The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
Nearly every part of the airline travel experience has been digitized — from booking a ticket and downloading a boarding pass to accessing in-flight WiFi. Still, there’s one process that remains bogged down by outdated methods and complex regulations: consumer compensation.
As the airline industry evolves and customer expectations shift, it’s crucial for airlines to modernize compensations and claim payments. Digitizing these processes can help reduce operational costs and improve customer satisfaction. According to McKinsey & Company, airlines could potentially reap $14 billion in value by more strategically handling payments, such as by providing flexible refund processes.1
Are you ready to retire those old, inefficient paper vouchers in favor of streamlined, digital payout solutions? Learn more about how to update your compensation methods, comply with changing regulations, and improve traveler experiences.
Across the world, airlines are under increased pressure to meet new government regulations and provide specific passenger protections.
In Europe, the EU261 rules require airlines to notify passengers of their rights for compensation and assistance if their flight is canceled or delayed or if they’re denied boarding.2 In Canada, airlines must refund passengers or rebook them on another airline if their flights are delayed or canceled.3
In the U.S. and Australia, airlines aren’t legally required to compensate passengers for flight cancelations or delays. However, many airline carriers have established their own guidelines for compensation to protect customers and remain competitive.4,5 Meanwhile, India has introduced a passenger charter that allows travelers to claim compensations for flights that are overbooked or canceled within two weeks of the departure date.6
These regulations can put a strain on airlines’ resources and operational capabilities. To maintain compliance, airlines may have to regularly upgrade their systems, train staff on new procedures, and redesign their internal policies to meet external legal requirements.
Especially for those still using paper voucher systems, regulations can slow down an already lengthy and nuanced manual compensation process. For each transaction, airlines must provide documentation, prompt customer communication, and claims processing. Depending on their government regulations, airlines may also have to notify civil aviation authorities about each payment or dispute.
Staying on top of this administrative workload can seem nearly impossible, particularly with U.S. airlines fielding such a high number of consumer complaints.7
Modern travelers increasingly expect quick and hassle-free compensation for flight disruptions, delays, and baggage issues. While airlines might have succeeded in using traditional compensation methods in the past, they must now meet consumers’ needs by providing speedy, accessible, digital transactions for compensation claims. Making these changes can help directly impact traveler satisfaction and loyalty.
For example, along with providing real-time travel updates and booking services via their apps, airlines can offer on-the-go mobile compensation payments. This way, travelers can resolve issues right from their smartphones.
As studies have shown, 64 million U.S. consumers use their smartphones at least once in their shopping journeys and many seek post-purchase security from the businesses they buy from. This includes easy dispute resolutions and refunds.8
The traditional voucher systems that airlines have been using for years come with expensive overhead costs and inefficiencies. As each voucher must be manually approved, printed, and distributed, the process can become incredibly time-consuming, error prone, and difficult to scale. Without digitization, these paper vouchers can be near-impossible to organize and track.
Historically, travelers have also had to call a representative to request compensation, potentially spending hours on the phone or waiting days to hear back about their claim. As a result, customers have been left frustrated and unsatisfied with their experience.
Digital compensation systems, on the other hand, allow for fast and easy compensation processing, reducing the time it takes to reconcile customer claims and lowering administrative expenses. So modernizing compensations and claim payments should be a priority for any airline company looking to improve customer experiences.
PayPal’s Hyperwallet is a robust solution for digitizing the airline compensation process and providing a more intuitive customer experience. By collaborating with a global payout solution provider, airlines can easily send fast and reliable payments to travelers across over 200 markets in more than 50 currencies.
With PayPal Hyperwallet's payout experience, customers can also choose from different payout methods, including real-time payments to PayPal, Venmo (US), debit cards, and traditional bank transfers, so they have more control over how they're paid. And airlines can seamlessly integrate PayPal’s compensation payment technology with user-friendly interfaces and APIs.
Whether travelers are dealing with baggage claims, refunds, or canceled flights, Hyperwallet can help simplify enterprise payouts for airlines — all while meeting complex regulations. In addition to streamlining overhead costs, PayPal’s solution also reduces fees associated with failed or return payments. So airlines can improve customer experiences while maintaining their bottom line.
Southwest Airlines, for example, used PayPal’s Hyperwallet to resolve an urgent payouts challenge in 2022. When widespread cancelations and delays disrupted many travelers’ holiday plans, Southwest had to quickly provide compensation for the inconvenience. With PayPal’s Hyperwallet, Southwest was able to distribute $250 million to approximately 200,000 customers within just a few weeks.
Read the full Southwest Airlines case study.
Choosing the right payout method is crucial for airlines that want to remain competitive and meet customers' needs. If you’re ready to transition from traditional to digital compensation systems, you can use these criteria to find the right solution for your business.
To start, make sure your digital system can:
Payments technology will only continue to advance, and consumers will increasingly expect fast, intuitive refund processes. That means airline carriers need to adopt the right systems and solutions to meet these changing needs and stay competitive.
PayPal’s Hyperwallet is designed to help. Airlines can use Hyperwallet to navigate this dynamic landscape, improve customer satisfaction, and streamline operations.
Learn more about digitizing airline payouts with PayPal's Hyperwallet.
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