By Alex Mifsud, CEO & Co-Founder, Weavr
When Icelandic low-cost carrier PLAY Airlines abruptly ceased operations in September 2025, it made headlines. But for travel intermediaries, the real cost of airline failure risk is not the collapse itself – it is the permanent financial machinery built to prepare for it.
The travel industry treats airline failures as rare catastrophes. They prepare for collapse, manage the fallout, and move on. What most miss is that the real damage happens in the years when nothing goes wrong. Airline failure risk is not a crisis trigger – it is a permanent drag on margins, liquidity and growth. It costs the industry more in stable years than it does in collapse years.
The silent tax on every booking
Travel intermediaries operate as Merchant of Record, which means they own the refund liability even when a supplier collapses. To manage that exposure, the industry has constructed an elaborate web of protections: insurance premiums, acquirer controls, rolling reserves, collateral requirements, escrow arrangements and delayed settlement structures.
What is striking is where this cost lands. Airlines insist on being paid at the time of booking, yet when they fail, it is not the supplier that bears the financial burden. The cost of that risk is pushed downstream into the distribution chain. Travel intermediaries absorb it through reserves, insurance, delayed settlement and trapped cash, despite having no control over airline solvency or balance sheets.
These are not emergency measures. They are permanent features of the system, operational every single day. And they are expensive.
Rolling reserves of ten to fifteen percent, often held for three to six months, are common in travel acquiring. Insurance premiums can consume a meaningful slice of margin before a single booking is marketed. Settlement frequently stretches from days into weeks or even months, often linked to when travel actually takes place. Escrow structures add operational overhead and legal complexity.
None of this shows up as a single line item in a P&L, which is precisely why the cumulative cost is so underestimated. These mechanisms exist to absorb risk, but in doing so they impose a continuous economic penalty on intermediaries regardless of whether that risk ever materialises.
One structural approach emerging in travel payments is to connect issuing and acquiring within the same payment architecture, allowing platforms to manage both incoming traveller payments and outgoing supplier settlements with greater visibility and control.
Low margins turn friction into failure
In industries with healthy margins, risk costs are absorbed as overhead. In travel, they are structural threats.
Many travel intermediaries operate on low single-digit margins, particularly smaller and mid-sized agents and aggregators that make up much of the distribution chain. While large, publicly listed OTAs can achieve higher EBITDA margins through scale, diversification and negotiating power, Expedia, for example, reported an EBITDA margin of 9.9 percent, the underlying economics for most intermediaries leave little room to absorb additional risk costs.
At that level, even small increases in reserves or settlement delays can eliminate profit entirely. A rolling reserve of fifteen percent means an intermediary must finance several multiples of their net margin simply to operate normally. Settlement delays force businesses to bridge gaps with working capital they often do not have. A modest uptick in insurance premiums can turn a profitable route unprofitable.
The problem is not that these costs exist. It is that they exist in an industry with no buffer to absorb them. Travel intermediaries are forced to optimise for survival, not growth.
Trapped cash and expensive credit
Customer funds are collected but locked by acquirer controls or settlement rules. Money sits in reserve accounts, unusable for operations. Intermediaries must finance the gap using their own balance sheet, creating a persistent working capital shortfall even when bookings are growing.
Thin margins compound the problem. Lenders see travel intermediaries as high-risk borrowers. Borrowing becomes expensive, restricted or unavailable. Credit lines that should support growth instead become tools for managing exposure. Access to capital is weakest precisely when exposure is highest.
The result is a strange inversion: growth increases financial stress rather than reducing it. Scaling the business amplifies the liquidity mismatch instead of improving economics.
This is a balance sheet problem, not an operational one
The standard framing treats airline failure risk as an operational issue. It is not. It is a balance sheet issue.
Intermediaries carry airline exposure long before anything fails. That exposure sits on the balance sheet, influencing settlement terms, payment acceptance costs, credit access and strategic flexibility. It determines how much capital is required to operate, how quickly cash can be deployed, and how aggressively the business can scale.
Treating this as an operational problem leads to reactive fixes: better insurance, tighter reserves, more conservative underwriting. Those measures reduce downside risk, but they do nothing to improve the underlying economics. In fact, they often make the problem worse by adding more friction.
Reframing airline risk as a balance sheet problem changes the question. It is no longer about mitigating collapse. It is about redesigning how liquidity, settlement and exposure are structured so that intermediaries are not permanently disadvantaged.
The cost structure never resets
A year with no airline failures is not a “good year” for intermediaries. Rolling reserves stay in place. Insurance premiums are paid. Acquirer controls remain active. Settlement delays persist. Cash remains trapped. Credit remains constrained.
The industry absorbs ongoing economic damage without ever naming the root cause. Airline failure risk is treated as something that matters only when airlines fail. In reality, it matters most when they do not.
What this means for acquirers and payment providers
Airline failure risk is not episodic. It is structural. It shapes margins, liquidity and growth every single day. Even if no airline ever collapses again, the economics of travel intermediaries remain impaired.
The damage is not caused by airline collapses. It is caused by the cost of preparing for them. That cost is embedded in every booking, every settlement flow, every credit agreement.
Once this is understood as a balance sheet problem rather than a crisis scenario, it becomes possible to rethink how risk, payments and economics should actually work in travel. The solution is not better insurance or tighter reserves. It is a fundamental redesign of how money flows through the system – one that aligns liquidity with liability and removes the permanent friction that has defined the industry for too long.
For acquirers and payment providers, this represents both a challenge and an opportunity. Those who continue treating travel as a high-risk vertical will remain trapped in the same defensive posture. Those who help intermediaries redesign their payment architecture will unlock growth that has been constrained for years.
Weavr has built payment infrastructure that protects travel intermediaries from airline failure risk while improving their economics. Learn more about our approach here.
