A WAR OVER A BACKDOOR FARE INCREASE
By Joe Brancatelli
July 23, 2009 -- It is one of the many quirks of a life on the road: When you purchase an airplane ticket from a travel agency, the agent places your credit card charge on an account controlled by the airline. That means the airline pays the credit card processing fee, which generally runs in the range of 2 to 3 percent. On a $1,000 ticket, that can be as much as $30.
You know where this is going, right? Desperate for cash and anxious to get costs off their atrocious balance sheets, U.S. carriers have been hinting for years that they would try to shift credit card processing costs (called "settlement" in the travel industry) onto travel agents and travelers. Overseas, in fact, many carriers have successfully managed to charge flyers for the right to use their credit cards.
The first skirmish in the domestic war erupted earlier this month when United Airlines wrote to select travel agents and told them they would have to pay United in cash for tickets. That meant travel agents would have to open their own credit card processing accounts and pay the fees themselves when you used your credit card.
Travel agents and their trade groups reacted immediately. They screamed bloody murder at the top of their collective lungs. Then they convinced a number of Congresspeople to take their side. The story seeped into the general media in recent days and has generated a lot of heat, if not much light. And, at least temporarily, United has backed off, offering the affected agents 60 additional days to make the switch.
(By the way, the obvious dodge--travel agents would use your credit card to purchase your tickets on United.com, thus continuing to stick United with the settlement fees--won't work. Most travel agents do their account reconciliation via computerized reservation systems and CRS systems can't accurately track charges and itineraries processed on Web sites.)
I must admit that I initially thought this was much ado about nothing because United was targeting so few agents, perhaps just 28, if the trade journals can be trusted. I didn't believe that even the colossal fools running United could be so stupid as to start this Titantic settlement war with such a miniscule attack on the status quo. But at their second-quarter earnings conference call (United registered a $323 million net loss) this week, both United chief executive Glenn Tilton and chief operating officer John Tague said this was, indeed, the first battle of the settlement war.
So now we do have to face the reality: If other airlines rally to United's side, what does this mean to us? It goes without saying that if airlines successfully shift card processing fees to travel agents, the agents will pass those charges on to us. Certainly, the price of doing business with a travel agent will rise.
But that, of course, is hardly the heart of the issue for us business travelers.
If the airlines win the settlement war with travel agents, you know where they'll go next: Airlines will begin charging us for using a credit card when we book directly with them.
In other words, the settlement war is, in essence, a battle over a backdoor fare increase. Unable to raise prices in the free and fair market of competition, the airlines are trying to charge us for using our credit card and force us to absorb their cost of doing business.
I've called around to some experts and they all claim that there are laws against charging a customer more if they use a credit card. But they are divided on the issue of passing along processing fees. Most of the laws in this area are hazy and predate the Web. They will have to be litigated.
To be honest, I don't have a dog in the intramural fight between airlines and travel agents. If I were a travel agent, I'd want to keep the settlement deal I have. And I can see the airline's point of view: Why are we paying the credit card fees of third-party sellers of our product?
But I do know this: I don't want to pay a backdoor fare increase that the airlines can't manage in the free market of transparent pricing. And I hate hate hate doing business with companies--be they airlines or any other firm--that charge me for the privilege of doing business with them. Two fringe airlines--the tertiary-market specialist Allegiant Air and the sleazy, fee-happy Spirit Airlines--charge a "convenience fee" for using their respective Web sites. Those fees are backdoor fare increases and dishonorable, too, which is why I don't fly those airlines.
So, as is all too often the case in our never-ending battle with airlines that can't manage their finances without tricks like credit card fees, we'll have to make common cause with the enemy of our enemy.
Bottom line: I'm with the travel agents here because they are fighting a war that will shift to us if they lose. If they force United to back off, United and the other airlines will go to their corners and lick their wounds. They won't dare try this for another year or two.
Then, of course, we'll have to fight the fight all over again.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
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