Financial strategies for success in 2020 - Alex Mifsud FOUNDER AND CHIEF STRATEGY OFFICER - Travel Technology Europe
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Financial strategies for success in 2020
Alex Mifsud
FOUNDER AND CHIEF STRATEGY OFFICERAgenda Part 1 Chaos is our new normal Part 2 What this means for you Part 3 Strategies for success
01 — Chaos is our new normal
It’s distressing
We’ve had a vintage 12 months…
(But we’ve been here before,
Airline bankruptcies: Flight-shaming:
and we’ll be here again)
- Aigle Azur - Climate Strike
- XL Airways - Extinction Rebellion
- Adria Airways - ‘Flygskam’ Forbes’ word of 2019
- Germania
- Flybmi Global pandemics:
- WOW - Coronavirus
- Jet Airways
Aircraft grounding:
Travel group bankruptcies: - Boeing 737 Max
- Thomas CookTravel: an industry of long-standing technological pressure
52% of travel is now booked online (the
largest proportion of any industry)
66% of European travel sales are now
through supplier websites and appsGrowth will continue, but it’s not always benign…
Industry growth Consolidation Margins
- 3.3% year-on-year - In July 2019 alone, USD7.39bn of - Marketing pressure
M&A in travel (>50 deals, up 39%
- Topping USD3tr by 2024 on 12month average) - Supplier pressure
- Expedia: USD3.2bn spend
- Priceline: USD4.4bn spend02 — What this means for you
The stakes have never
been higher…
Acquire
…the future now only has three - The companies that lead the growth
will become acquirers of other
outcomes businesses
Sell
- The companies that demonstrate
success will be acquired
Expire
- The rest won’t surviveThe stakes have never
been higher…
Acquire
…the future now only has three - The companies that lead the growth
will become acquirers of other
outcomes businesses Getting the
economics right
Sell
- The companies that demonstrate
success will be acquired
Expire
- The rest won’t surviveEconomic lever #1: Marketing
Travel industry ad spend is increasing in line with revenues
10.7
9.01
e
cr eas
in
4x 7.31
5.73
4.85
3.64
2.61
2012 2013 2014 2015 2016 2017 2018
OTA direct ad spend, USDbnEconomic lever #2: Operational efficiencies
OTA operational costs designed away from the outset, leaving little room for further cost reduction.
Ongoing back office automation enhances efficiencies and removes costEconomic lever #3: Supply chain
Discounts applied by supplier to payment
Incentives provided by supplier after payment
Largest area of margin available to be
Optimisation of payment processes
positively impacted03 — Strategies for success
A game of cat and mouse
Every participant in the supply chain is playing a balancing
act with their payment strategies.
- Suppliers need to maximise their margins, just as buyers
need to maximise theirs: your higher margin is therefore
someone else’s low one.
- Airlines and OTAs are in a tug of war on who will fund
working capital requirements.
- Pick your markets carefully – aim for areas where your
relative market power will enable you to sustain your
margin.A game of cat and mouse
The cat and mouse in action…
Airlines protecting their margins
- Low-cost carrier card fees
- Scheduled airline card fees (mimicking low-cost carriers)
- Card use costs airlines up to 3.5%, on a margin of 4-8%...
OTAs protecting their margins and controlling risk
- Paying direct
- Card spend brings protection, unlike BSP cashUse payment
optimisation to
1. Pick your markets
safeguard revenue and
build negotiation
- Relative buyer strength in a
strength market allows you, the Card acceptance fees can be as high
as 3.5%, wiping out airline margins
buyer, to decide which
which can be as low as 4%...
payment methods you want
to use.
- The alternative is to be
obliged to use the supplier’s
preferred payment method –
which may be expensive for
you.Use payment
optimisation to
2. Don’t overlook your back office
safeguard revenue and
build negotiation
- Automate everything:
strength - Bookings
- Payments
- Reconciliation
- Optimise everything
- FX exposure: netting, hedging
- Working capital – payment scheduling, and
matching funding with issuingUse payment
optimisation to
3. Take payment rewards where possible
safeguard revenue and
build negotiation
- Our studies show that an OTA with typical patterns of card-
strength use and spend has the capacity to increase their margin by
26%, by using specific virtual cards to pay specific suppliers
Untapped capacity to improve
margin by 26%Use payment
optimisation to
4. Use data to shine a light Although 84% of travel execs
safeguard revenue and on your payments acknowledge that payments are a
strategic matter…
build negotiation performance
strength …only 36% of travel execs are
actually measuring payment
performanceUse payment
optimisation to
safeguard revenue and There’s not one silver bullet
build negotiation
strength - Use a mix of tools and tactics
- Visibility is key – maintain oversight
- Stay attuned to developments in the payments ecosystem
- Payment optimisation is essential for mitigating uncertaintyThis isn’t theory
• OTAs that purchased tickets by card were
protected financially when Thomas Cook failed
• Chargeback process clawed hundreds of millions
of pounds back from the airline, ultimately
returning funds to the customers
• Ability to refund customers protected OTAs
reputationallyPayments is a matter for the board It's not engine-room stuff any more.
Alex Mifsud
Thank you FOUNDER AND CHIEF STRATEGY OFFICER
alex.mifsud@ixaris.com
Ixaris is a trading name of Ixaris Solutions Limited and its group companies.
Ixaris Solutions Limited, registered in England and Wales, with registered number 09024600 and registered office at 2 Stephen Street, London, W1T 1AN, is authorised by
the Financial Conduct Authority under the Payment Service Regulations 2017 (FRN: 721549) for the provision of payment services.You can also read
