Flying forward: charting a course for airline payment strategies

At Worldline’s Rise Travel event, which took place in Phuket, Thailand, Laurie Gablehouse, Head of Global Travel Solutions discussed the key considerations for airlines in developing such strategies with Esperanza Fernandez, Director of Airline Acceptance at Mastercard.

Esperanza started by emphasising the importance of analysing raw data versus true data to understand the retrial behaviour of cardholders. It was interesting to note, she said, that consumers in the travel industry appear to be more persistent than in other industries. Once they decide to make a purchase, they tend to stick with it and are more likely to retry if their transaction is declined. However, it is crucial for merchants to be aware that excessive retrial attempts—more than four on the same card—often indicate suspected fraud.

GDS for higher approval rates

Esperanza also highlighted the significant role of the Global Distribution System (GDS), which airlines use to manage their inventory and seat bookings from Travel Agents, in payment approval rates. GDS systems like Amadeus, Sabre and Travelport boast higher approval rates for several reasons. Firstly, corporate cards are more prevalent in GDS transactions, leading to higher approval rates. Secondly, GDS systems establish direct links with payment schemes, streamlining the authorisation process and enhancing transaction approval. Lastly, GDS systems possess a wealth of big data that small acquirers often lack.

Addressing Decline Reasons

Turning to the categories of declines and their reasons. Laurie and Esperanza stressed the importance of addressing cardholder declines, accounting for most suspected fraud declines. Understanding regional trends in decline reasons, such as cardholder mistakes or technical issues, enables airlines to proactively protect their transactions.

There are two types of declines:

1. Remediable mistakes by cardholders, including typing the wrong card number, using a card that has expired, or typing a wrong expiration date.
2. Technical declines vary per regions and often result from incorrect CVV entries. CVV mistakes account for 13% of all declines worldwide and occur more frequently in the mobile environment than on websites. Fixing the CVV issue and other declines would improve merchants’ performance.

To tackle addressable declines, one recommendation is for merchants to maintain user-friendly websites. A simple website design ensures cardholders get it right the first time. To achieve this, business can use services such as automatic updates of card expiration on file.

Different Regions, Different Challenges

Another interesting point that Esperanza and Laurie raised is that payment approval rates vary by region, reflecting the nuances of each market. For example, North America enjoys the highest approval rates due to a significant number of domestic transactions which typically yield higher approval rates. In contrast, other regions of the world experience more cross-border transactions, and the approval rate drops. Fraud rates are also associated with specific regions, for example Latin America historically has faced challenges related to fraud, resulting in lower approval rates. Understanding these regional differences is vital for airlines to optimise their payment strategies.

Despite these regional variations, one constant is higher approval rate on the GDS side.

Not all cards are equal

Looking at the industry from a card mix perspective reveals that not all payment methods are equal. In terms of airline payments, significant disparities exist in approval rates between consumer cards, commercial cards, and virtual Business-to-Business (B2B) cards, with the latter exhibiting higher approval rates and efficiency. This indicates that not only are virtual cards more reliable, but they also result in fewer retrial attempts. This is relevant because retrials cost money.

Laurie observed that several airlines and travel agencies have started exploring virtual cards as a payment method.  This trend has gained momentum in regions like Europe and parts of Asia Pacific. Virtual cards offer opportunities for airlines and travel agencies to optimise their interchange levels for mutual benefit. Other advantages of switching to virtual cards include quicker cash flow, eliminating the need for collateral or security deposits, sales enablement, and chargeback rights to protect against fraudulent or disputed transactions.

As travel resumes, airlines must adapt their payment methods to align with evolving traveller preferences and regional dynamics. Embracing new distribution channels, optimising card types, and addressing decline reasons are key steps in charting a successful course.

Airline Payment Strategy was just one of the thought-provoking topics discussed at the Worldline-hosted travel industry event, Rise Travel 2023. For more insights and valuable presentations from leading players in the travel, hospitality, and airline industry, visit our event page https://worldline.com/rise-travel