Money makes the world go around, as Kander and Ebb wrote, but in the aviation context making money go around the world continues to be a complicated prospect. The COVID-19 pandemic highlighted a major problem with refunds, while payment systems, blocked remittances and other currency flow issues remain thorny, especially in certain areas of the world. The addition of legacy backend systems to the picture certainly doesn’t make matters any simpler when airlines make decisions about this core function. We sat down with Laurie Gablehouse, global head of travel solutions at payment and transaction services specialist Worldline, to learn more.
The business of payment systems, including card acceptance and credit terms, is a complex one. That’s especially true in higher risk locations, which aviation sees within specific geographies where payment completion confidence is lower — in other words, where an airline needs to be certain both that it will be paid locally and that it will be able to then move the payment internationally.
“The stakeholders are within the Treasury Team for the airline and the underwriter of the exposure, which can be a PSP [payment service provider] or acquirer,” Gablehouse tells us.
PSPs range in size and scope from Worldline or Worldpay to newer entrants like Apple Pay, Wise or PayPal. Preferences and acceptance of individual PSPs varies substantially between countries and territories: AliPay or WeChat Pay in China, for example. Each will have a different risk profile, and airlines — and their financial partners — can take a correspondingly different approach to them.
“The choices vary from a fixed deposit, hold back of funds, insurance — and in some cases, we are seeing covenants that outline the financial events that would change the remittance terms,” Gablehouse says. “Transparency of the data from the airline as well as clarity around how they are forecasting their revenues is critical to the process. All parties need to be working together as partners.”
Indeed, she notes, “there are many options for how an acquirer [can] manage the credit terms with an airline related to card acceptance. Using the facts to explain your financial position will help with the rationale for what your acquirer/PSP can support.”
As part of these decisions, the credit terms are driven by cash flow and the underlying data that helps the credit acquirer or PSP to monitor and have confidence in the transactions.
The early stages of the COVID-19 pandemic’s travel restrictions and the requisite refunds posed many problems for airlines and customers alike, with media attention highlighting issues around payments and chargebacks in particular.
Since then, Gablehouse says, “there is a better focus from all parties on the data needed to manage the credit terms. The industry understands how critical this information is to support their expectations around the cash flow. Refunds were a burden for any airline that did not have the cash to support this process. Now they are aware of how the cash flow is a key part of their payment strategy with their acquiring/PSP partners.”
Data flow and shared information can help reduce complexity and uncertainty
The way that information flows, together with the confidence within that flow, is already of high importance, and this is only growing. Ensuring that airlines can share verified data about service delivery outcomes — at the basic level, whether the passenger did indeed travel on the flight — is vital. But there is much more than the basic level: did the passenger cancel? Were they issued a refund? Was this refund in whole or in part? Is some or all of that part in travel vouchers, creating an onward accounting liability? Did the passenger move to another flight — and for that move did they pay an additional fee, did they receive a refund, or was there any form of credit or voucher?
“The systems that have this data are not open,” Gablehouse notes. “This is why we continue to work with different industry partners to help centralise this data. Our goal as a PSP is to support our acquirers and airline merchants to ensure the communication of this information is clear.”
Achieving this goal of shared data is complex, partly because of the diversity of airline systems used, and in some case because of their bespoke and legacy natures.
“Many are using their back-office ticketing data to understand when a customer has flown,” Gablehouse explains. “Some have developed new data warehouse automation. Others are extracting the data from the reconciliation process. However, data around forecasting the revenue for the cash balance can involve different stakeholders and systems.”
While some airlines are, in essence, ‘rolling their own’ and building internal expertise in these systems, some are bringing in external capabilities, whether through traditional contracts or in a payments-as-a-service (PaaS) model. By and large, this is driven by size and complexity of airline: a large network airline is more likely to go in-house, while a low-cost carrier may find the external route more appealing.
Accounting systems, global distribution systems (GDS), and the revenue forecasting capability all contribute to an airline’s decisions here.
Outside the walls of airline HQ, she notes, “the legacy GDS system (Amadeus, Sabre) continue to upgrade their systems at a pace that still challenges airlines. Both have payment teams now that are addressing how and what data needs to be accessible to an airline for the decisions that affect their payment strategy.”
Overall, Gablehouse concludes, “the best outcome is having a single source of the truth. If it is not a third-party repository, then the airline needs to create their own. This benefits all the stakeholders at the airline, the acquirer, and the schemes to know that we have the transparency to understand the position of the service delivery. Did the cardholder get on the plane, stay in the hotel, rent the car, et cetera? The accuracy and timeliness of this information along with the financial position of the airline ensures we are using the facts to collaborate on the best outcome for all the stakeholders.”
Author: John Walton
Published 30 May 2023
;
