Business travelers may be the ultimate losers in the latest scuffle between airlines and travel agents over credit card fees. United Airlines recently notified a handful of agents they can no longer sell United tickets using the airline's credit card merchant agreement.
Merchants typically remit 2% or 3% of the purchase price to the credit card company for the right to accept that credit card as a form of payment. "Merchant fees" are contractually based on the purchase price and transaction volume for each merchant. Airlines have traditionally paid those merchant fees.
Though airlines are slashing costs and unbundling services formerly included in the price a ticket to survive, United is quick to reiterate that their action impacts a relatively small number of travel agencies. However, United spokesperson Robin Urbanski Janikowski also says "costs of distributing our services are significant and we will continue to reduce these costs while we run an efficient airline for our customers."
This leads many travel agents and corporate travel managers to believe this is only the beginning. "It is going to be a fee that will be passed on to all travel agencies eventually," projects Randy Limbacher, president of Canyon Creek Travel American Express, based in Richardson, Texas.
"Certainly, they are testing the waters to see if the other carriers will join in and also promote this initiative," says Michelle De Costa, the global travel manager for Sapient Corporation. "When Delta Air Lines was the first airline to cut commissions, basically everyone followed suit," De Costa adds. "They are going to do it with some select agencies that probably don't sell a lot of United and just see what the marketplace will bear."
De Costa wrote to United's chief executive officer, Glenn Tilton, to express her company's concerns. "I know that other travel managers have sent similar notes to United or other airlines to indicate their dissatisfaction with this new initiative," De Costa told me.
Agencies no longer permitted to use the airline's merchant agreement may still book flights on United but they must use United's website or pay for tickets in cash. Many travel agencies already have merchant agreements with credit card companies, but they would have to absorb the merchant fee for United tickets or pass that cost along to their customers.
Since commissions were eliminated, most travel agencies already charge clients a ticketing fee. "If an agency has to pay United directly for the ticket in cash but then lose the merchant fee, obviously they are going to pass that on to us and raise our fees," says De Costa. Joe da Rosa, chairman of Balboa Travel, Inc. in San Diego, agrees. "Travel management companies and agencies would have no alternative to passing on the costs in one form or another."
If all airlines adopt this policy in the U.S. it could represent a cost shift in excess of $2 billion from airlines to travel agencies, according to Paul Ruden, senior vice president for legal and industry affairs for the American Society of Travel Agents.
In addition to the increased fees there are also liability issues if airline tickets are purchased by travel agencies with cash. "Any protection that people have through their credit cards, they lose, whether it is insurance or baggage liabilities," says De Costa. "If the airline goes out of business, they lose all of that protection when a ticket is run as cash and run as an agency sale."