The pandemic has brought to the forefront the inequality of flight pricing and payment methods. Offering interest-free deferred payments to all passengers would be a step in the right direction for airlines.
After months of being shut away from traveling and seeing family and friends, reopened borders and vaccine availability are enticing many people to travel. But travelers are still wary of booking flights ahead of time with the uncertainties of the lingering pandemic.
Foremost on their minds is the possibility of flight cancellations due to travel restrictions and refund uncertainties. The risk of not being able to get a refund, in particular, is creating a barrier to booking travel this year for 81 percent of respondents to a recent Amadeus study.
Boosting traveler confidence during the pandemic has become paramount for airlines in the travel recovery process with many airlines turning to “Buy Now Pay Later” credit payment models to ease the burden of paying everything upfront and stimulate bookings.
While the global study of 5,000 people who traveled at least three times before the pandemic found 40 percent of travelers would consider using “Buy Now Pay Later” to book travel this summer, many expressed concerns about incurring debt on credit, high interests, and refund process as a deterrent to using “Buy Now Pay Later.”
Instead, 62 percent of those surveyed expressed an interest in booking travel this summer if airlines offered a “Pay When You Fly” option, allowing customers to make a small nonrefundable deposit and pay the balance closer to their departure date, reminiscent of layaway programs stores offered in the past to help with holiday shopping. There would be no future payments in this model.
“We’re saying this is a concept and idea that can be applied and is applied by some carriers using it now. We just think it makes a lot of sense in an environment where the future is a bit uncertain and very fluid,” said Bart Tompkins, managing director of payments for Amadeus.
Amadeus said it’s still too early to collect enough data to know whether the “Pay When You Fly” tickets will be more expensive. But clearly having the opportunity to book earlier will get you the best prices.
The Amadeus study conducted between the U.S., Europe, and Asia, found that generally speaking when asked about the state of travel, U.S. respondents were more optimistic because it’s one big market. Europe has lots of issues, particularly in the UK, and it’s even worse in Asian countries, Tompkins said.
“We found that the interest around something like this (‘Pay When You Fly’), which is basically giving passengers more confidence to book at a time of high volatility applies much more in Asia, then Europe and the U.S.,” said Tompkins.
The “Pay When You Fly” option that some European airlines have been offering for a while to corporate clients has yet to catch on in the U.S.
“In addition to flexible rebooking options, in particular corporate customers increasingly wish for an option of paying for their booked ticket only when they travel. The Lufthansa Group has responded to this by optimizing our pan-European PAF (the airline’s version of “Pay When You Fly”) fare product and making it more attractive for a larger customer base,” a Lufthansa Group spokesperson said.
The way it works at Lufthansa is that tickets for those bookings are only issued 24 hours before departure and the payment isn’t processed until the flight departure, eliminating the need of processing and charging rebooking or cancellation fees, the spokesperson added.
“Likewise, there are no advance booking deadlines and, of course, a usually significantly extended payment term – the customer only pays when he/she sits on board and takes off with us,” she said.
On the other hand, British Airways is offering the “Pay When You Fly” option with layaway vacations to leisure travelers booking on its website with unlimited payments until the balance due date.
The Amadeus study shows that booking three months in advance is very hard for consumers right now not knowing if the flight will take off at that time, Tompkins said.
“Consumers now are saying so you want me to fly, but how do I know that I’ll be able to fly in three months time and do I give you all this money in the meantime and worry about getting it back again at the end of three months or use it for something else,” said Tompkins.
Tompkins believes “Pay When You Fly” gives consumers flexibility and gives airlines a confirmed booking and takes away the administrative burdens of cancellations and refunds.
Although it’s a bit late in the season, the possibility of summer travel is still an option with some U.S. travelers preferring to travel in July and Europeans traditionally traveling in August, and “Pay When You Fly” could help stimulate bookings in some markets, Tompkins said. The bigger concerns are changes in regulations and border closures.
Most hotels are still not pre-paid, so why are the airlines pre-paid, Tompkins asks. Adding this gives people more options to pay for travel.
It won’t fundamentally reopen travel, but it might mitigate and allow people to plan and book with a bit more confidence and without so much impact. Pay When You Fly offers the possibility of only losing the 10 percent deposit, in case traveler plans change, rather than 100 percent, Tompkins said.
Some airlines around the globe have been discussing the feasibility of implementing “Pay When You Fly” payment options, Tompkins said. Once airlines decide to offer this option, implementing it through multiple channels, including via travel sellers which would require greater efforts, would be possible and fairly seamless, Tompkins said.
There are different models for how payments between airlines, travel sellers, and travelers work. If the airline remains the “merchant of record’ and is therefore responsible for processing the payment, then “Pay When You Fly” is much easier to roll out via travel sellers. But airlines could begin offering it to leisure travelers initially through their website and call centers, he added.
“Unfortunately there remain a large number of unbanked people across the world and it’s important that the financial services industry does everything it can to give everyone access,” said Tompkins. “FinTech in general is really helping, and from a travel perspective more and more companies are beginning to accept new digital payment methods.”
When it comes to “Pay When You Fly” there are benefits for the less well off because it means payment is deferred but without the need to perform a credit check or to enter a credit agreement, he said.
There’s also no interest due on this deferred payment, which makes it very different from “Buy Now Pay Later.” It’s a very inclusive and traveler-focused payment option, he said.
In markets where there was a more negative perception of the airline industry, the study found flyers say they would like the “Pay When You Fly” solution, Tompkins said.
Additionally, “Pay When You Fly” is a more popular option to book travel for younger travelers. Seventy-three percent of Gen Z say they would use the option if available to them and 70 percent of millennials and Gen X.
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Photo credit: Aerial view of airplanes parked at airport gates awaiting passengers using pay when you fly to travel. Amadeus / Skift/Amadeus