Travel agencies, consolidators and travel management companies remain at risk of financial loss from airline failures due to persisting with outdated payment models with no recourse, a new report suggests.
The new Protecting Travel Intermediaries in an Era of Disruption report, commissioned by virtual payment company WEX, purports that traditional methods of payment, such as bank transfers, leave intermediaries without financial recourse in the event of an airline failure.
Citing 14 recent airline failures, the report highlights how modern remittance methods such as virtual credit cards can enable chargeback protection, with funds able to be recovered quickly.
“A fundamental risk remains today [with] air travel’s prepaid nature creating supplier default exposure, and there are no industry-wide protections despite over 1,200 commercial passenger airline failures in the past 25 years,” said WEX Head of Insights and Growth, Kristian Kish.
WEX’s research correlates oil price spikes and depressed passenger demand on the back of major global events such as 9/11, the GFC and the pandemic as a common link with airline failures.
Four high profile examples are given in the report, namely Ansett Australia, Pan Am Airways, India’s Jet Airways and Monarch, all of which resulted in lengthy waits for funds to meet creditor demands. In some of these cases, passengers were onboard aircraft waiting to depart before being unceremoniously deplaned and stranded away from home.
Despite this, the WEX report said there were fewer airline failures than expected between 2021-24 despite a consistently high oil price which WEX said should have put the industry under stress.
However, it cites government bailouts and cash injections designed to keep them afloat during the pandemic, followed by airlines operating more efficiently, restructuring and lowering fuel costs through hedging.
The report says these government top-ups mean there is now an incentive for these airlines to remain in business, with protectionist measures a possibility, which may result in higher fares for travellers.
