Consider this: Cards are a preferred method of payment in the airline industry, representing between 40–50% of all transactions. But while cards have brought a world of convenience to air travelers, they pose unique challenges to airlines. As the use of cards for payments grows, airlines have to deal with an increasing number of fraudulent chargebacks. With such an immense amount of money at stake, airlines need to find effective ways to deal with chargebacks to avoid financial losses.
The Hidden Costs of Airline Chargebacks
Credit cards are still growing in popularity, in both developed and developing nations. Air travelers, in particular, favor cards thanks to their dynamic mileage programs that let them fly for free (or at a heavily reduced rate). For customers, cards have made flying a more accessible experience.
More cards mean a higher risk of chargebacks and fraud. Airlines are forced to find ways to mitigate these risks at the cost of time and revenue. That’s because airlines aren’t only liable for the chargebacks themselves but also for penalties and processing fees. This results in a loss that, over many transactions, can take a significant bite out of revenue.
Let’s consider a scenario where an airline processes 4 million card transactions over a single year. If we use the Accelya whitepaper, An Effective Approach to Managing Chargebacks, a chargeback ratio of .04%, results in an initial airline loss of $480,000 (.04% times an average ticket price of $300). Yet, in reality, revenue loss can add up to millions, thanks to acquirer fees and commissions, and airline’s internal chargeback management costs such as FTEs and IT management.
Unfortunately, effectively handling chargebacks hasn’t been easy for airlines, which face a number of internal challenges, including:
Airlines still rely on manual processes that are slow and prone to human error. This not only leaves airlines open to chargeback loss but additional loss due to employee time. Manually handling chargebacks requires manpower that could otherwise be spent on more valuable activities. Finally, airlines can also lack streamlined protocol when communicating with acquirers.
Airline transaction data is still fragmented across different sources, meaning data that needs to be submitted as a part of chargeback response by the airline isn’t always readily available. Furthermore, chargebacks can come up as far as eleven months from the initial sales, leaving the parties involved juggling old data.
Many airlines lack management information systems (MIS), leaving them unable to analyze data to identify patterns and take proactive action to reduce chargebacks. Without visibility into the chargeback process, they’re unable to monitor the status of individual transactions.
Due to the broad spectrum of chargeback related challenges listed above, airlines are often unable to respond to disputes in time which significantly affects them financially. In fact, because the process is so complex and resource intensive, some airlines simply accept the dispute to avoid the lengthy process and avoid penalties.
A More Effective Approach
Given the number of challenges airlines face, it makes sense to take a step back and evaluate their chargebacks. Here are some new and effective approaches airlines can take:
Turning to Technology
Centralized systems such as ERPs are vital for airlines to streamline operations and analyze performance with true data visibility. They act as a centralized hub for business activities across every department. Integrated with department-specific systems including chargeback management, ticketing, and scheduling, airlines are able to better recognize patterns that signal fraud. These systems also allow for visibility into the payment processes to identify gaps in service and security.
In some cases, airlines may want to outsource certain processes to expert third parties. Outsourced chargeback managed solutions, for example, can offer airlines several advantages including:
- Improved productivity through a reduction of manual data entry, which also results in fewer errors
- Increased chargeback recovery rates through faster claim response times
- Improved reputation, as managed solutions can provide insights into fraud risk and make recommendations to reduce it
- Reduced airline oversight, resulting in an improved use of employee time that focuses on key business goals
The challenges and recommendations related to chargebacks aren’t new to airlines. Rather, they are related to the overall industry, which is in dire need of modernization. Centralized information systems can streamline processes across departments and provide the data needed for analysis and improvement. Technology can enable airlines to work more closely with partners to avoid processing delays, reduce errors, and keep their reputations intact.
Chargebacks aren’t the only area of revenue loss for airlines. Yet taking an effective management approach will not only result in reduced revenue loss, but also give airlines ideas for updating processes in other departments, too.