A customer-focused roadmap to digital airline payments

A customer-focused roadmap to digital airline payments

This is our last article before the World Aviation Festival in Amsterdam in a couple of weeks. We will end the series of articles with a reflection on airline payments, like a shopping experience usually ends with a payment transaction. Bref.

Should airline payments come as an after-thought of a retailing strategy, as a cost of doing business? What is the strategic dimension of payment for travel suppliers? As payment costs have grown bigger now than distribution costs for airlines, is there any new capability that could both enhance the customer experience and reduce costs?

The airline payment topic is closely related to the customer confidence topic and to the retailing topic which we discussed earlier. We also highlighted payments in our White Paper in proposal #6 (vouchers & e-money) and in proposal #16 (customer accounts). So what will digital airline payments look like?

 

A world of credit cards

Credit cards are still the ubiquitous method of payments for travel purchases, both in the leisure and corporate worlds. Notable exceptions, such as payment apps like WeChatPay and AliPay in China, or e-wallets like PayPal in the US or Lydia in France, show what the future of digital will look like.

The concept of linking a bank account to a 16-digit number was revolutionary when it was invented about a century ago… by airlines. Credit cards have improved a lot, for example in the physical card experience with the contactless payment, which became the norm during the pandemic. Mobile wallets, like Apple Pay, add an authentication layer on top of the card and enable contactless payment… without entering a PIN.

In the online world, paying with a credit card stored on a website is relatively seamless (as long as the real-time check on the card mobile app works smoothly). The issue remains when dealing with a new website, entering all the card payment details. The entire payment process, including the authorization, may still result in poor conversation rates.

If credit cards still work well, why change? It is a mix of convenience for customers and cost reduction for merchants (estimated at $20.3bn or 2% of the $1trn sales by McKinsey), with an evolution of technology.

 

The combined effects of Uber, Fintech and the pandemic

In the past few years, the perception of airline payments evolved from tactical considerations (credit cards work well, why bother?) to strategic thinking (payment options are a key differentiating factor for a travel business).

The Uber “seamless payment” experience, whereby the customer does not need to worry about paying a cab driver, was a catalyst in the change of perception. It became even more relevant and obvious for e-scooters, because users would not enter their credit card details for each ride, as there is no card reader on the e-scooter.

The Hopper “peace of mind” proposal, where customers don’t need worry about finding the cheapest fare or making changes to their bookings, extended the payment discussion to financial services. Indeed airlines imposed those constraints (non modifiable tickets, non refundable tickets, 10x price variation on one route…) with their revenue management practices, and it took the likes of Hopper’s fintech to compensate for the constraints and restore the confidence.

The Covid pandemic added uncertainty to travel planning and to health, with the effect of boosting travel insurance for changes and health. Insurances and other financial services have complemented the simple payment transaction, which would otherwise be definitive and risky from a customer perspective.

 

A customer-focused roadmap

The last decade has seen consumers opting for a variety of forms of payment (FOP) beyond credit cards. Airlines have faced at least three options: 1) adopt as many FOP as possible 2) steer customers to use cheaper FOP 3) promote their own FOP.

The proliferation of new FOP makes the payment market more fragmented. Airlines willing to reach more customers in every market need to support these FOP, without bearing the cost and complexity. Payment gateways enable airlines to reach customers in all markets.

Payment is not limited to the ticket purchase. It covers all the transactions during the booking process and the journey. What if a passenger could enter a lounge or go through a security fast track like they enter the subway (In London, not Paris)? The FOP should be convenient for customers’ online use as well as for a physical use, like access control.

If some FOP are cheaper for airlines to accept, it should be up to them to incentivize customers in using them. Indeed customers tend to have their preferred methods of payment (e.g. a bank credit card, a neobank card, a mobile app) which come with perks, and the perks are funded in part by merchant fees. Airlines have perks too (e.g. seat selection, priority boarding, loyalty points) which may be attractive to customers.

Promoting the airline’s own FOP may sound ambitious. Retailers like Amazon do it with Amazon Pay, or Alibaba with AliPay. In a corporate sale environment, the adoption of the FOP can be part of the airline’s contract negotiation. However in a leisure world, FOPs are ubiquitous and used by consumers daily, not only for air travel. Unless the airline can propose the same value as online retailers, they won’t be customers’ preferred option.

 

The future of digital airline payment

Air Asia is a pioneer in building a lifestyle brand, not only an airline. Many airline brands are household names, offering co-branded credit cards and loyalty programs, with the potential of becoming a “wallet”. The airline wallet can be used as a payment method for any type of physical and online purchases, while giving access to airline perks and other special offers.

Going one step further, airlines may reach out to communities that have moved beyond credit cards. For example Web3 communities in the metaverse may use crypto-currencies within their own environment and for the payment of physical goods and services.

While credit cards will continue to serve the airline industry for the coming years, digital payment alternatives pave the way to a more convenient and integrated experience for customers, and to more cost effective and flexible solutions for airlines.

Copenhagen Airports: Architects of the Future Airport

Copenhagen Airports: Architects of the Future Airport

Copenhagen Airports: Architects of the Future Airport

Copenhagen Airport (CPH) has been appointed the most efficient airport in Europe fifteen times – most recently in 2019. To maintain this position, an ambitious strategy to become ‘architects of the future airport’ was presented in 2019. The strategy was conceived since a new and drastic approach to digital transformation was necessary to deliver on CPH’s ambitious growth targets through optimisation and new opportunities.

 

Replacing old legacy architecture

Digital innovation and development of basic airport operations were stalling due to old legacy architecture and technology implemented in the early 1980’s. The legacy system that covered many historical add-ons, was technologically outdated and hard to maintain – in effect a burning platform – leading to high maintenance costs, excessive risks and a hindrance to further development and growth.

In 2017, Netcompany was commissioned to perform a life-time extension on the existing legacy core platform, and while performing this task, the idea of AIRHART – a full-scale replacement with a self-developed platform for total airport management – was born.

 

Digital transformation from the bottom up

For many airports around the globe, becoming a smart airport has proven to be a tough and troublesome journey. Many have experienced failed implementation projects, broken promises and “smart” features that don’t deliver the expected business value. Often the problem is not the “smart” features themselves, but the underlying foundation, which is not geared to capture, handle and expose high-quality data needed for smart airport operations.

Trying to become smarter by adding multiple “smart” technologies to old legacy core systems will only take you part of the way. At some point, the limitations of old legacy systems will be evident and prove to be a dead-end if you want to become a truly smart airport. Digital transformation from the bottom-up implies high risks. In Copenhagen Airport a comprehensive and robust transition plan was conceived, mitigating risks on multiple levels – technical, organisational as well as commercial.

 

Business value – delivered

The implementation of AIRHART in CPH is impacting several of the airport’s key performance indicators. Through smarter forecasting and turnaround management, punctuality is improved and waiting time is reduced, adding to increased overall passenger satisfaction. AIRHART is also allowing for more efficient use of existing resources, enabling Copenhagen Airport to increase throughput and raise the passenger number significantly.

Additionally, the implementation of AIRHART is expected to reduce IT costs considerably, all while providing CPH with the needed agility and resilience to face future challenges and reduce time to market.

Implementation of a truly data-driven platform is allowing CPH to address and support a substantial leap in the sustainability domain. AIRHART impacts the development of smart grid, solar panels and reduction of emissions.

 

About Smarter Airports

In a market dominated by large players relying on monolithic legacy systems and acquisitions, Smarter Airports was founded by Netcompany and Copenhagen Airports to challenge the status quo by reinventing traditional airport systems. In the AIRHART platform, the oldest code is dated 2019. The AIRHART architecture is born to be flexible and meet the needs of a true data-driven airport of the future. AIRHART enables you to meet the requirements of tomorrow for efficient, passenger-centric, safety-compliant and sustainable airport operations.

 


Article by Smarter Airports 
Learn more at: www.smarterairports.com