The Importance of Airline Payment

Airline payment remains a prominent topic of discussion within airline commercial and financial teams.

As McKinsey[1] summarised back in 2022, airline payment costs sum up to USD20 billion annually, representing up to three percent of airline revenues – a significant value in an industry that often only achieves a very low profitability. The volume is huge, with about three billion transactions per year facilitating a turnover of about one trillion dollars.

It is too easy to view airline payment simply as a cost factor. The handling of payment is an important part of the customer experience, and McKinsey also assumes that up to USD12 billion in additional revenues can be achieved for airlines annually if consumers can make payment more easily and efficiently in numerous ways.

Of course, the true values of these numbers can be discussed, but it is obvious that airlines need to focus on their capabilities to receive payment in an easy, inexpensive and safe way.

Airline Payment as an Enabler for an Airline’s Strategy

To achieve this, airlines often implement “payment strategies”. Personally, I am struggling a bit with the term “strategy” when it comes to airline payment. After running numerous airline payment engagements, I believe that there is no “airline payment” strategy per se. Payment need to contribute and be embedded into an overall airline commercial strategy and is a key business enabler ideally increasing conversion while reducing cost and risk.

Airlines’ overall strategies can be fundamentally different, such as if the airline follows a full-service carrier (FSC) business model or, at the other extreme, that of a pure low-cost carrier (LCC) with no frills. This has direct implications for airline payment and needs to be assessed case by case.

In addition, there might be shorter term airline strategies that have an impact on how to run payment. An airline may decide to enter a new market and therefore focus on high conversions by taking a higher payment risk, as well as for instance enabling local APMs, leading to higher complexities.

In essence, these approaches are defined by the airline’s strategy and not by the payment process. Therefore, they cannot be regarded as solely a payment strategy since airline payment is “only” the enabler of the overall strategy.

However, how is a payment set up embedded into the overall commercial strategy? Let me share a real-life step-by-step project approach, which has delivered the desired results.

 A phased Approach to embed Airline Payment

First, we analyse and audit the current payment setup, by taking a closer look at the balance between conversion, risk and cost. It also makes sense to investigate the organisational setup of the payment team, e.g., does it reside in finance, e-commerce, distribution or even sales? Addressing other questions such as how the payment architecture looks, who are the main payment suppliers and how they are governed, is also essential. By benchmarking the results, airlines will often be able to gain some tactical quick wins.

In the second step, the overall airline commercial strategy is taken into consideration. What are the guidelines and requirements for payments to enable the overall commercial strategy? What would a strategically fitting payment setup look like? What are the gaps between the desired state and the status quo? How do we get there?

Thirdly, the exercise should focus on implementation and execution. With the view on the current set up, the desired state for payment fully supporting the airline commercial strategy, a detailed roadmap to close the gaps can be established and executed, through change management. At this stage several questions can be addressed such as organisational structures, make or buy decisions, vendor and partner selections, just to name a few.

Of course, there is no recipe that fits all airlines when it comes to their payments. But with the overall approach summarised above, airlines can enhance their payment process through enhancing conversion while reducing cost and risk, with the ultimate goal to be the enabler for the airline’s commercial strategy – payments are there to support, but they are not a strategy by themselves.

[1] McKinsey Sep. 2022 – Airline retailing: How payment innovation can improve the bottom line

This post has been published in collaboration with Terrapinn.

Boris Padovan,, Travel in Motion AG