You Can Pay for Airline Tickets in Monthly Installments - Here Are the Pros and Cons

Editors' pick: Originally published Oct. 12.

In a move some describe as bold and others say is puzzling, CheapAir recently began offering customers the ability to pay for airline ticket purchases in monthly installments.

The program, launched in August, is aimed primarily at people who do not have credit cards. It offers travelers who cannot afford an airline ticket the option to pay for them in three, six or 12 month installments via a financial services company that's partnering with the online travel agency.

The question some industry experts are asking, however, is how popular such an offering will be at a time when about seven in ten Americans have at least one credit card in their wallet?

"I think it's something people will find interesting," says Michael Bentley, a former Delta pricing analyst who's now a partner with consulting firm Revenue Analytics. "The one question I have is - how many people in the U.S. are looking to travel, who don't have credit cards? Or can't afford to just buy the ticket?"

The answer to that question may not be clear cut, but one survey found that Millennials like the idea of being able to pay for airline tickets via monthly payments not associated with a credit card.

Winq, a social polling app for Millennials, found that 78% of its users would be more willing to buy plane tickets knowing they had more time to pay for them. In addition, 83% of those same users said that one of the main reasons they don't travel more is because it's too expensive. And 92% thought being able to pay for tickets via monthly installments is a great idea.

To be clear, financing airline tickets through monthly installments is not an entirely new idea in the industry. More than a decade ago Continental Airlines introduced a deferred payment option on its website for customers seeking to purchase tickets. Called Billmelater, the option required completing an online credit application (handled by Billmelater.com), after which customers were sent a bill in the mail.


Billmelater eventually morphed into PayPal Credit, says Seth Kaplan of Airline Weekly. And Continental is now part of United, which still offers the program.

There are others as well that offer PayPal Credit, (which allows for flexible repayment over time, and is different then simply PayPal), including Delta and JetBlue, Kaplan points out.

"The idea of offering financing on your purchase - the airlines did that in the 1950s and 1960s," adds Brian Karimzad, director of MileCards. "Since then, consumers have gotten more access to credit and airfares have come down."

CheapAir CEO Jeff Klee, however, makes a distinction between the airlines that allow for purchasing tickets via such alternative financing methods and his company. CheapAir, he points out, is not an airline.

"We are the first online travel agency to provide this service," says Klee. "An airline or two may have had similar offerings, but no online travel agency."

CheapAir, in business since 1989 and selling tickets online since 2000, allows travelers to package together airline tickets from multiple airlines, in one ticket and transaction. It's an approach to ticket purchases that Klee says is one of the best value-adds provided by CheapAir.

As for the new installment payment program, Klee says the site has long been looking for an alternative to credit cards for its customers.  

"Where I think it's helpful is buying for that trip next summer," he explains. "Because of the way airfares work, the longer you wait, fares tend to go up. Clearly with the finance charge you end up paying more then you would pay if you didn't do this way. However, if you're taking a trip next summer, it's better if you buy the ticket now, because the fare is likely to better then if you wait until the last minute."

Rolled out in August after a three-month test period, the financing for CheapAir's program is handled by Affirm, which manages the application, approval, and payment process.

Customers booking tickets on CheapAir, who opt for monthly payments, are asked to provide their full name, mobile number, email address, date of birth, and the last four digits of their social security number.  

Applicants instantly find out whether they qualify. They're also told exactly how much the monthly payments will be under the various installment options and how much interest will be (rates range from 10% to 30% APR based on creditworthiness).

In addition, Klee points out, the application is only a soft credit check, meaning it does not impact the individual's credit score.

Since being announced, the program has received much attention and CheapAir customers have begun using the option to purchase tickets. While participation numbers remain low, less than 10% of the site's users, Klee is pleased with the initial performance.

"We've been very happy with the response, very surprised," he says. "I didn't expect it to get this much attention or sales."

Some of the initial anecdotal evidence regarding users shows that many are people with .edu email addresses, which are likely students, Klee points out.


Still, industry experts eyeing the program wonder how big the market will ultimately be and stress that financing a ticket in such a manner means you're paying more for it in the end, in some cases, even more than one would pay using a credit card.

Bentley, the former Delta analyst, says if users are able to pass the soft credit check required for the CheapAir/Affirm program, then they may very well also pass a credit check for a credit card. And that credit card could offer a lower annual interest rate.

In addition, Bentley points out that CheapAir may already have some competition in the space, in the form of Airfordable.com.

The site, whose model is slightly different then CheapAir's, allows users to buy flights by providing a deposit upfront and then paying off the rest before departure via a flexible installment plan.
 
The process, however, is not as streamlined as CheapAir's one-stop shopping.

When using Airfordable, travelers must first find a ticket they want to purchase on a travel site, take a screenshot of the fare and flight details and upload that image to Airfordable. After paying a deposit to Airfordable, the ticket is secured and the traveler pays the remainder owed on the ticket in installment payments.

The bottom-line according to Bentley and others, is that the jury is out on how successful such programs will be and they advise travelers to carefully shop around, to identify which option makes the most financial sense overall.

"I think it's a really interesting concept," concludes Bentley. "But I already have a credit card and I'm getting a lower APR and can take as much time as I want to pay it off....Plus there are now two players in this market and it was a small market to begin with."

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