Despite generating nearly $1tn in annual revenue commercial airlines operate with exceedingly slim profit margins. While your ticket might set you back hundreds or even thousands of dollars, airlines take less than $7.20 on average per ticket. In some regions, airlines pocket less than $2 per passenger on average.
With uncontrollable macro forces like fuel costs and fluctuating demand at hand, airlines have turned to mastering ancillary services to bolster revenue and preserve profit. Seat changes, baggage allowance, in-flight meals, entertainment upgrades and boarding perks have all become key levers to boost revenue and profit per passenger.
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Multi-Currency Pricing revenue opportunity
Yet, in the middle of the booking flow, there’s a largely untapped revenue opportunity. Foreign exchange (FX), and specifically, allowing passengers to pay in their preferred currency (Multi Currency Pricing) could become a top ancillary service for airlines.
Perhaps unsurprisingly, over a third of airline ticket sales are cross currency – meaning that a significant majority of travellers are not paying in their native or preferred currency.
For example, an American traveller booking a return flight from Japan might see the fare listed in yen. If they proceed, this transaction will require an FX conversion. In most cases this will be handled by the traveller’s bank, and the airline will receive the fare in their chosen currency. Herein lies the multi-million-dollar opportunity for airlines.
New research from the Centre for Economics and Business Research (CEBR) found that if every airline took control of FX by pricing services in multiple currencies and performing the required currency conversions, it would generate an additional $1.74B in annual revenue, based on current industry uptake rates for MCP. Rather than being based on surveys or estimates, the analysis is based on actual industry booking and payments data, ensuring this picture is robust.
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By GlobalDataIf airlines could convince all travellers making a cross-currency purchase to opt-in for Multi Currency Pricing, thereby taking ownership of the FX transaction, FX services provided by airlines would be worth $9.6bn for the industry every year, the researchers at CEBR found.
Or to put it more tangibly, airlines stand to double the profitability of any fare above $200
Implementing FX pathways is not yet commonplace in the industry, but some airlines are early adopters. In 2021 SriLankan Airlines assumed control of the FX process and implemented Multi Currency Pricing. For an operator catering to passengers from dozens of different markets, offering prices only in Sri Lankan Rupees was sub-optimal.
Today, 13% of SriLankan Airlines’ customers opt for Multi Currency Pricing and it has become one of the airline’s top 5 ancillary revenue streams – narrowly behind traditional favourites like upgrades to business class and extra baggage.
Importantly, this is not simply an exercise in revenue generation. It is also a crucial part of delivering a positive digital experience. This is particularly relevant for carriers operating in regions with dozens of currencies, like Asia, Latin America and EMEA.
In the case of SirLankan Airlines, who serve a diverse mix of markets and currencies – many of their travellers weren’t familiar with the conversion rate of SriLankan Rupees. Seeing an opportunity to simplify their digital experience – and to increase conversion, SriLankan began displaying fares in a wider range of currencies—such as the Australian dollar—to make the booking process smoother.
Enhanced transparency
Beyond improving the pricing interface – there is an opportunity to enhance transparency. Nearly half of travellers aren’t aware that their banks charge an FX fee for running these cross-currency payments. And for those that are aware, half say that the FX rates are too high and a third say the charges are opaque.
Unexpected, unexplained and expensive fees undermine the travellers’ experience. Airlines can simplify the cross-currency process and help travellers understand what they’re choosing to pay for. By offering a transparent FX experience, airlines benefit from greater sales conversion rates, a sizable new stream of revenue and happier travellers.
In an inherently global industry foreign exchange is a transactional necessity. CEBR’s research has now revealed in no uncertain terms that it is also a largely untapped source of revenue.
As airlines increasingly seek to simplify payments and ask how the payment experience itself can drive new revenue streams, Multi Currency Pricing offers a genuine win-win option.
Damian Alonso, Head of Product and Partnerships, Outpayce from Amadeus
