Tara Spielhagen, chief executive at software company Swiipr, says airlines should view compensation claims as an opportunity to excel in customer service
From employee shortages to IT outages, trade disputes to a global pandemic, it’s undoubtedly been a tumultuous few years for the air travel industry. So as last year’s busy festive season approached, it’s likely many airlines were crossing their fingers that the bumper holiday period would pass without any major disruption. Unfortunately, the UK’s wild and windy weather and heavy fog in a number of regions led to the cancellation of a significant number of flights and threw many passengers’ travel plans into chaos
These issues were largely due to extraordinary circumstances, so while airlines may have needed to provide customers with assistance during their delays, they would not have had to provide flight delay compensation in most cases.
When problems are within their own control, however, it’s a different story and there’s no escaping the fact that passenger compensation claims are on the rise. In 2023 alone, according to research by Reports N Markets, the global airline compensation market reached US$9.7bn (£7.6bn) – a figure that’s projected to grow to $20bn (£16bn) by 2030.
A soaring claims market
Although the legislation that requires airlines to provide passengers with compensation for flight disruptions has been in place in the EU since 2004, for a long time many consumers were unaware of it. Even those flyers who understood the legislation were frequently deterred from seeking compensation by the complexity of the claims process.
Now, however, this landscape is changing. The past decade has seen a significant rise in airline claims companies – businesses that navigate the turbulent claims process so that customers don’t need to. These firms have become increasingly aggressive in their targeting of affected passengers, with representatives sometimes sent to arrivals gates to meet late arriving flights and incentives offered to retailers that refer clients.
Thus, it’s no surprise the number of passengers making use of external claims providers is expected to rise to 25% by 2028, up from an already high 19% in 2023, according to AirHelp’s 2023 Air Travel and Disruption report.
In addition, news outlets frequently run stories advising consumers of their rights, with articles revived each time there’s a large-scale disruption. The end result is that fewer airline customers are unaware of what they are entitled to. And, with social media offering unhappy customers a platform to air their grievances, passengers are becoming increasingly confident in their ability to assert these consumer rights.
‘Procrastination approach’ no longer viable
Whilst it’s understandable airlines may be tempted to procrastinate when it comes to compensation payments, I firmly believe this is the wrong approach. While this may have been the most economical tactic in years gone by, with global regulations now tightening and the popularity of claims companies on the rise, the “procrastination approach” is becoming less and less viable. There’s no longer the same cost saving in such a strategy and overall costs are increased once the cost of fines, court costs and the increased legal teams needed to deal with claims – and claims firms – are factored in.
Holding back has already proved a false economy for airlines. In the EU, a 2022 report from the European Court of Auditors put the cost of handling compensation disputes at more than €200m (£166.3m) per year.
Against the landscape of today’s claims market, an airline has two options: pay compensation now and the customer will thank you, or pay it later and they’ll thank the claims company – though they won’t be that thankful as they’ll typically have given up 20-50% of their compensation to that company.
It would seem then that it’s time for a different approach, one where airlines prioritise customer service and focus on fostering loyalty.
The value of customer experience
Because loyalty doesn’t just mean consumers are more likely to choose a particular airline – according to a Harvard Business Review study, it also means they are willing to pay more to travel on that particular airline.
A 2018 study looked at 400,000 tweets related to customer service directed at five major US airlines. It surveyed the customers who had sent the tweets six months later and concluded those customers who had received any response to their tweet were willing to pay almost $9 (£7.18) more to travel on that airline in future.
Speed was a big factor – customers who received a response within five minutes were willing to pay almost $20 (£15.98) more for a ticket in future, while the additional spend dropped to $2.33 (£1.86) for those who waited 60 minutes or more for a reply.
Considering the International Air Transport Association estimates that airlines made just $6.40 (£5.11) per passenger in 2024 – with this predicted to rise to $7.00 (£5.59) in 2025 – it seems airlines have the potential to more than double their profit per passenger just by responding quickly to complaints.
The Harvard study covered a wide range of customer issues and it would be easy to assume a major flight disruption that causes someone to miss an important family or work event is impossible to recover from. Indeed, according to a recent survey by CMAC, 42% of people who suffer flight disruptions come away from the experience with a negative perception of the airline. Some 11% say they will never fly with the airline again, while 35% would be less inclined to do so.
However, the same survey showed that a surprising 14% of passengers would in fact be more inclined to fly with an airline after experiencing delays or cancellations. Why? Because the disruption was handled so well. By offering immediate compensation and giving passengers the peace of mind to know they can mitigate the negative effects of the disruption, airlines set themselves up to impress customers and foster brand loyalty in difficult situations.
Delays and cancellations take their toll on consumer confidence, but a quick and easy compensation system has the potential to totally reverse this passenger pessimism. As we move into the future of air travel, new attitudes towards compensation offer an excellent opportunity to bolster brand loyalty and drive increased revenue for those airlines which adopt a proactive approach to passenger claims. Meanwhile, businesses that don’t embrace these changes can expect to get left behind on the runway.