Multi-currency pricing in the airline industry
WORLDPAY EDITORIAL TEAM
July 20, 2019
According to the June edition of the IATA Economics Report1, the Airline profit per passenger is not enough to buy a Big Mac in Switzerland. As is shown in the graph below, on average airlines operate at thin margins and as a result, are looking for new ways to optimise the passenger experience and to grow revenue alongside. One of the opportunities that is often overlooked is called MCP, which stands for Multi Currency Pricing.
Due to the way fares are traditionally filed for online bookings, airlines typically show the fares in the currency of the country of departure. This is however, not always the currency the cardholder is most familiar with: an example is a Chinese tourist traveling in Europe and booking a flight from Amsterdam to Reykjavik. In this scenario the fare is quoted in EUR, while the passenger is used to transact in CNY. If he does have a credit card, that is likely to be issued in CNY as well.
Offering a choice of currencies during the booking process will have a positive impact on the browse to buy ratio as customers will feel more comfortable when they see the fare quoted in their local currency. As the transaction will likely take place in the currency of the card, typically the authorization success rate will also improve significantly. MCP has an additional benefit as it can also be applied when a passenger wants to pay with a (local) Alternative Payment Method. The selected currency can also drive the choice of payment methods. In case of the above mentioned use case, Alipay or WeChat Pay could be offered in addition to regular credit cards.
For a regular transaction in a currency other than the currency of the card, the cardholder's bank converts the amount. The bank sets the exchange rate and charges the conversion fee. With MCP however, the airline determines and charges the exchange rate between the filed fare and the new transaction amount. The revenue opportunity moves from the cardholder's issuing bank to the airline.
Some airlines report opt-in rates as high as 40% for cross currency bookings, a significant contribution to the overall revenue. If you're interested in Worldpay's latest implementation of MCP and learn more about the business case, user experience and reporting/reconciliation, please contact your Relationship Manager.