Demand for travel has taken flight this summer, with record-breaking numbers of people planning trips.
This seasonal surge in sunny escapism is not just limited to leisure travel; business travel is also making a comeback.
But as nearly 1 in 4 U.S. consumers make their travel plans, the decision makers and financial teams working overtime in the background to power the travel industry have their hands full.
Managing the demands of a record-breaking number of customers, all while fending off competition and investing in new services to drive differentiation isn’t easy.
“Travel CFOs have got a real challenge on their hands, balancing the day-to-day working capital needs with continuing to invest in the business,” Ed Chandler, senior vice president and head of Commercial and Money Movement Solutions for Europe at Visa, told PYMNTS CEO Karen Webster.
“Technology is really driving the travel industry at unprecedented rates, whether it’s how you and I search for our travel, how we book our travel, the experiences we have when we’re traveling, and more — but that takes investment to keep up,” Chandler explained.
Every rise has its fall, and overwhelming demand can also result in unexpected expenses for travel firms, such as travel delays, cancellations, refunds and disputes.
Travel CFOs, particularly those at online travel businesses, need to ensure they are properly covered for any event while at the same time keeping enough working capital flexibility to invest in long-term growth engines intelligently and strategically.
Travel companies must invest in technology to provide seamless experiences for their customers, and CFOs of travel companies are starting to realize the significance of working capital solutions to help meet the complex task of managing their financial resources.
“We’re seeing travel CFOs really assess who they partner with to provide all the payment options and needs that they require to really grow their business, and grow it as fast as they can,” Chandler said.
Managing flows in and flows out for travel firms is particularly complex given the many channels that consumers and business travelers use to book and the methods they use to pay. The reality of unplanned cancellations and delays may require refunds or other disbursements.
To meet the needs of this environment, CFOs are carefully assessing their payment providers and seeking out options that offer choice, flexibility, resilience and the right commercial arrangements. After all, payments across the travel payment chain must happen simply, safely and securely.
One key tool in working capital solutions for travel CFOs is virtual cards. These cards simplify back-office operations, reduce payment cycles and provide control over payment transactions.
“Virtual cards have a really strong proposition and play a big role in the working capital solutions and options the travel firms have,” Chandler noted. “It’s a one-to-one transaction. It’s easy to reconcile from a back-office point of view because you have control over what virtual card you choose to pay your hotel or airline —– payment cycles are much shorter.”
That’s important, he added, because research in Visa’s soon-to-be-released Working Capital Index shows that there is an increasing need for agility and flexibility within working capital solutions.
The travel sector uses working capital the most for unexpected, unplanned expenses, which are inherent in the nature of the industry — and the complexity of the financial supply chain in the travel space means that rigid financing solutions don’t work.
“What we’re seeing right now, with all the disruption across the world, whether it’s the extreme fires we’re seeing here in Europe where travel firms are getting passengers home in 24 hours and dealing with those passengers that need a different hotel, is that all of that pulls on the CFO’s resources because they need to fund those, so having a flexible working capital solution is really important,” Chandler explained.
And travel firms are increasingly seeking the capability to have working capital availability only when they need it, avoiding the burden of paying a high cost for unused capital.
This shift in the industry’s mindset is changing how bankers charge for flexible working capital solutions and creating a new focus on providing on-demand services to let travel companies manage disruptions without disrupting their growth plans.
That is good news for travelers because the future of travel is being productively reshaped by technology.
“Hyper-personalized, really immersive experiences are going to be so important going forward,” Chandler said. “… [O]ne of the buzzwords we hear is the idea of a ‘connected trip,’ and, of course, that requires investments to enable that.”
“We’re seeing a real acceleration to tokenization of ID,” he added. “I think we’re also seeing a convergence. So, at some point probably not too far from now, you and I will be able to travel with a digital token that will enable us to pay for a holiday, pay for an experience on our holiday, as well as get into attractions … and again, that will require investment in technology and software, but also infrastructure.”
With recent innovations in working capital solutions, travel businesses can make the necessary investments in tomorrow while driving growth and managing for uncertainty in their business today.