Interview with Ricardo Pilon, Chairman, Cargo Payment Summit 2022
21st September, 2022
Getting payments right has several implications for airlines today. Not just CX or the conversion rate that tend to be related to flyers, but it is also important to evaluate the cost of payments, payment processing and efficacy of payment methods when we talk of the air cargo segment.
Air cargo remains an integral part of revenue generation today and airlines are looking to capitalize on demand in the freight market.
“During the pandemic, cargo grew rapidly and represented over 70% of total airline revenue in some cases and the industry grossed over $170 billion last year. The industry is still close to that level but in air cargo, a value chain that features many more intermediaries, payment cost is a massive blind spot. And despite the recent boom in air cargo and the associated yields, looking at the external environment, it is imperative to start looking for that next layer of value,” said Ricardo Pilon, Chairman, Cargo Payment Summit 2022, scheduled to take place in London on 17th October.
In terms of the overall opportunity, Pilon said, “Airlines spend around 3% of their total passenger revenue and over 50% of the net profit on payment. That’s over $20 billion in payment processing and payment collection costs.”
He added, “Payment is likely to be the next frontier when one contemplates how to gain competitive advantage (in this industry). The supply chain offers many opportunities for the removal of inefficiencies, reduction in risk, and also the introduction of new fintech (financial technology) offerings that power new business models in real-time and play a part in improving B2B customer service. Alternative payments can also prevent further disintermediation by marketplaces for small parcel delivery, which is the segment that is growing the fastest. Payment can, in fact, become the differentiator now.”
Being a key stakeholder in this business, airlines acknowledge that it shouldn’t take a month or more for payment remittances to come through after service completion. It is worth evaluating how various pain points across the chain, which involves 8-12 different players, are being looked at.
Pilon also added that the industry needs to act fast, considering the way things are shaping up (for example, FedEx attributing its revenue miss to macroeconomic weakness in Asia and service challenges in Europe).
Pilon spoke to Ai Events’s Ritesh Gupta ahead of the Cargo Payment Summit. Excerpts:
Ai: Can you talk about the significance of this event?
Ricardo: I have worked in cargo for more than 15 years, that’s almost half my career. But it was on the commercial optimization side. I realized that in commercial, we do not know much about payment, which I started to find puzzling especially when the pandemic hit. So, Christopher Staab and I first held an online event on 15th May this year to stimulate discussions around payment in cargo. The response was overwhelmingly positive. It was also revealing that many of the participants agree that too little is known about what payment in cargo actually costs, and why not more is being done to bring transparency and implement modern solutions.
Arguably, it has always been important but there’s been a bit of oversight because of organizational silos. Working out the link between service levels, customer experience and payment is not only a tactical but also a strategic step as the industry will face new challenges as early as Christmas 2022. Many passenger airlines added freighters and the industry has been opportunistic and overly aggressive on the capacity side going forward. This will have an impact on the economic environment as yields come under pressure. It is becoming increasingly important to address other processes that impact the bottom line by modernizing payments. It’s also a step toward near real-time organization.
Ai: What are the pain point areas in cargo payments?
Ricardo: I see the pain points falling into three categories.
- The cost of payment and collection,
- Risk, and
- Accuracy and compliance, which also has a big cost component to it.
In terms of risk, an industry facilitating business in real-time should move to real-time payment for cash flow, especially in inflationary times. But the elapsed times also expose companies to forex (foreign exchange). Also, the cost of reconciliation and compliance are significant because of duplication in efforts, manual manipulation, and the exposure to fraud as the processes and technology are not up-to-date.
Ai: Where does payment stand from an organizational standpoint?
Ricardo: The air cargo industry is very hands-on and built on relationships. There is a certain informality between large stakeholders in the chain. Sales and rate agreements are hands-on although some efforts are underway to automate spot quotes. Large forwarders, logistics providers, carriers and ground handlers get on with moving stuff. The payment technicalities follow or are dealt with through escalations. More predictable processes under contracts including interlining, were facilitated through institutions like IATA’s CASS, or handled between large forwarders, ground handlers, and carriers directly. However, with all the different commercial terms (incoterms) and different stakeholders, payment analytics has not been a priority. Now that fintech enables new commercial models, it’s important to bring this function over to the commercial side and of course, closely integrate it with finance. But airlines should start building these bridges.
Ai: Can you talk about event topics and speakers?
Ricardo: We have a very interesting group of companies represented and key speakers have confirmed to talk about these timely payment topics. They will be discussing the pain points in cargo payments, opportunities for fintech, payment orchestration, mobile and alternative payments, and vertical integration of B2B payments as well as DeFi/ smart contracts on blockchain.
To share some exciting names, we’re delighted to have Spencer Hanlon, Global Head of Travel Payments with Nium. Spencer is also a former air cargo executive with BA World Cargo. We have Andy Sale from Cellpoint Digital. Edgar Dunn & Co.’s Shanta Paratian will moderate a discussion on pain points and we have Mastercard’s John Garden, who will share his fintech vision for the industry. We’re still confirming a few other speakers but it’s promising to be a great, and finally, physical event.
Ai: Where will the event take place?
Ricardo: The event will be held at the Royal College of Physicians on 11, St Andrews Place in London on 17 October 2022. We’re also allowing ample time for people to meet and network, and we look forward to welcoming all interested stakeholders to share and join the conversations.
Join senior industry executives at the upcoming Cargo Payments Summit 2022, scheduled to take place in London (17th October, 2022):
