Every time an airline collapses, the same story plays out. Travellers get their refunds – as they should – but it is rarely the airline footing the bill. After all, the airline is bust. It is the intermediaries: the travel agents, the aggregators, the merchants of record. These businesses often already remitted the money upstream to the airline months earlier, but under card scheme rules the liability for refunding customers falls squarely on them. Acquirers – the companies that process card payments for travellers – simply enforce those rules by passing the refund obligation to the intermediary. Since many intermediaries pay the airlines by bank transfer – for instance, via IATA’s billing and settlement plan (BSP) – they may have to wait alongside other creditors to get refunds on flights that are never going to happen.
The combination of the certainty of refunding the traveller, and the uncertainty of receiving the refunds from a bankrupt airline can be lethal for travel intermediaries. So onerous is the exposure, that contagion is not uncommon – as one intermediary becomes insolvent, other parties in the system may get hit. For instance, the card acquirer serving the intermediary may then end up out of pocket if the intermediary cannot find the cash for the refunds.
This risky arrangement has been tolerated for years, but it is unsustainable, not least because travel intermediaries have relatively low margins, and card acquirers find them increasingly risky to serve.
Travel intermediaries fulfil important distribution functions in the travel sector – they enable travel experiences to be designed, packaged and sold in targeted ways: to the niche traveller, to the price sensitive, to groups, and so on. They also use their marketing resources to generate demand, by inspiring their target segments to use their leisure to time and money for travel rather than other pursuits. Without them, demand for travel will arguably be smaller. So, what is to be done?
The fix is not to dismantle consumer protections, but to redesign how money flows in travel so that intermediaries can get similar protections to those enjoyed by travellers, and preferably, better economics too. The solution would enable payments processors who serve them to reduce their exposure in the domino chain and therefore be able to serve the industry potentially at lower cost, improving margins for all.
As this note will explain – all the pieces are there for an economically efficient solution – but much work needs to be done to put them together into a joined-up solution, supported by the necessary process and data to make the whole work effectively to reduce the inherent risk.
Travel booking platforms that already control the booking workflow are in a unique position to offer this solution. But because the solution involves sophisticated handling of payments, including both issuing – creating virtual cards to pay suppliers – and acquiring – taking payments from travellers – to deliver, they need to partner with payments firms that can integrate all the payments elements into their platforms. By doing so, they can reduce exposure to a risk that has long been a chronic liability in the travel industry.
When wafer-thin margins meet sudden collapse
Airlines operate on wafer-thin margins, averaging just three percent net profitability in 2024 (IATA). Insolvencies are not rare events but cyclical shocks. Each collapse sends disruption through the value chain. Consider Flybe, the UK regional carrier that failed in 2020 and again in 2023 (BBC). Its insolvencies did not just strand passengers; they triggered liquidity crises for agents who had pre-sold flights. Travellers demanded refunds and agents were legally required to pay them, but the money those agents had already passed to Flybe was stuck in administration, in some cases for more than a year. Multiply this scenario across a value chain that sells tickets months in advance, and the exposure quickly reaches tens of millions. Flybe is just one example. The list of recent failures – WOW Air, Germania, XL Airways, Air Italy, Level Europe, Blue Air – underlines that this is not a black swan risk but a structural feature of air travel (Centre for Aviation).
often at higher costs while absorbing losses, handling complex claims, and dealing with frustrated customers. What went wrong?
The wrong people keep footing the bill
The mechanics of today’s system concentrate risk in precisely the wrong places. Merchants of record are obliged to refund travellers even when they have no funds available to do so, having already transferred them upstream. Acquirers, for their part, cannot deviate from card scheme rules: they must make the traveller whole and then claw the money back from the merchant.
Some travel agents have long-established arrangements with airlines to settle dues for airline bookings via IATA’s Billing and Settlement Plan (BSP). BSP processed $240 billion in 2023 and $232.8 billion in 2024 net of refunds (IATA). But BSP offers no protection or recourse against airline failure, so in effect bookings paid via BSP by the travel agent simply accumulate as financial exposure until the flights actually take place and liability to the traveller is discharged. At any point in time, a travel agent may be carrying $10Ms in such exposure. Agents use methods that are less expensive for the airlines while they, the agents, take the risk. The result is a fragile, lopsided system: travellers are protected, which is right, but the wrong parties carry the cost.
If that were not complicated enough, the fear that travel agents may be brought down by airline failure causes the card acceptance payment providers to treat them as high risk. This imposes all kinds of cost: such payment providers will charge more, will often retain collected funds for a period of time as a buffer against losses – thereby increasing the working capital required by travel agents to operate – and, often place caps on the volume of business they are comfortable taking from travel agents to minimise their exposure from their overall travel book. In all this, it’s worth bearing in mind that the source of the risk down the distribution chain, is the airline.
Surely, it should be the banks and insurers supporting the airlines, which are best placed to get detailed, accurate and timely data on their state of financial health, that can most efficiently handle the risk involved?
The thing is, all the elements of a system that can achieve this already exists, and moreover, these elements can all be managed and controlled by the parties that are most impacted: the travel agents and the payment providers that serve them. Yet, until now, with very few exceptions, this is not happening at scale. The barrier: complexity. This is where new techniques in embedded finance and payment orchestration come in.
Booking flows are the real lever
If complexity is the barrier to a better system for travel intermediaries, SaaS travel platforms can change this equation. Because they already own the booking workflow – the layer where trips are created, payments are initiated, and tickets are issued – they have a vantage point no one else does. They can see both sides of the transaction and orchestrate them together. That is why embedding both issuing and acquiring inside the same platform is so powerful.
Here’s how it could work in practice. Imagine a traveller in London books a Barcelona flight through a SaaS platform. Today, the traveller pays by card, the agent passes the money to the airline, and the airline holds those funds months before the flight departs. If the airline fails, the traveller claims a refund through their card provider. The acquirer reimburses the traveller and claws back the funds from the agent, who is left exposed.
In an embedded model, the picture looks different.
Now, the platform can automatically provide a virtual card enabling the travel agent to pay the airline for the booking. Some airlines might only accept certain card types while others may surcharge certain cards. The platform, with its access to detailed contextual information, can work out in advance the best card to use in each situation to optimise both for acceptance and for economics. If the airline fails before departure, the platform can ensure that the travel agent is reimbursed by the card scheme of the card used to pay the airline – as per normal card scheme guarantee – and the funds subsequently received can then be used to pay back the traveller.
Bingo – a practical system that provides operational efficiency, great economics and significant reduction in risk exposure to the travel agent.
This combined approach makes bookings safer for customers, protects intermediaries from liquidity shocks, and creates new revenues for the platform itself. It earns interchange on issuing and margin on acquiring, while reducing disputes, delays, and write-offs. Crucially, this is not something that acquirers or issuers can do alone. Acquirers lack visibility into supplier risk and bookings; issuers cannot control customer settlement flows. Airlines have no incentive to change the current model, which pushes risk downstream. Only platforms that own the booking layer are positioned to integrate both issuing and acquiring, aligning financial flows with service delivery.
Embedded finance: the architecture for change
Achieving this requires more than a simple API connection. It needs the backbone of embedded finance: regulated permissions, data models that link payments to bookings, and infrastructure that can combine issuing and acquiring into a single financial product. Not all embedded finance providers can do this. Most offer either issuing or acquiring, but very few can orchestrate both with the depth of integration that travel requires. The platforms that partner with those who can will not just mitigate airline failure risk – they will create a defensible product advantage.
Stop normalising the subsidy
Airline failures are inevitable. Treating them as someone else’s problem is reckless, because the current model ensures intermediaries will continue to subsidise insolvency. Travel platforms have a unique chance to fix this by embedding acquiring and issuing together. Done right, this protects travellers, preserves liquidity, and creates new revenue. It turns a systemic liability into a differentiator. The next collapse does not have to bankrupt intermediaries. The platforms that act now will be the ones still standing when it comes.
Operate in the business of travel space? If you’d like to discuss who Weavr can help turn the risk into an opportunity, talk to one of our experts or learn more about our solution here.
Keen to explore this topic more deeply?
You may find it useful to read the companion analysis on how the collapse of Thomas Cook exposed long standing structural weaknesses in the travel ecosystem and what has changed since. It offers a deeper look at the operational and financial pressures faced by intermediaries.
You may also wish to watch our senior-level webinar on the wider theme, featuring Livia Vité of actuary.aero, Damian Alonso of Outpayce at Amadeus, Paul van Alfen, and Frank Martien. Together, these resources bring both articles into a broader industry conversation, offering a more rounded view of where the next major airline failure could leave the sector and the frameworks that could provide greater resilience.
