What should airlines charge for a foreign exchange conversion?

That’s one reason airlines are increasingly pricing their services in multiple currencies, to simplify the traveler experience so people can easily understand the cost of a flight in a currency that’s meaningful to them. Taking this step is recognized to increase conversion, boost satisfaction and can also generate additional revenue from the FX transaction.

According to our latest report, some travelers experience high charges and a lack of transparency when paying for flights in the currency of their choice. In fact, 14% of respondents to our survey have paid more than 10% of a flight’s total cost simply for the convenience of paying in their own currency. More than a third of respondents have paid between 3-10%. So what do travelers consider a reasonable spread or margin for a Foreign Exchange (FX) transaction?

We set out to answer this question as part of our research. We built a mock airline website and studied conscious and unconscious reactions as travelers were presented with different FX price points. We were particularly keen to understand the threshold that might prompt a traveler to abandon a booking.

The research confirmed that travelers begin to notice the FX spread around the 3% region and the really important psychological threshold is 5%. Beyond 5% a significant percentage of travelers began to leave the site and to shop around with other providers.

If travelers are sensitive to FX fees, why does the travel industry continue to charge above a 3-5% range in certain circumstances? Well one explanation could be that traveler attitudes to this issue simply aren’t well understood, and that’s what we hope to change with this study.

Another explanation could be that financial intermediaries, rather than airlines themselves, have traditionally provided FX services. This means airlines have very limited control over the fee charged to the traveler and they’ve been unable to balance the fee, conversion and user experience for the optimal outcome.

Our own FX solutions seek to address this situation by supporting airlines to take greater control of their currencies proposition so they can set the multi-currency prices and offer and improve the user experience as part of an integrated digital journey.

Another factor could be the total price of the flight. Despite the importance attached to the FX spread, our research showed the overall cost of the flight remained the single most important factor for securing a booking. Even when the FX spread was over 5% but the flight was deemed to be competitively priced overall, a high percentage of travelers completed the booking. Therefore, for airlines offering very low base fares, travelers will tolerate a higher FX spread.

Transparency was also critical for our sample of travelers. When the cost of the flight wasn’t presented in the traveler’s native currency the vast majority left the site to check the real-terms cost using currency conversion websites. The convenience of currency conversion happening on the airline’s own website simplified and accelerated the booking process, reduced the potential for abandonment and boosted conversion. Travelers deem the added convenience of clear pricing in their native currency so important that 89% said it would make them choose one airline over another.