title: Payment is an aviation institution
author: Oliver Ranson
contenttype: article
publication: Airline Revenue Economics
published: 2026-03-05T07:30:58+00:00
sourceurl: https://revman.substack.com/p/payment-is-an-aviation-institution
word_count: 776
Payment providers and airlines have much in common. They each offer a service that is high volume, low margin, operationally complex and multi-platform. In this article I am going to consider payment as what economists call an “institution” of aviation. That is, payment is a fundamental underlying set of rules and procedures that shape how airlines work. I am going to explain why it is important, how it can be improved, the impact of agentic AI on payment strategies and finally how, as ever, things are slightly different in Africa. Payment plays a critical role in the success of the industry and is going to be even more critical in the future as airlines move to become retailers. That means payment needs to be a priority for airlines. If not properly cared for, institutions can degenerate and the world is worse off as a result – imagine a shift from the rule of law (good) to rule by lawyers (bad). Airlines need to look after their payment systems in the same way. Advertisement: This article was made possible with the generous support of AI Events, who kindly allowed me to cover Airline & Travel Payments B2B Summit: visit aiconnects.us to hear more about their great events. Payment is becoming more important for airlines As part of the move to Offer, Order, Settle, Deliver – a programme intended to turn airlines into travel retailers – carriers can expect their average transaction value to increase. In the traditional world of airline management, costs were fixed in the short-term and profitability was maximised by earning as much revenue as possible. As general travel retailers, the same logic will not always apply. Airlines must incorporate marginal cost into their analysis, figuring out how to optimise margin rather than raw gross revenue. You can find more comments on this by searching for my “OOSD blueprint” series here on Airline Revenue Economics. At many airlines the range of transaction values has been quite large during most of the period of jet-powered flight. First and Business Class long-range flights were always going to be much more expensive than short-range Economy Class flights. The advent of Low-Cost Carriers in the 1990s reduced the entry level fares significantly. Anybody who finds themselves on a plane and paying less than around £500 for the privilege can probably personally thank Ryanair’s ebullient Chief Exec Michael O’Leary. As airlines seek to become retailers they will start bundling other travel products on some flights. There are four ways that this will impact transaction size. First, some transactions will become much larger proportionally, although not in gross Dollar, Euro or Pound terms. Imagine a £50 air fare and a £50 hotel room being bought together through an airline’s marketplace. Other transactions may increase by a small amount, proportionally speaking, even if the amount in money is significant. Adding a night at a plush hotel like The Peninsula to a longhaul Business Class flight to Hong Kong might increase an already hefty £5,000 fare to a £5,500 bundle. Some already large transactions could become enormous. That £5,000 comfy class seat to Hong Kong could become more like £15,000 or £20,000 if not one night but two or three weeks at The Peninsula is added in. Finally, and perhaps most significantly, previously small transactions could become much larger in gross monetary terms. Plenty of travellers fly Economy and stay in fine hotels. Southwest Airlines, an American LCC, has reported $5,000 (£3,760) transactions on $50 base fares. Transaction size matters. Payment is all about trust. Providers have a clear idea about who customers are, what they typically buy and what they can afford. This helps them figure out whether or not a transaction looks genuine. When a transaction with an airline looks unusual, payment providers are less likely to trust that it is authorised by the account holder, leading to blocked payment and declined transactions. As airlines shift to OOSD, changes in transaction sizes and mix could, if airlines are not careful, lead to payment partners blocking some transactions. In the OOSD world, multiple travel merchants will be depending on airlines to bring home the bacon. If airlines develop a poor track record through failed transactions and lost business, third party partnerships across the industry could lost trust. This might put the entire OOSD opportunity at risk, even among airlines that have their payment issues sorted and reliably process genuine and authorised transactions. Payment “works”, but not necessarily perfectly There are three types of parties in an OOSD transaction. Each has their own associated banks and payment service providers. These are the travel buyer, the traveller themselves and the travel merchant. Read more