Opinion: Card based B2B airline transactions: time for change? | Incentive & Motivation

Opinion: Card based B2B airline transactions: time for change? | Incentive & Motivation

Cédric Baudon, Travel industry payment expert at Limonetik "A fundamental characteristic of an airline company is that it is simultaneously a globa

Cédric Baudon, Travel industry payment expert at Limonetik

“A fundamental characteristic of an airline company is that it is simultaneously a global and a local organization. From a sales perspective, they are also truly omnichannel. And if one thinks about it for a minute, it has been so even before the Internet. Airline tickets are being sold through a variety of means, from airline counter in airport facilities to web and mobile applications, not to mention travel agents, online travel sites… 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 or Japanese largely use offline payments and French or 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 IATA Billing & Settlement Plan, acting 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 cards based payments. But as a growing number of just emerging low-cost airline companies chose not to join IATA’s BSP, a new approach was required.

While the easiest alternative to BSP seemed to use corporate credit cards as a payment method between airline companies and their sales partners, it is far from being the most cost effective. High transaction costs of specific card programs or of corporate cards can take up to 50% of the average profit margin on an airline ticket. If a company can deal with this additional burden when it comes with high sales volumes, nothing justifies such a level of transaction costs, not even the obvious global interoperability advantage associated with credit cards payments. In Europe at least, there are new alternatives, such as credit transfers or direct debiting that would allow a more cost effective yet 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 that are yet to be created. Such a platform would not only reduce transaction costs of B2B transactions between an airline and its sales channel, it would also be beneficial to other key players of the travel industry, including hotels or car rental, that currently can’t access to such marketplaces. Reducing B2B transaction costs would also turn a currently unsatisfactory status quo into a win-win situation for both suppliers and distribution partners, making possible to increase sales incentives and budgets available to expand to new markets.

From a business perspective, there is a growing evidence that corporate card based B2B transaction model 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 airline’s shoulders. As the low-cost service model is expanding, now embracing more and more incumbent airlines, a new approach is needed, leveraging most cost-effective payment methods such as credit transfers or direct debits through dedicated marketplaces. The goal of such a platform is not to duplicate existing IATA’s BSP. It is rather to create a new win-win ecosystem bridging suppliers and buyers. Such an ecosystem can only result from a joint thinking of all parties. Many questions are yet to be addressed, from the ROI to common business processes design, payment security issues, authoritative bodies, … 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.”

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