You need to e book a flight however pay subsequent yr? That is the way it works

Demand for travel continues to rise, as do airline ticket prices.

Rising prices are prompting some to cut back on spending, while others are finding new ways to pay for their vacation plans.

More and more airlines are cooperating with “buy now, pay later” Companies to give customers the option to pay for their flights in installments rather than a lump sum. Some airlines even allow travelers to fly before the fare is paid in full.

“Consumers have become accustomed to using ‘buy now, pay later’ in retail and are now excited to be able to use it when travelling,” said Tom Botts, chief commercial officer of BNPL firm Uplift.

But “it’s not about offering consumers trips they can’t afford or encouraging them to take trips they shouldn’t,” he said. “This is about helping consumers actually budget and pay for those dream trips.”

Uplift works with more than 30 airlines including United Airlines, Lufthansa, Air Canada and AeroMexico.

“The implementation of BNPL was part of AeroMexico’s payments evolution to offer our customers more comprehensive payment options,” said Daniel Vega, a director at AeroMexico.

“Customers will certainly buy their vacation airfare when they have affordable rates versus a large upfront payment,” he told CNBC via email.

Uplift is “100% focused on leisure travel,” Botts said. He added that consumers who use his services tend to spoil themselves when they can pay in installments.

“We see them buying premium economy or even first class [tickets] if they wouldn’t normally have bought that… Consumers aren’t buying the cheapest seats on planes anymore,” he said.

“There have been travel programs with different flavors for a long time. But they were always based on the consumer having to complete the payment before travelling,” Botts said. “Some people don’t always understand that they don’t have to make all the payments before they travel.”

How it works

These companies work in different ways.

Some, like Uplift, run a quick credit check on the traveler to determine interest rates and payment schedules. These are effectively short-term loans that are decided “literally with a snap of the fingers,” Botts said.

Botts said most of Uplift’s partners offer 0% financing. “In many cases, it doesn’t even cost the consumer to take a seven-day cruise and pay for it over time,” he said.

However, prices vary depending on the financial health of the traveler. Uplift’s annual percentage ranges from 0% to 36%, according to its website.

When asked about travelers canceling their credit cards before the loan is repaid, Botts said it was “scams and there are consequences.”

“By pulling out credit reports, we can actually understand and make sure the consumer has the financial means to actually repay us.”

Others, like a company called Pay Later Travel, work more like the classic vacation schedule. There is no credit check and no financing requirements, but travelers must secure the flight with a deposit and pay the full fare before flying.

The company’s approval algorithm is able to understand the consumer’s ability to pay for large ticketed items and approve them accordingly.

Still more, like BNPL company Splitit, authorize the full fare on a traveler’s credit card but split the payments over three to 24 monthly installments. With each installment paid, the company reduces the hold on the credit line by the same amount, according to its website.

Australia’s largest airline Qantas launched BNPL services in May 2022, allowing international passengers on selected routes to book a flight but pay for the fare later. However, the fare is not fixed — it may increase along with changes in taxes and fees, according to the website.

Qantas also charges a seat reservation fee, according to its website, which is refunded if the flight is purchased or canceled.

Not just airlines

Online travel agency Booking.com works with BNPL company Zip, which lets travelers pay for hotels, cruises, cars and travel experiences in installments.

“Flexible options are critical for travelers…especially given the uncertainty of recent years and the ongoing uncertainty we’re seeing globally,” said Laura Houldsworth, Managing Director of Booking.com Asia Pacific.

Some companies require users to book through an app or their own websites. However, others are available directly through websites operated by airlines or companies, such as B. Booking.com.

D3 sign | moment | Getty Images

Fewer Approved BNPL Loans

Most BNPL companies work with issuing credit.

However, with high inflation and rising interest rates, “fewer and fewer loans” are being approved, especially for large amounts, said Nandan Sheth, Splitit’s CEO.

Uplift’s Botts told CNBC he disagreed.

“The company’s approval algorithm is able to understand the consumer’s ability to pay for large ticketed items and approve them accordingly,” he said. “We have a duty to be a responsible lender and to ensure consumers can repay the loans we offer.”

Splitit does not issue loans or check travelers’ creditworthiness, Sheth said. According to the website, customers only need enough available balance on their credit cards to cover the cost of the purchase.

“We don’t collect consumer purchase history data…we don’t hijack consumers or resell consumers’ alternative offerings,” he said.

But Botts said credit cards are a “terrible way” to fund airline tickets, given the compound interest credit cards offer.

In addition, there is no understanding of whether the consumer can actually afford the loan, he said.

“This simply shifts the risk of repayment to the credit card companies. It’s a really bad spiral for consumers,” Botts added.

– CNBC’s Monica Pitrelli contributed to this report.