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Protect Your Travel Company Against The Impact Of Supplier Defaults

Posted June 10, 2019


Like many industries, the travel industry has its fair share of businesses that fail. In recent years and months, the airline industry in particular has seen a number of high-profile failures that have left travelers stranded and travel companies left to wonder how they will get refunded for services not delivered. In fact, in the last twelve months alone, more than 20 airlines worldwide have been grounded for good.

Competitive Industry, Fluctuating Fuel Prices Make Smaller Airlines Vulnerable to Default

One of latest casualties was the much-hyped WOW air, made popular by providing low-cost fares across the Atlantic. Though WOW air was a fairly new airline (launched in 2012), it’s not just new carriers or even low-cost carriers that have suffered.

2017 saw the shuttering of Air Berlin and Monarch Airlines, both large, well-established airlines with decades in the industry. Monarch blamed the decline on routes in politically unstable areas where popularity dwindled, forcing it into other highly competitive markets where revenues were lower. The fall in the value of the British Pound following the Brexit vote also made the UK-based company vulnerable to exchange rate fluctuations.

Smaller airlines, though, are inherently more vulnerable. Of the twenty that closed in the past year, most were smaller regional airlines without the scale and capital resources of the large carriers. In an industry rife with competition, subject to price wars and significant fuel price fluctuations, smaller companies are having a harder time weathering the downturns.

Meanwhile, larger airlines are learning how to compete with low-cost carriers by offering no-frills fares to the price-conscious consumer. Some of the failed airlines were actually a victim of their own successes. For example, Primera Air grew very quickly and then faced poor customer service and reputational damage it couldn’t recover from.

Impact Of Supplier Defaults On Travelers And Travel Companies

Unfortunately for both travelers and travel companies, the majority of airline bankruptcies have been announced suddenly and without warning: WOW air was reportedly selling tickets the morning it closed.

In cases like these, passengers are stranded, and travel companies are left with the question of, how do I recover the cost of future bookings made on behalf of customers? Not to mention how to best to keep those customers who have placed future bookings for that supplier satisfied.

For any type of supplier default, being paid back for services not rendered becomes a time-consuming task with often uncertain results.

Chargeback Rules Help Protect Against Losses From Supplier Defaults

Different types of payment have different levels of protection from supplier defaults, as well as other payment disputes. When a travel company uses virtual cards, chargebacks may be raised depending on the situation. Chargebacks are a tool to recover funds when other alternatives have been exhausted or are not applicable.

The chargeback is raised by the travel company’s payment provider or card issuer and reverses a prior payment to a particular supplier. Chargebacks can be raised for a variety of disputes from overcharging of services to fraudulent activity, and of course supplier default.

(For more on how virtual cards protect your business against fraud and misuse see: Data Breaches Continue To Plague The Travel Industry.)

With virtual cards from WEX, these chargebacks are raised with the card scheme (for example, Mastercard or Visa) on your behalf in order to recoup any costs from airlines or other suppliers that have already been paid and are unable to perform or complete their services. Chargeback rules are in place to help protect your business against loss, each chargeback is subject to scheme policies and in certain circumstances, there may be no chargeback rights.

Raising chargebacks from payments made using virtual cards can be an effective way to recoup the costs of payments made to defaulted suppliers so you can focus on helping your customers. Get in touch to learn more about the protections that virtual cards can offer your travel company.


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