As Travelers Plan Ahead for Post-Pandemic Passage, Suppliers Want to Ground Payment Costs

With major airlines reporting their first quarterly profits since the onset of the pandemic, restrictions easing both domestically and internationally, and the roll-out of vaccinations grinding forward, the travel bug is starting to resurface.

In a recent conversation with Karen Webster, Flywire Vice President and General Manager of Travel Colin Smyth said clients of the payments platform see a comeback in travel queries as well as bookings, but with a post-pandemic wrinkle that is making flexibility the new first-class seat.

“You’re seeing pockets” of recovery, he said. “We saw that this summer with countries like Iceland or Croatia where people could get a little bit more remoteness. What we’re starting to see from our clients is trips being booked for the spring and summer of next year. People want to go to those once-in-a-lifetime places like Italy and Spain and Australia and New Zealand and Japan, that they’ve waited for years to do.

Where Smyth sees turbulence ahead is in the cost of payments due to manual or legacy systems. PYMNTS research has found that travel firms spend up to 3.2% of topline revenue on payments processing alone.

“You start there and say even if there wasn’t a pandemic, how are we optimizing that? And it’s a double-edged sword because you probably won’t invest in new systems because [payments is] a cost center. So, what we’ve seen overall in the pandemic, and coming out of it, is the important role that not only payments play, but the software that lives around that.”

The only upside, he told Webster, is the ability for companies to look at their cost centers at a more measured pace than when business was moving so fast.

See also: Payments 2021: Assessing The Digital Gaps In Business Payment Flows

A Quest for Liquidity and De-Risking In Travel

The discussion turned to getting more liquidity into the complex and changeable system of travel payments, as well as strengthening the travel supply chain while adapting to new realities.

“That’s where it starts to get really interesting. If you look at a lot of the companies we work with, it may be months from a deposit to an actual trip,” Smyth said. “How do you get more working capital into the system while de-risking a consumer who’s making that payment? They shouldn’t have to worry if the hotel they’re going to in months is going to have staff.”

“Risk enters the travel equation at multiple points, whether it’s new expectations around changing itineraries, or how suppliers manage payments changes,” he said. “The post-pandemic era will be focused on getting more working capital into the system while de-risking the actual trip itself.”

When pressed on that point, Smyth pointed to inefficiencies in travel booking and payments that technology is now tackling, noting that controllers and CFOs are consistently looking to improve the payments process but also reduce its cost.

Some tour operators, destination management companies (DMCs) and others are changing policies to accommodate the trend. But Smyth said it’s not uniform, noting that some providers are more flexible about when a payment is needed for a trip that is being booked 18 months in advance, since those operators have to go out and reserve that cruise ship or book that itinerary themselves.

See also: Delta Airlines’ Q3 Profit May Signal Wider Takeoff of Pent-Up Travel Demand 

Payments Choice May Complicate a Comeback

As to the recovery of various travel segments, Smyth said leisure and business travel are experiencing totally different comebacks, at least for now.

“Do people have the desire to jump on that day-flight to San Francisco or the red eye to London for a meeting? The joke I make is ‘lose one sales deal and watch what happens.’ People will get back on planes to prevent losing a big client.”

With vaccinated people now getting booster shots to complete COVID inoculation protocols, Webster wondered if the multi-month window will narrow, and who will start booking first.

“Remote travel and the smaller groups will come back first, those bucket list items I think will come back,” Smyth said. “Do I see 5,000 people in the Louvre next week? I don’t see that happening anytime soon,” he said.

Payment options are also shaping the recovery in the travel sector, nowhere more than with the buy now, pay later (BNPL) offerings making their way onto the major online travel agencies (OTAs).

“What we hear in conversations with a lot of [OTAs] is that there’s significantly more to the merchant taking-on” options like BNPL, Smyth said. “I don’t think merchant clients of ours want to take that on right now.” If OTAs see a meaningful spike from BNPL, however, that could bring them around to offering installment payments, despite high associated costs to travel suppliers.

Ultimately, payments platforms have a strong hand to play because many travel companies simply don’t want to be payments companies. That’s problematic, Smyth said, because “the minute you become a travel business is the minute you become a payments business, and they don’t want that problem. They don’t want to take that on. It just creates more complexity.”

As travel dusts itself off and sorts itself out, Smyth said “We see people taking fewer, but longer  trips. Obviously, this all will evolve as the world reenters.”

Read: YayPay Announces Partnership With Payments Platform Flywire