What Challenges Do Payment Sanctions Bring to the UK Travel and Aviation Industries?

As the tourism industry finally begins to make a full recovery from COVID-19 and its resulting travel restrictions, there have recently been fresh worries that sanctions brought on by the conflict in Ukraine could undermine the progress made by travel and aviation companies, triggering a fresh period of industry stagnation.

In this article, I’ll explain how sanctions against Russia affect the tourism and aviation sectors and offer some solutions that could help offset any future damage to profits using my experience as the executive director of a UK-based global payment solution provider. 

Sanctions: What Are They & What Do They Mean? 

The unstable international situation triggered by the conflict in Ukraine has seen the UK, USA, and most of the EU member states take punitive measures against Russia in the form of economic sanctions. With regards to the aviation industry, this has resulted in:

• Closed airspace for aircraft from the Russian Federation;

• Restrictions for persons whose investment portfolios contain shares in Russian airlines;

• Cancellation of the insurance policies of Russian airlines and much more.

In addition, as of the 28th of March 2022, aircraft lessors have been forced to terminate their leasing arrangements with Russian airlines, a move that has strong implications for the aviation community, especially those with Russian exposure — a segment of the market estimated to be worth up to $15 billion.

These drastic changes have caused concern within the industry, with ECOMMPAY's own statistics revealing that ¾ of UK airlines are worried about how payment sanctions will affect future revenue and operational efficiency. We also conducted a poll of business leaders, which found that 54% were "extremely concerned" about the situation, 28% were "partly concerned", and just 18% expressed no concern.

What Challenges for the Aviation Industry Has the Current Political Situation Caused?

Having analysed the sanction situation from all angles, I believe that aviation companies and the tourism sector are likely to face (or have already experienced) several challenges at once:

• An initial sharp decline in the flow of tourists, leading to a one-time loss of both potential and expected income — this applies both to travellers who had already purchased tickets and returned them, and those that simply made the decision not to make a booking.

• A need to look for new target audiences and niches to replace the flow of customers and income from regions that fell under sanctions.

• Difficulties in paying for the services of providers due to the imposed sanctions.

In addition to these issues, most airlines operate using a vast list of currencies due to the variety of their international customers. Sanctions in response to turmoil in Ukraine (and global markets in general) have triggered volatility in some currencies, which in turn has affected financial analytics, budget estimates, and the forecasting of costs for banking services worldwide.

What Are the Possible Solutions? 

From my personal point of view, there are two ways to solve the problems facing UK aviation and tourism companies and stabilise the current situation:

• Decision #1: Companies that have lost customers need to quickly analyse under-covered foreign markets and the need for services, optimising their businesses for new audiences by expanding destinations and increasing the number of payment methods on offer. For example, the International Monetary Fund has stated that the Asian market is growing rapidly (about 7.5% in 2021 with a 6.4% growth forecast for 2022), presenting a fantastic opportunity for UK companies.

• Decision #2: This option partly echoes the first. There is an urgent need to introduce alternative payment methods, which in the future will depend less on the stability of the global market. For example, the "buy now, pay later" feature (BNPL for short), which appears in different services more and more frequently, should hit the mainstream well before the 2030s. BNPL differs from a loan or instalment plan and instead simply divides payment into parts, allowing the seller to receive a "deposit" for their service. The second alternative to traditional financial services is Open Banking — a groundbreaking payment method designed to improve market competition, stimulate innovation and offer more personalised and profitable services for end-users.

These two solutions can help businesses target the modern consumer, manage fees more profitably, and increase the security of financial transactions — both for business owners and consumers alike.

Conclusion

Though the current financial sanctions have been deemed necessary, they greatly destabilise both the aviation and tourism sectors. This reduces the opportunities available for increasing profits, as well as future business development. However, options exist for eliminating these problems, though they largely depend on the willingness of UK firms to expand into other regions and search for new target audiences.

On the other hand, business owners should not forget the possibility of optimising their banking services by cooperating with reliable and licensed financial system providers. This will allow the implementation of modern tools that will be convenient for both the client and the company, helping to attract new customers. In addition, financial system providers often allocate a personal manager to their partners, better equipping them to analyse and solve local problems.