New Amadeus report highlights ‘psychologically important’ threshold for FX fees in travel

When booking flights, 89% of global travelers would be more likely to choose one airline over another if given the option to pay in their preferred currency, highlighting the importance attached to transparent pricing. However, a new study from Amadeus reveals that hidden charges often levied by financial intermediaries mean travelers can face high charges for the privilege of paying in a currency they understand.

More than a third of respondents have paid between 3-10% of the total cost of a flight to make the payment in their own currency, with 14% having been charged more than 10% of the total flight cost. The vast majority of travelers (76%) reported unexpected FX charges when purchasing a flight.

Using a dummy airline website, Amadeus worked with psychological research firm Innovationbubble to study travelers’ conscious and subconscious reactions to different levels of FX fees. According to the research, travelers begin to notice FX fees when they reach 3% of the total ticket price, with ‘alarm bells’ beginning to ring as the fee approaches the psychologically important threshold of 5%. However, the overall cost of the flight still remains the most important factor for securing a booking. The survey results for this global study of 5,500 regular flyers includes respondents from India, China and Japan, and has been broken down below.

When it comes to the cost of foreign exchange fees, the survey results show:

• 26% of Indian travelers were reported to pay higher foreign exchange fees than all other regions. (Global: 14%; Japan: 22%; China, 20%).
• Globally, 76% of travelers experience unexpected foreign exchange charges when purchasing a flight. (India: 91%; Japan: 67%; China: 78%). India experienced greater unexpected foreign exchange than all other regions, with China also higher than the global average. Over three quarters (86%) of Indian travelers have decided against purchasing a flight from a particular airline due to foreign exchange fees making the overall cost too high. (Japan: 74%; China: 69%).

Travelers face a number of issues around foreign exchange fees when purchasing flights, but their concerns differ according to the markets:

• Unclear instructions: (Global: 34%; India: 35%; Japan: 29%; China: 38%)
• Difficulty in using the tools: (Global: 24%; India: 34%; Japan: 31%; China: 27%)
• Process being too slow: (Global: 31%; India: 42%; Japan: 26%; China: 45%)

The complexity in payment routes for flight bookings are making flight buyers reconsider their preferred method when it comes to currency conversion. It is increasingly clear that flight buyers want airlines to offer an end-to-end online booking experience. Travelers in India, Japan and China trust airlines considerably more than banks:

• Globally, 59% of flight buyers would prefer for the airline to convert the exchange rate and provide a local and final price rather than the banks. (India and China: 57%; Japan: 59%)
• Flight buyers globally have a poor perception over services offered by the banks, citing high bank fees (43%), obscure charges imposed by banks (33%) and concerns over banks’ transparency on currency charges (23%). 

Bart Tompkins, Managing Director, Payments, Amadeus said: “Travelers want a transparent shopping experience with flight prices displayed in their currency of choice. Today the industry largely outsources currency conversion to financial intermediaries and our research shows this can lead to high fees that often exceed the threshold travelers consider reasonable.”

He continued: “Airlines now have an opportunity to become fintechs, bringing FX services in- house so they can set reasonable fees and deliver an improved digital shopping experience, with the choice and transparency travelers demand.”

According to the research, the majority (59%) of global travelers would prefer their airline to handle the currency conversion rather than a bank, with 43% stating that bank levied fees are too high. In addition, travelers confirmed that on average they now trust airlines more than banks to handle FX transactions on their behalf.

Jamie Halliday, Strategic Customer Insights Director, Innovationbubble added: “Whilst the overall flight price and product attributes remain paramount, our research demonstrates that getting FX wrong can be a real turn-off for travelers. When the rate reached the 4-5% threshold, people’s alarm bells went off and they began to actively seek alternative travel options.”