United Airlines told a group of congressmen and senators that it would delay by up to 60 days the implementation of a policy that denies certain agencies the right to use the carrier's credit card merchant accounts to process credit card sales for United tickets.
In response to a request from the group to reconsider or at least delay the move, United said it would "individually notify and assist the impacted agents that request more time to adjust to this change, providing up to sixty additional days to transition." On June 19, United notified 28 travel agencies that they would be cut off from its merchant accounts on July 20. In a letter dated July 10, 13 representatives, led by Michael A. Arcuri (D-N.Y.), said the policy "appears to undermine the protections granted to consumers by the federal Fair Credit Billing Act," which includes the right to dispute charges for non-performed service. Noting that the provision has been "an important safeguard for many consumers in airline bankruptcies," the representatives said United's new policy "will shift both costs and large risks to consumers."
After the initial letter was sent, two senators and three other congressmen sent additional letters to United. In its response, signed by Jeff Foland, senior vice president of worldwide sales and distribution, United said its action "neither violates nor undermines the Fair Credit Billing Act. There will be no difference in how credit card disputes will be handled from a customer's perspective."
United said customers who charge their tickets with travel agents will continue to have the right to dispute charges to their card issuer for non-performed services.
Foland's letter also said the "action was very limited in scope, confined to a small number of agencies and in no way was intended to be a broad move in the marketplace as has been interpreted by outside organizations." In addition, United said, it has "commercial arrangements with thousands of agencies worldwide to distribute our services, and has many current and long-standing relationships under which the travel agent acts as the merchant of record."
John Tague, United's new president, reiterated that statement in a conference call with analysts to discuss second-quarter earnings. "We are expanding the definition of how we are going to apply that initially," he said. "You can expect us to continue to take calculated risks such as these" to reduce distribution costs. "There are no sacred cows," he said.
BTC chairman says United's explanation 'doesn't add up'
Kevin Mitchell, chairman of the Business Travel Coalition, challenged United Airlines' explanation for its move to deny certain travel agencies the use of its credit card merchant accounts.
In a letter to United chairman Glenn Tilton, Mitchell wrote, "You and I both know that this attempt to shift airline sales-costs to travel agencies and on to your corporate customers can only work if airlines act in concert to affect such a radical change." Mitchell said he would bring the matter to the attention of the Justice Department's antitrust division. "We will be making the case that if UAL's drastic initiative were to be matched by other airlines it would not have been possible without competitor signaling, collusion and action," he wrote.
United's Foland responded that "claims made in your letter are misguided, apparently based purely on rumor or speculation within the agent community. We have not made any broad or major moves, having communicated directly with only a relatively small number of non-aligned agencies on commercial program changes, and have no intention of taking the matter public." Foland said the move was part of United's continuing drive to lower distribution costs, "including the increasing costs of credit card usage." Mitchell responded that "Something just does not make sense regarding your explanation."
He said if the increasing costs of credit card usage is the problem "how does focusing on a small number of low producing, non-contracted agencies that would drive a small amount of cost to UA address it? Something doesn't add up unless UA's early move was the trial balloon most observers believe it was, and that UA is really just in the early stages of a broad based cost shifting move -- in which case you would be 'taking the matter public,' as has already happened."
Mitchell added that "in addition to transferring your credit card costs to the consumer, and causing them to be substantially increased under travel agency merchant agreements, you will be introducing unprecedented complexity and driving significant new costs for travel agents that will also be passed to the consumer in the form of higher service fees."
Mitchell has maintained that many travel agencies, especially in the current economic environment, would not likely be approved for merchant agreements at all, or if approved, not at the charge volumes or affordable discount-rate levels necessary to absorb the merchant card risks from airlines.
He said the likely high reserves required might be unworkable for many agencies, effectively forcing them to attempt to service clients using airline Web sites, where comparison shopping among airline options is "nonexistent."