Want to book a flight but pay for it next year? Here’s how it works

Travel demand is still picking up, and so are the prices of flight tickets. 

Surging prices are causing some to cut back on spending, but others are finding new ways to pay for their holiday plans.

More airlines are partnering with “buy now, pay later” firms to give customers the option to pay for their flights in installments, instead of a lump-sum payment. Some airlines even allow travelers to fly before the airfare is paid in full.

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

But “this isn’t about giving 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 these dream trips.”

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

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

“Customers will certainly buy their holiday airfare if they have affordable installments vs. one big payment up-front,” he told CNBC via email.

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

“We see them buying premium economy or even first class [tickets] when typically they would not have bought that … Consumers are not buying the cheapest seats on the plane anymore,” he said. 

“There have been layaway programs of various flavors in travel for a long time. But they were always predicated on the consumer being required to complete payment before they travel,” Botts said. “Some people don’t always understand that they don’t have to make all the payments before they travel.” 

These companies work in several ways.

Some, such as Uplift, run a quick credit check on the traveler, which they use to determine interest rates and payment schedules. These are effectively short-term loans, which are decided in “literally a snap of a finger,” said Botts.

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

However, rates vary according to the traveler’s financial health. Uplift’s annual percentage rates range from 0% to 36%, according to its website.

When asked about travelers who may cancel their credit cards before the loan is repaid, Botts said that’s “called fraud, and there are consequences.”

“By pulling out credit reports, we’re able to actually understand and ensure that the consumer has the financial wherewithal to actually pay us back.”

Others, such as a company called Pay Later Travel, work more like the classic layaway plan. There’s no credit check and no financing terms, but travelers must secure the flight with a deposit and pay the full fare before flying.

Still more, such as the BNPL company Splitit, authorize the full airfare amount on a traveler’s credit card, but split the payments between three and 24 monthly installments. With each installment that is 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, which allows international passengers on select routes to book a flight but pay the fare later. However, the fare isn’t locked in — it can increase, along with changes in taxes and fees, according to the website.

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

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

“Flexible options are critical for travelers … particularly with all the uncertainty of the last couple of years and continued uncertainty that we see globally,” said Booking.com’s managing director for Asia-Pacific, Laura Houldsworth. 

This is especially true for Generation Z and millennial consumers, who are using BNPL payment plans to pay off big ticket purchases in higher rates than other age groups.

Most BNPL companies operate by issuing loans.

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

Uplift’s Botts told CNBC he disagrees.

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

Splitit doesn’t issue loans or check traveler’s credit scores, said Sheth. All customers need is enough available credit on their credit cards to cover the cost of the purchase, according to the website.

“We’re not doing any data harvesting on the consumers’ purchasing history … we’re not hijacking the consumer, and we’re not reselling the consumer alternative offers,” he said.

But Botts said that credit cards are a “terrible way” to finance airfare, given the compounding nature of credit card interest.

Furthermore, there is no understanding if the consumer can actually afford the loan, he said.

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

— CNBC’s Monica Pitrelli contributed to this report.