Buy Now Pay Later Flights?
The vast majority of flights currently follow a pay up front model. However, there are rising speculations that this could shift to towards a buy now pay later (BNPL) approach. Why?
Rising flight cancellations
This summer has been chaos for flights. On one day in July alone, London Heathrow cancelled 60 flights. According to FlightAware tracking data, that same day there were 1,700 flight cancellations around the world.
Demand for flights has grown as revenge travel moved the top of people’s lists but demand has proved hard to keep up with especially with current staff shortages.
A cancelled flight leads passengers down a tricky path of long call queues, bureaucracy, and sometimes months of waiting before payment is refunded. In the US, airlines are not even legally obligated to issue compensation. This summer, more than ever, has highlighted the shortcomings with the pay at booking system.
Following suit with the rest of the travel industry
According to Skift new forms of payment including BNPL are “empowering consumers” and “making travel more accessible.”
In the last few years, platforms including Booking.com and AirBnB offer their customers the option to reserve the service but differ full payment until arrival upon the property.
BNPL is standard practice in many retail settings, and it provides an opportunity for brand differentiation as the trend spreads further throughout the travel industry.
The Lufthansa precedent
Lufthansa introduced a ‘Pay As You Fly’ model in 1997, expanding this to their corporate customers in early 2021. This model ensures passengers are not charged until the last minute once there is a guarantee the scheduled flight will leave as planned. Departing from the pay at booking norm, the airline distinguishes itself from competitors and receives a little more per trip per customer.
The airline cancelled 800 flights on 2 September, impacting 130,000 passengers due a pilots’ union strike.
Representatives from Lufthansa will be speaking at this year’s World Aviation Festival on panels including: “How can airline CX teams keep up with the increased need for flexibility, sustainability, personalization, digital differentiation to create superior end-to-end experiences?” Additionally, Kai Schilb, Head of Payments at Lufthansa Group will be responding to questions such as “How can we adapt BNPL schemes to the needs of different countries and regions?”
A growing shift?
Responding to the increase in flight cancellations, the state government of Lower Saxony in Germany is calling to abolish prepayment for flights. Transport Minister Bernd Althusmann is advocating a ‘Pay As You Fly’ model for airlines insisting this is in line with consumer interests and will streamline the current refund process.
The evolution of payment systems especially after the sea of cancellations this summer is one to watch in the near future. BNPL will be discussed in the payments agenda at this year’s World Aviation Festival.
Article by Jess Brownlow