you’re living entirely on credit, then your credit card, co-branded or not, won’t let you pay in installments, but will charge you astronomical interest until you do.
- You manage to optimize your treasury a little at the expense of your travel agency.
Is a new model possible for air travel?
The fact that being able to defer or smooth payment removes a barrier to the purchase of airline tickets can be taken for granted. But is this model reasonably applicable to air travel?
The airline industry is unique in that its structural costs are high and virtually permanent. Staff are not seasonal, and are not as “variable” as in the hotel or catering industries. Aircraft are paid for and maintained all the time. So it has to bring in cash all the time, not just when people are traveling. He smoothes out his income where the passenger would like to smooth out his expenditure.
And then the risk of a “no show” would become greater, leading either to higher prices or even greater recourse to overbooking, with the passenger losing out in the end.
But to a lesser extent, everyone could say the same. The hotelier pays his rent even in low season, the shopkeeper has stock that he has paid for and not yet sold…
Rethinking flexibility in the airline industry
So rather than looking at the issue solely from the customer’s or the airline’s cash flow point of view, it might be a good idea to elevate the debate and rethink the notion of airline ticket flexibility by introducing, in addition to the many existing mechanisms (the more you pay, the more modifiable and refundable the ticket), the notion of deferring payment at least until a few days before the flight, to give airlines time to adapt if the passenger cancels.
And we can already see the many problems this could cause, with a proliferation of bookings that would only be options, a disaster for aircraft load factors and the airline’s finances, and so on.
Or a mixed system: the later you pay, the more you pay, with a penalty if you decide not to take the flight.
Amadeus poses a question that it would be wrong not to think about, but there’s no guarantee that its answer is realistic, that the cost/benefit ratio is bearable for the airlines, or even that the customer won’t lose out in the end.
And you, as a customer or airline professional, what do you think of “pay when you fly” and, in general, of the terms of payment for your airline tickets?
Image : passenger who pays for his plane ticket by fizkes via Shuttertock
