Sunday, July 19, 2009

Concern Growing Over United Airlines Plan to Shift Credit-Card Processing Fees to Travel Agents

Starting Monday,United Airlines plans to require some travel agencies to eat the costs of credit-card processing fees on tickets (2-3 percent of the purchase price) sold by the airline to the agencies, which of course will pass the extra charges on to travelers.

The move -- in which agents will be required to pay United cash for the tickets themselves, even though their customers charge them on a credit card -- is being called a huge fare increase by air-travel consumer advocates, who think that other airlines hope to follow United and reduce their own costs of ticket-distribution through third parties.

It isn't clear which agencies are affected, though speculation is that United chose smaller travel agencies at first to see if the scheme will fly. United, which is considered to be the most financially weak of the network airlines, is desperately trying to cut costs amid an industry-wide plunge in passenger revenues, as air-travel demand continues to languish.

It also appears that United is hoping to reduce its exposure and potential liability to credit card companies, which typically hold back substantial sums of payments on advance ticket purchases.

Kevin Mitchell, the chairman of the Business Travel Coalition, which represents corporate travel buyers, called the move "wholly unacceptable."

It is "not just a price increase, it appears to be a potential price increase targeted at those travelers that use the services of travel agents and travel management companies -- with corporate travel programs at the front of that line," Mitchell said.

Travelers booking directly on the United web site would not be affected, of course.

Mitchell said, "The most troubling aspect of this scheme is that this attempt to shift airline sales costs to travel agents and on to their customers would only work if the airlines act in concert with United Airlines to affect such a radical change; something in which the U.S. Department of Justice should take great interest. The way UAL pre-announced its cost-shifting scheme to an unspecified number of travel agents, with an effective date 30 or so days out, leaves it the ability to run this back down the flag pole if its competitors do not agree to match.

Thus, this scheme looks like the previous signaling behavior on airfares by airlines using the Airline Tariff Publishing Co. (ATPCO). That action caused DOJ to sue eight airlines and ATPCO in 1992 alleging that airlines used the ATPCO electronic fare submission and dissemination system to fix prices, which the Division concluded had cost consumers up to $2 billion.

If UAL’s sales cost-transfer scheme were to be matched by other airlines, the
potential impact to consumers and corporate travel programs would likewise be in the billions of dollars," Mitchell said.

United said that the move will affect only a small portion of travel agencies, but has not discussed whether there are plans to expand the requirement for travel agencies to pay United cash for tickets.


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