A new survey from Amadeus has found that 81% of travellers reported a heightened risk of cancellation is a barrier to booking travel this year with “refund uncertainty” the top concern.
Pay When You Fly refers to a novel payment option that sees the traveller pay a small deposit, in the region of 10-20% of the total cost (which is non-refundable in the event the traveller decides to cancel). The balance is then settled a few weeks prior to departure, minimising the risk of cancellation. Importantly, the traveller does not enter a credit agreement and is not liable to pay the entire balance. In the event of cancelation, the airline is not faced with a high number of refunds to process because the bulk of the traveller funds remain with the traveller until the last minute.
The new survey also found that 62% of travellers are likely to take-up a new “Pay when you fly” options to reduce exposure to the refund process.
Nicolas Ortiz, Head of Payment Product Incubation at Amadeus Payments, says periods of high cancellation during the pandemic have led to problems refunding travellers, with some refunds taking many months to process.
To preserve vital cashflow, travel companies have offered vouchers for future travel, but limited clarity on the lifting of government restrictions has resulted in uncertainty for those travellers seeking to redeem them.
The new study from Amadeus of 5,000 travellers across the world highlighted the impact that “refund uncertainty” is having on traveller confidence and bookings during 2021, as the industry begins its recovery.
Mr Ortiz says several airlines are taking proactive steps to overcome refund uncertainty through innovative new payment options.
Lufthansa has taken the lead with a Pay When You Fly option, allowing travellers to make a flight reservation (which also includes a hotel or car hire) by paying a small deposit — in the region of 15% — and then settling the balance a few weeks before travel.
“We’re entering a critical phase for travel’s recovery, and our industry needs to build confidence at every opportunity,” said Mr Ortiz, adding “We believe Pay When You Fly will drive traveller confidence, encouraging travel planning and booking even in an uncertain environment with changing government restrictions. The new approach may also result in higher value bookings because travellers only need to make the balance of the payment when it’s clear the flight will depart as planned.”
According to the Amadeus study, Pay When You Fly is the most appealing payment option (39%) compared to traditional pay at booking (36%) and Buy Now Pay Later schemes that require the traveller to enter a credit agreement for the entire balance (24%).
As well as building confidence by overcoming refund uncertainty, Amadeus said Pay When You Fly could boost industry revenues with travellers willing to spend 36% more per trip on average, and 49% of travellers more likely to add additional services like meals and bags, if Pay When You Fly is offered by the airline.
Buy Now Pay Later: Buy Now Pay Later refers to deferred payment options where the traveller enters a credit agreement, typically with a third-party fintech company, and is liable for the entire balance of the booking. Payments tend to be made in instalments up until the date of departure, with the primary benefit for the travellers being the ability to spread the cost of the trip over a longer period.
To download the Amadeus report, click HERE.