Soaring Above Revenue Leakages: Strategic Financial Management in Aviation

Author: Steve Glover, Payments Lead

With Air Traffic Numbers Soaring, How Much Revenue is the Aviation Industry Losing to Merchant Card Fees, Fraud, and FX Costs?

The aviation industry is witnessing a robust recovery, with air traffic numbers climbing quarter on quarter. This resurgence is a testament to the industry’s resilience and the growing global demand for air travel. However, as airlines navigate through the complexities of this revival, they are confronted with significant financial leakages. Merchant card fees, fraud, and foreign exchange (FX) costs are silently eroding the revenue that could have been capitalized for further growth and investment.

The Resilient Rise of Air Traffic

Recent reports from IATA indicate that the demand for air travel is expected to double by 2040, growing at an annual average rate of 3.4%. In January 2024 air traffic levels reached 99.6% of 2019 levels. In February 2024, the airline industry achieved a significant milestone by surpassing pre-pandemic levels both for domestic and international flight. This growth trajectory is not a total success as this increase in air traffic is not flowing through to its bottom lines, profit margins pre-pandemic was estimated at 4.2% which had deteriorated to 2.3% and is estimated to only improve by 0.01% in 2024 according to IATA. As a result, airlines are focusing on how to address this revenue seepage and looking at more innovative ways to do so.

The Silent Culprits: Merchant Card Fees, Fraud, and FX Costs

Merchant Card Fees: A Costly Convenience

As digital transactions become the norm, merchant card fees have become an unavoidable cost of doing business. These fees, while seemingly small on a per-transaction basis, accumulate to a significant amount given the volume of ticket sales and ancillary services offered by airlines. They’re also on the increase and each year; Visa and Mastercard find ways to push fees up even though their operating margins are over 50%. We have also seen processor and acquiring banks admit that they struggle to pass through interchange and network fees accurately to their merchants due to their complexity – this is something we see across most businesses as inflated or misapplied fees.

Fraud: The Billion-Dollar Drain

Fraud is a persistent threat to the aviation industry, with payment fraud causing airlines to lose 1.2% of revenue annually from website and mobile sales. This translates to a staggering minimum of $1 billion lost each year, not accounting for the additional costs associated with prevention and management of fraudulent activities. With the increase in digital transactions and sophistication of fraudsters this continues to represent an increasing cost to Airlines profitability. The right strategies and solutions pre-, during and post-payment can have a material difference to an airline’s bottom line.

FX Costs: The Volatile Variable

The international nature of the aviation industry exposes it to the volatility of FX costs. Airlines incur costs and earn revenue in multiple currencies, making them vulnerable to fluctuations in exchange rates. This volatility can significantly impact profitability and operational costs, especially for carriers operating across different currency regions. It’s not uncommon for us to see fees several hundred percent higher than our benchmarks as it’s all too easy for the banks to hide FX margins.

Bankhawk: Navigating Airlines to Financial Efficiency

Bankhawk has emerged as a pivotal ally for airlines, offering a suite of services designed to combat the financial challenges of interest rates, merchant card fees, fraud, and FX costs. With a focus on Bank Fee Optimization and Card Payment Optimization, Bankhawk provides a comprehensive approach to financial management for the aviation sector.

Auditing and Benchmarking: The First Step to Savings

Bankhawk’s services begin with a thorough forensic audit of an airline’s current arrangements, contracts, partner performance and fees. This is complemented by benchmarking techniques that analyze existing practices against the market and best-in-class standards.

Optimization: Tailored Solutions for Maximum Impact

Following the unique business cases of each airline, Bankhawk implements optimization protocols. These include immediate quick-wins as well as proven strategies for reducing bank interest margins, managing FX margins, improving cash management, maximizing acceptance rates and optimizing payment processes and systems. This can all be done with existing vendors, but modern solutions such as orchestration are allowing some merchants to optimize even further.

Strategic Partnerships: Co-branded Card Schemes and More

By facilitating strategic partnerships, such as co-branded card schemes, network incentives and alternative payment methods, Bankhawk aids airlines in reducing card fees, AMEX fees, managing dynamic currency conversion, and optimizing back-end FX settlement processes.

Conclusion: Soaring to New Financial Heights with Bankhawk

The aviation industry’s growth is a promising sign of economic recovery and connectivity. However, to fully capitalize on this upward trend, airlines must adopt a strategic approach to financial management. With Bankhawk’s expertise, airlines can navigate through financial turbulence and ensure that their ascent is not only resilient but also financially sustainable.