Lower Saxony, a state in Germany, proposed in August that advance purchases for airline tickets be eliminated and that a “pay as you fly” system be put in place, where customers’ payments aren’t processed until they check in at the airport.
Andrew McWilliams, head of research for the Airlines, Hotels and Cruise Lines UCITS ETF (TRYP), comments on proposed ‘pay as you fly’ system in the wake of surging flight cancellations:
“With both positive and negative impacts, it is too early to tell what the net financial impact will be.
“Airlines will have to alter their liquidity strategy to accommodate lost advance payments; fares may be discounted for travellers who pay in advance, lowering average fares; airlines may have a harder managing assets and personnel efficiently, due to greater uncertainty about passenger loads.
“On the positive side, early adopter airlines may gain additional bookings at the expense of non-adopters in the short term. Adopters’ administrative expenses should also be lower.
“Customer satisfaction should be higher, possibly boosting the number of passengers.”