How Alternative Payment Technology Can Improve Airline Volumes, Profit

Despite a broad-based performance improvement year-on-year in revenue and passenger numbers, many airlines still face multiple challenges, from macroeconomic factors such as geopolitical uncertainty and inflationary costs to higher fuel prices and labor expenses. Developing operational efficiencies to make the most out of boom times and preserve margins in periods of slackened demand remains a fundamental challenge for airlines.

There is a difference in how full-service carriers, LCCs and ULCCs approach this challenge. In recent years, as passenger demand fell off its post-pandemic peak, medium-priced and luxury airlines have seen dips in bookings and revenue, while LCCs like Ryanair, Wizz Air, and easyJet proved more resilient. Yet LCCs and ULCCs are constantly struggling to raise revenue amid fierce competition from legacy airlines.

The difference is that ULCCs are making near-term investments in payment technology that can optimize their processes and generate efficiencies at a far greater rate than full-service carriers. And that reflects a forward-looking approach to controlling costs and creating sustainable profitability that all airlines would do well to emulate.

Increasing bookings and passenger volume rank among LCCs’ most important challenges, given their narrower operating margins. A recent report based on a survey of global airline professionals about their payment challenges and priorities, Payments Come of Age, reveals that 24% of LCCs and 27% of ULCCs saw decreasing passenger volume as their most significant challenge, compared to just 20% of full-service carriers.

One way that LCCs are looking to boost booking volume is by investing in digital wallets and other alternative payment methods (APMs) to provide a better, more inclusive payment experience for passengers, while also appealing to new passenger segments in new geographies by offering the payment methods they prefer. All the ULCCs surveyed for the report said they were investing in digital wallets.

Investment in comprehensive payment technology feeds into many ULCCs’ growth strategies and expansion priorities. One good example is Philippine LCC Cebu Pacific, which revised its payment strategy to support multiple APMs to meet the varying payment needs of passengers in the international regions into which it was expanding.

Investing in a payment orchestration platform allowed Cebu Pacific to enhance geographic coverage, while improved fraud management capabilities meant the carrier was better placed to handle increased transaction volume from new markets. Investing in payment technology offering this wide range of capabilities enables LCCs to stay competitive by lowering transaction costs while boosting volume and improving the passenger experience.

Just as optimized payment strategies can support LCC and ULCC expansion strategies and enhance their passengers’ booking and transacting experience, they can also help them control costs. It’s true that, according to the A4A US Passenger Airline Cost Index, overall pre-tax expenses for US-based airlines were down 2.8% YOY in Q1 2024. However, McKinsey finds that globally, airlines spend about 3% of their total revenue on costs related to payments from booking transactions. For LCCs and ULCCs, keeping these costs in check is critical.

Transaction declines and chargebacks can further impact an airline’s profitability and operational efficiency. Only with comprehensive payment technology that optimizes processes, dynamically routes transactions to the ideal (read lowest-cost) acquirers, mitigates fraud and supports multiple currency conversions can an airline truly minimize payment costs. Importantly, for LCCs and ULCCs that operate under tight margins, every dollar saved on transaction costs flows directly to their bottom lines.

That’s a significant competitive advantage in high-demand times and a lifeline in more challenging operating environments.

For both low-cost and full-service airlines, there is a clear correlation between payment technology and the passenger experience, booking volume, revenue and profitability. But while many full-service carriers have been content to stick with the technology they have in place, LCCs and ULCCs have been investing in solutions for the future.

Ultimately, this will help them stand out in a crowded and financially constricted landscape, enable them to tackle business challenges and generate profit-driving efficiencies, and provide smoother transactions for passengers while improving growth opportunities.

Tom Randklev is global head of product at CellPoint Digital.