United Airlines told some travel agencies that they would " no longer have continued access to United's credit card merchant agreements," effective July 20. The carrier told the agencies that if customers wish to pay by credit card, the agencies should process the transactions under their own merchant agreements and settle in cash with United through the Airlines Reporting Corp. United said agents who received the notice but continued to process transactions using United's merchant facilities would receive $75 debit memos.
The new policy applied to transactions on cards "including but not limited to Visa, MasterCard, American Express, Discover, Diner's Club and JCB cards." United's letter did not mention the UATP card, which incurs lower fees. It was unclear how many agencies received the notice from United. For several years, it has been apparent that airlines consider credit card fees the next frontier in reducing sales and distribution costs.
In January 2007, for example, Continental chief financial officer Jeffrey Misner said, "The fees are a big part of our distribution costs," and "we are looking at different methods of payment without credit cards," such as direct bank transfers. Other airline executives have expressed similar sentiments at industry conferences.
Credit card fees are in the neighborhood of 2% to 3%, and ASTA estimates that United pays about $171 million in annually in fees. The total industry credit card fee burden runs to the billions.
If United's action were widened to include more agencies, or if other carriers adopt similar policies, it is likely that some agencies would not withstand the blow.
Airlines began cutting base agency commissions in 1995 and eliminated them altogether in 2002. Credit card fees would be an out-of-pocket expense for agencies. In addition, credit cards have become the payment method of choice for airline ticket purchases. In May, ARC processed 10.7 million credit card transactions, versus 1.4 million cash transactions. Credit cards provide a measure of protection to the consumer that cash payments do not in the event that an airline ceases operations.
Kevin Mitchell, chairman of the Business Travel Coalition, noted that many travel agents "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.
ASTA noted that most agents access merchant services through ARC's Travel Agent Service Fee program, which was designed to process service fees and has a $500 per-transaction limit. "Even agents with their own merchant accounts are at risk to lose their merchant status with a substantial increase in average transaction price," ASTA said.
In addition, travel agents who process tickets through their own merchant agreements would now bear the burden of credit card fraud. Paul Ruden, senior vice president of legal and industry affairs at the American Society of Travel Agents, told TTU that "based on the partial information that I have, they are testing this on agencies with relatively small United volume, so the consequences would be small if this thing goes south."
He said United's potential savings on credit card fees will be diminished because many customers are likely to turn to the carrier's Web site to purchase tickets with their credit cards. However, he noted, United will save significantly more money on GDS fees if that happens. "Maybe this is partly or all about getting out from under their full-content agreements," he said. Ruden said ASTA would bring United's action to the attention of the U.S. Justice Department. He said the move bears watching for signs that carriers are signaling their intentions to each other in violation of antitrust law.
Although executives of several airlines have complained publicly about credit card fees, United's is only the second action taken by an airline to shift any part of the burden to travel agencies. In 2002, British Airways attempted to cease acting as the credit card merchant for corporate net fares used by U.K. travelers. That led to a three-year legal battle between the carrier and American Express. British Airways gave up its effort to shift the fee burden to agents in 2005.