ASTA president reaches out to agents for business info
ASTA President Chris Russo wrote to members on Friday asking them to provide information immediately on the effects for their businesses of a United refusal to allow them to use its credit card merchant accounts when selling the carrier’s products.
ASTA wants to hear what those effects will be for agencies that received United’s letter and what the effects would be for those that did not because, Russo said, "it is virtually certain that no agency will escape this policy in the near future."
He said ASTA believes United’s purpose is to push business to the carrier’s own website.
"UA has stated that the purpose of its move is designed to reduce distribution costs. UA’s message makes clear to us that the real game is to undermine the full-content deals made in 2006 by forcing agents to book clients direct and thus outside the GDS," Russo said.
"This follows because no reduction in credit card costs eventuates if the client goes around the agent and makes a credit transaction directly with UA. Likewise, no credit card costs are saved if the agent goes directly to United.com for ticketing. The only way UA saves ‘distribution costs’ is by avoiding the GDS."
Russo said ASTA believes the United action is a test and that it was first directed to "one to three agents in select markets."
He said ASTA is asking agents who received the letter to come forward, and that it needs all agencies to provide as much information as possible about the likely commercial impact of the United move on their businesses and what it would take to work around the challenges.
Specifically, Russo asked for "the cost, timing and feasibility of any work-arounds that you can imagine might be used to reconfigure your business based on the new policy."
"I cannot emphasize how important it is that you provide us with this information," he said. He asked agents to use [email protected] to communicate the information.
-- Nadine Godwin
United Airlines' advisement that an undetermined number of travel agencies will no longer be allowed to use United’s merchant credit card accounts when selling tickets sent jitters through the agent community.
The policy goes into effect July 20. Affected agents will have to report all sales as cash and will face a $75 debit memo per ticket for every violation.
United's announcement sparked speculation about the carrier’s long-term intent and the likelihood that other airlines would follow suit.
ASTA put United on notice that it intends to take up the matter with the U.S. Justice Department, while consultant Robert Joselyn advised agencies that did not receive the letter to act as if they had.
United spokesman Jeff Kovick said the airline was making the move to cut credit card costs, "which are escalating at a high rate and total several hundred million dollars a year."
Kovick said that "for competitive reasons," United would not disclose the number of agents who were served notice of the change. Nor would he reveal what types of agencies were being pushed into cash settlement, saying only, "We’ve identified accounts where we see the most potential savings."
That does not necessarily mean that the largest agencies received the letter. In fact, recipients appeared to be agencies that did not do a lot of United business, as far as ASTA could determine, said Paul Ruden, ASTA’s staff senior vice president for legal and industry affairs.
Testing the waters
The move was being widely regarded last week as an experimental first step in implementing a systemwide policy requiring travel agents to shoulder the entire burden of credit card costs when selling United tickets.
Ruden said that based on United sales reported through ARC, that would mean a shift of $171 million in expenses to the U.S. trade. If all carriers copied United, the shift in costs would be "billions of dollars, and there is no way the trade could stand that," he said.
He said ASTA believed that United intentionally started the process with agencies that would produce the "minimum backfire" for the carrier; that is, agencies doing small volumes with United and so cannot shift that much business away.
"So, if this proves to be a catastrophe, it would only harm the travel agents and not United," Ruden said.
In the expectation that other carriers would follow suit, he said, "ASTA will be sure the U.S. government is watching" the process. He said that within days, the Society would be calling on the Department of Justice to urge it to "watch for collusion."
Ruden said ASTA would alert DOJ lawyers to a recent series of aviation conferences at which high-level executives have devoted numerous sessions to the issue of credit card costs. Ruden said he attended the first of these conferences.
"I heard many executives talk about the unacceptable costs of fees associated with agency bookings," he recalled. "And one said, ‘We can’t do this alone.’ "
In addition, Ruden said, the government must take a "serious look" at airline partnerships with varying degrees of antitrust immunity.
"We have the prospect for three global immunized airline alliances," Ruden said. If the airlines can undermine the agency system, he argued, the public will be deprived of the benefits of a competitive system.
He said ASTA would be taking the fight to Capitol Hill, as well.
Joselyn, who operates Travel Agency Management Solutions (TAMS), speculated that United aims to roll out a systemwide policy, adding agencies to the cash-only list in stages.
Like Ruden, he said he suspected the airline was starting where the effects would be least dramatic and would then work its way across the agency universe.
Along the line, other carriers will feel forced to match United to stay competitive, Joselyn predicted. Eventually, the process will gain enough momentum that it will be too late to stop the shift of credit card costs to agencies and ultimately to the public, he said.
Joselyn: Agencies must act
That is why he advised TAMS members last week that "the best response to this is to have the agency community book away from United as a show of resolve before all are personally affected."
"Make no mistake about it: The UA initiative is as threatening as you think, or worse," Joselyn wrote to his members. "That we are collectively angry and emotional is an understandable given. It is precisely because of this that we need to take some deep breaths and think carefully before we communicate anything about this either to customers or media."
He said some TAMS members had told United they would book away from the carrier if their agencies received the notice. But Joselyn said that waiting until then would give the other airlines time to match "to remain competitive."
"We have seen just such a domino justification among airlines before," he said. "If that happens, those who have the best intentions about booking away from United will have no place to go."
"In the interim, let everyone you know in United know what you think about this obvious beta test," Joselyn said. "It may not turn the tide, but it beats the alternative."
In the meantime, affected agencies that do choose to continue booking United seats are likely to either book at United.com, which means losing the booking record, or turn to friendly, unaffected agencies to handle all United ticketing. They may even occasionally convert some sales to cash.
Absorbing the cost of merchant fees, which are at least 3% of the price of the tickets, could force many agencies out of the airline ticketing business. Most cannot afford to absorb the costs, and passing the costs on to customers as fees would make the agencies less competitive.
But this assumes that agencies can get approval to be merchants with credit limits high enough to cover charges for airline tickets. Ruden said 63% of agencies with merchant accounts are merchants under an ARC program that is meant to accommodate service fees. The credit limits are therefore relatively low, though they can be adjusted upward for specific circumstances.
Historically, it has been difficult for retail travel agents to get merchant accounts even when clients would be charging small amounts of money on those accounts, and merchant options have narrowed in recent years.
In addition, agencies with merchant accounts could lose their status if they substantially increase the amount of their average transaction price. Agencies also would be liable for chargebacks generated by the airline’s services or lack thereof.
A legal case against United?
Travel lawyer Mark Pestronk, who writes Travel Weekly’s Legal Briefs column, said United’s move might be challengeable in court.
"It seems to me that you could argue that the ARC agreement has an implied term that consists of this: The proper way to account and pay for credit card sales is at the carriers’ expense," Pestronk said. "So, UA’s change would … breach the implied covenant of good faith and fair dealing."
ARC spokesman Allan Muten was asked if ARC might consider expanding its service-fee program to accommodate agencies as merchants for air tickets. He said a key principle of that program was that the agent-merchant is also the provider of the services. It would get "stickier," he said, if they were to use the system as merchants for the carriers’ services.
However, Muten added that in light of United’s move, ARC was "evaluating how to best support agencies in selling ARC’s member airlines."
Other issues involving agency technology would have to be addressed, as well, including processes and possibly the programming associated with the GDSs, booking engines that agencies link to their websites and the booking tools that agencies place in the offices of their corporate clients.
For GDS bookings, agencies might have to treat sales as cash and handle the credit card transaction manually, at least initially. Depending on the installation, agencies might have to wait for their vendors to adjust consumer and corporate self-booking tools to ensure that United tickets are not inadvertently paid for using a United merchant account.