The way people pay for air travel has changed over the years, but the fundamentals remain consistent. Travellers pay airlines the full fare at the time a booking is made. This model provides a degree of certainty to airlines as they receive cashflow earlier, but the pressures of the pandemic have caused the industry to ask if this model can be improved to better meet the challenges of today.
High rates of cancellation due to changing travel restrictions have introduced significant uncertainty for travellers and challenges administering refunds during the pandemic have impacted traveller confidence – 81% of respondents to a recent Amadeus survey of 5,000 travellers confirmed that heightened risk of cancellation is a barrier to booking travel during 2021.
What if we could rebuild traveller confidence and offer them the option to pay later, all without requiring them to enter a credit agreement? This is the promise of Pay When You Fly (PWYF), a novel payment option that several European airlines have introduced in specific circumstances.
Combatting uncertainty
PWYF sees travellers pay a small deposit when they book, in the region of 10-15% of the fare, to secure a reservation that is refundable if the service is not provided by the airline. The balance is then settled a couple of weeks before the flight departs. This reduces the risk for the traveller because they are able to lock in better prices available for advance bookings. In the event that the flight is subsequently cancelled before full payment, the traveller would only need to reclaim a much smaller amount (it is also very possible that some travellers may decide not to claim a refund for small deposits in the region of 10%).
According to our research, if airlines offered a PWYF option, 62% would be prepared to book travel in the summer of 2021. The benefits that most appealed were: ‘no need to go through the refund process’ (43%) and ‘the money stays in my bank until I travel’ (38%). In fact, PWYF was the most popular way to pay, outscoring both BNPL and traditional pay at booking by a significant margin.
Boosting confidence to buy
PWYF could represent a change for airlines that would need to consider the cashflow shock involved with receiving payment later. However, our research shows that there could be opportunities to increase yield. Travellers told us that they would be willing to spend an additional 36% on travel this summer if PWYF options were available, suggesting this payment option could help carriers drive higher value sales.
Similarly, 49% of travellers said they would be more likely to purchase an ancillary service like a meal or airport transfer when using PWYF, compared to just 6% that said they would be less likely. Moreover, they’d be most likely to purchase seat selection (45%), meals (41%), and larger baggage allowance (38%).
Another challenge faced by airlines during the pandemic has been short booking windows, as travellers delay booking until the last minute. Our research suggests that the confidence PWYF instils might be able to help, by encouraging travellers to book earlier, meaning airlines get more time to plan and optimise operations. On average, if PWYF was available, travellers said they’d be prepared to book six months ahead of departure.
The details of deposits
One of the key aspects of PWYF is the payment of a deposit at the time of booking, which is non-refundable if the traveller decides to cancel. For airlines, the deposit is best thought of as a cancellation fee – a relatively small amount that covers the costs associated with a booking cancelled by the passenger. But how much should airlines ask for as a deposit?
We asked travellers how much they would be willing to risk as a deposit and the mean average was 8.7% of the full booking cost. However, 31% were willing to pay a deposit representing more than 10% of the total booking cost.
Like most payment options, PWYF will be more appealing to certain demographics than others. For example, a family of four booking a holiday may not wish to make a EUR4,000 payment at the time of booking if there’s a risk this money may not be returned for several months. Or an individual traveller making a short-haul booking for EUR100 might be happier to wait for the refund.
Regardless, it is important to highlight that many airlines will seek to offer a mix of innovative payment options to travellers, perhaps including PWYF. But at Amadeus, we believe that it will drive customer confidence, encouraging travel planning and booking even in an uncertain environment with changing government restrictions.
For more information about the potential of Pay When You Fly, download Amadeus’s report on this phenomenon here.
This article is part of the Payment Methods Report 2021 – Latest Trends in Payment Preferences, a comprehensive overview of the payment methods in scope for 2021, as well as best practices for checkout optimisation and customer conversion by addressing digital transformation, security, and localisation.
About Jean-Christophe Lacour
Jean-Christophe Lacour is an experienced Payments professional currently responsible for Amadeus’s payment gateway business. He is passionate about maximising the positive contribution payments can make to a travel merchant’s business and their customers. Prior to joining Amadeus, he held senior product and strategy roles at Visa Europe. Jean-Christophe holds an MSc in Engineering (Computer Science and Electronics) from Tier 1 French university École Centrale de Marseille. He started his career at Gemalto.
About Amadeus
Amadeus is a gateway that offers services to travel companies, helping them take payments from their customers, pay suppliers, and optimise both. We apply global payments expertise and a network of trusted partnerships integrated into our smart payment hub to provide travel companies and their customers with a seamless payments experience.
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