A Century Old Industry
On Sunday, 3 rd October 1915, the aviation industry in Kenya achieved its first milestone by
taking off the first flight in Kenyan airspace, operated by the military from Taita Taveta. As
the industry advanced, in 1929, the first commercial air services airport was established by
Mrs. Florence Kerr Wilson, bringing to life what is celebrated as Wilson Airport, from where
the first commercial return flight was operated from Nairobi to Mombasa.
A hundred years and counting, Kenya’s aviation industry continues to grow and thrive,
supported by key value chain players. Travel Agents are the single point of contact for
travelers, passengers, and guests. They serve as the industry’s trusted travel advisors,
travel booking managers, and financiers of the travel and aviation industry.
They pay it forward for their customers to secure bookings on airlines, hotels, and ground
transfers service providers.
Evolution of the global marketplace pioneered by travel and airlines
The travel and aviation industry was the first to go global, establishing a global marketplace
that brought together Travel Agents, Airlines, GDS (Global Distribution Services), Hotels,
Ground handlers, Visa issuing agencies, and Travel insurance providers together in an
ecosystem that enables the purchase of business and leisure travel offers across numerous
cross borders.
Travel Agents act as the intermediary between the customer and the service providers in
this complex web, governed by varying rules and regulations, fragmented booking policies,
and divergent languages and cultural frameworks.
Owing to the complexity of the industry, Travel Agents pay it forward on behalf of the
customer and Airlines by purchasing the travel booking or offers and paying for it in advance
leveraging the traditional forms of payments, e.g., bank transfers, cash, cheques, credit
cards and recently the mobile money, e.g., MPESA in Kenya.
The key challenge facing the Travel and Aviation industry is that the industry is built on a
legacy framework that exists in silos, and the interoperability of the systems to allow a
seamless exchange of information and data does not live.
Payments flows are built on an inefficient double loop system whereby a customer effects a
payment to the Travel Agent, who then proceeds to distribute the payments to several service providers in the value chain of the travel booking order, e.g., Airlines, Hotels, Ground
handling companies, Visa issuing agency amongst others.
This happens in a complex regulatory and policy framework and involves high-volume
transactions requiring extensive back-office reconciliation by the finance teams.
TRUST is the trading currency
The travel industry operates on TRUST, the singular trading currency that has fueled the
industry’s growth to date. The customer approaches a Travel Agent and purchases a
business or leisure travel offer for a future date.
The Travel Agent takes the risk and contracts the services on behalf of the customer and
buys the travel booking order TRUSTING that the value chain players required to fulfill the
services will honor the order on time and deliver on the quality and value proposition that
was marketed to the customer.
The Travel Agent undertakes a high financial risk for the value chain players who mandate
upfront payments to secure a travel booking order.
Often Travel Agents have worked with commercial banks to secure overdrafts and credit
cards to fund the payments obligations for the travel value chain on time to minimize the risk
of losing the travel booking order due to the stringent booking policies on cancellations and
inventory control.
The travel services are consumed cross-border and in a multicurrency environment, e.g., a
business traveler originating from New York to Nairobi for a conference meeting will go
through the process of contacting the Travel Management Company (TMC) handling the
bookings for the conference meeting, this TMC could be domiciled in Budapest, and value
chain players will deliver the conference meeting taking place in Nairobi.
Hence, in this travel booking order, the payments for the conference will be made by the TMC from Budapest, which will have to comply with the travel and regulatory booking policies from the US, and for Kenya to fulfill the travel booking order efficiently and on time while ensuring that the value chain players receive their payments for the service delivery as per the contractual terms.
This transaction will involve multiple currency transactions and different forms of payments
and attract 15% – 20% in transaction charges due to the double loop nature of the payment’s
distribution process to each service provider, i.e., Airlines, Hotels, Ground handlers, and
Visa issuing agencies, amongst others.
Often the payment systems are inefficient, slow, and expensive due to the cross-border
nature of the services consumed. This is also complicated by processing refunds and
cancellations when services have been partially utilized or not delivered, e.g., the
cancellation of flights, etc.
Diminishing profit margins, increasing transactions costs
Travel Agents’ profit margins vary from 3% – 4%. In 2015, in the Kenya market, Airlines
withdrew commissions from their airfares, and Travel Agents’; business model shifted to a
service charge-based model.
The industry trading volumes are high with high transaction orders; however, the profit
margins are thin, and they are easily eroded by the inefficient financial payments services
due to the lag in time from when a travel booking order was purchased, consumed, and paid
for by the customer in the first loop and to when the payments are disbursed to the value
chain players in the second loop.
Additionally, Travel Agents encounter numerous risks associated with cybersecurity and
fraud due to the high-volume transactions and fragmented information held in silos that are
not enabled for an efficient exchange of information or data.
Today, the volatility of the foreign exchange has impacted the costs for the transactions by
up to 25%, depending on the circumstances prevailing at the time of making the travel
booking order and settling the payments.
The worst nightmare for most Travel Agents is the complex reconciliation of bookings and
prices and the heavy reliance on manual reconciliation processes that impact the flow of
payments to the value chain players.
Exploring Alternative Payment Methods
There has been a recent emergence of alternative payment methods promising to deliver
efficiency and lower costs while addressing the complex reconciliation challenges faced by
Travel Agents.
The evolution of payment services is good news for the industry. However, there is a need to
establish a “holy” crux between the legacy systems upon which the Travel Agents and
Airlines, including other related Value Chain players, operate to the merging with the evolved
financial payments services.
This should be intended to collapse the double loop system into a closed loop payment
system that will eliminate the current inefficiencies, provide transparency, optimize the prices
flow and deliver on lower transaction costs and faster delivery of payments to safeguard the
cashflows for the Travel Agents.
The emergence of virtual payments is also a big win. However, the key challenge for the
financial payments solutions providers remains which is the most cost-efficient way to
integrate and disrupt the travel and aviation industry built on legacy systems and has
continued to exist for 100 years and counting.
Breaking the limitations of adoption of emerging payment solutions
There is a huge opportunity to customize financial payment solutions in Kenya’s Travel and
Aviation industry. However, there is an urgent need to confront the elephant in the room,
which has hindered the Travel and Aviation industry from take-off to adopting alternative
payment methods. Some of the key limitations for the Travel Agents include: –
i) Limited access to reliable and affordable payment infrastructure. SMEs (Small and
Medium Enterprises) operate in the travel industry, and their capacity to sustain a
high-cost financial payments solution is nil.
ii) The travel industry has low entry barriers, and most players need more technical
expertise to implement and maintain sophisticated financial payment solutions.
iii) Following the Covid19 pandemic, commercial air services were suspended globally,
and the mobility restrictions eased back over time, with the re-opening of China in
January 2023. Due to this, commercial banks profiled the Travel and Aviation
industry as high risk, slowing access to funding for the sector whose retained
earnings had been depleted during the Covid-19 pandemic trade lockdown.
iv) The travel and aviation industry are confronted by high cybersecurity and fraud risks
due to the high volume of transactions, gaps between services consumption and
payments collection, cross-border nature of the trade. This has delayed the adoption
of online and card payments as the Travel Agents would suffer the losses directly.
v) The travel and Aviation industry handles high-volume transactions, and the charge
fees for payments, e.g., credit cards, often attract surcharges from the value chain
players, increasing the overall booking management costs for the Travel Agents,
which erodes their low profitability margins.
vi) The emergence of Alternative Payment Methods and the drive to create consumer
awareness has been very low. There is a need for familiarity and understanding;
hence, the adoption levels have remained painfully low.
What is the future of financial payment services in the travel and aviation industry?
The Travel and Aviation industry is unique, complex, sophisticated, and global. The sector
represents an ecosystem built on legacy systems and silos, giving financial technology
companies a disruptive opportunity to collapse the industry into a closed-loop payments
ecosystem.
Beyond the payment solutions, there is a need to assess the “financial risk” that Travel Agents have been shouldering for the travel and aviation industry.
This is a perfect time to explore insurance guarantees and bankruptcy protection programs
for Travel Agents to enable them to focus on providing the most personalized and
professional travel advice to travelers, passengers, and guests and exponentially grow the
travel, trade, and tourism which will impact positively on the country’s GDP and create more
jobs while increasing the foreign exchange earnings and contributions from the industry.
The African Continental Free Trade Area agreement, which the 54 African States endorsed,
catalyzes the evolution and growth of the Intra-Africa travel and trade.
Afreximbank launched the PAPSS (Pan-African Payments & Settlement System), enabling
the payments flow and facilitation Intra-Africa. These financial payment levers will allow the
Travel and Aviation industry to enhance trade and payments settlement for travel bookings
Intra-Africa promoting the exchange of trade within the continent presently at below 20%.
This will inspire stronger African States that trade amongst themselves more than the states
that are currently importing from outside the continent, currently at over 60%.
There is a crucial role to be played by the Travel Agents and Airlines in shifting the trade
flows and strengthening the travel and trade linkages Intra-Africa for the common good of
our brothers and sisters in the African continent.
The future of payments in the travel and aviation industry is bright, and this will be the
turnkey to a new era of travel, trade, and tourism.
Be inspired by the words of Africa’s father of Nationalism, I quote “countrymen, the task
ahead is great indeed, and heavy is the responsibility; and yet it is a noble and glorious
challenge – a challenge which calls for the courage to dream, the courage to believe, the
courage to dare, the courage to do, the courage to envision, the courage to fight, the
courage to work, the courage to achieve – to achieve the highest excellencies and the fullest
greatness of man. Dare we ask for more in life” – Kwame Nkrumah.
