For United, credit card policy might have unintended effects

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Merchant fees passed on to clients in U.K. and Australia

United Airlines this month is cutting off access to its merchant accounts for a handful of agencies in an apparent attempt to save on credit card fees by transferring them to the trade. Because of unique laws, retailers in Australia and the U.K. don’t run that kind of risk -- although some U.K. business practices would probably not be very appealing either.

Mike Hatton, chief executive of the Australian Federation of Travel Agents, said that Australian law allows all companies to pass on merchant fees to the consumer.

In Australia, he said, all merchants pass on those costs, typically assessing 1.5% to 2% for MasterCard and Visa purchases and 3% for American Express or Diners Club purchases, or companies assess flat fees that roughly equal their merchant fees.

When an Australian travel agent handles a booking, he said, the agent collects that fee along with payment for the trip. If booking in the GDS, the fee is included in the GDS transaction.

Since the 2001 collapse of Ansett Airlines, he said, agents have refused to sell for any supplier that will not act as the merchant. Ansett had refused to act as merchant for certain transactions, and the resulting chargebacks to intermediary merchants "became a major issue," he said.

In the U.K., carriers typically assess flat fees to recover merchant costs when taking bookings at their websites but not when booking in the GDSs, said Susan Parsons, manager of trade relations for the Association of British Travel Agents. She said that under the rules of the U.K.’s bank settlement plan, agencies, on the 17th day of the month or the first business day after the 17th, remit all sales made in the previous month.

This means the carriers wait for their money on cash sales anywhere from 17 to 47 days, whereas they are paid within three to five days with credit sales. Only 35% of sales in the U.K. are reported as credit card transactions with the airlines as merchants, she said. On all remaining business, retail agencies are merchants.

Large agencies sometimes opt to be the merchants and take on attendant risks in order to hold the airlines’ cash for most of the 17 to 47 days. But generally, Parsons said, agents are merchants for all tour packages, cruises and consolidator air tickets. The tour operators, cruise companies and consolidators, in turn, report the air portion of those products as cash sales through the bank settlement plan, she said.

The agencies routinely recoup the merchant fees from clients, and they are protected in the case of bankruptcy of tour firms, cruise companies or consolidators because any wholesaler that includes air in its product must hold an Air Transport Organizers license and contribute to a consumer-protection fund.

Parsons said the trade’s assumption of the merchant’s role for much of the business has evolved over the decades as common practice. However, she said, "Travel agents are finding it harder and harder to work with the credit card companies" because they regard travel as very high risk.

-- Nadine Godwin

United is cutting off credit access for several travel agencies starting July 20, but if three affected agencies reached by Travel Weekly are any indication, the carrier won’t save much on merchant fees.

Nor will it enjoy the consolation of eliminating GDS fees on targeted agencies' business.

Moreover, United is certain to lose some sales. In fact, it already has. All three agency executives interviewed for this report said they immediately began redirecting business when they received United’s notification in late June.

Sunrise Travel in Mission Viejo, Calif., a $1.5 million agency with mostly leisure business, got lucky on one count. As a Vacation.com member, it will use the trade group’s proprietary EZair booking product, which was rolled out only last month.

Sunrise Travel’s president, Paula Singleton, said she panicked at first and scrambled to obtain merchant accounts, which was not easy. She has an American Express account, and she found that for bank cards, she had to use PayPal because the large processors will not talk to travel agents.

However, EZair (powered by Amadeus with fulfillment provided by Uniglobe Travel) will enable Singleton and her staff to conduct standard comparison searches, pay with plastic and manage the bookings should cancellations or changes occur.

United will pay the merchant fees and GDS fees, and the agency will be less efficient. Singleton said she would have to capture booking data manually and re-enter it into Sunrise’s back-office system.

Sunrise Travel is a very small leisure agency, but the others reached by Travel Weekly this month, including an agency featured in the July 6 issue, range from $12 million to $15 million in sales and do largely corporate bookings.

Among them is a $15 million corporate agency in Denver, which has a client that holds a negotiated-fare contract with United. The client's United rep has no idea how the agency is supposed to manage that.

The agency owner, who asked to not be identified for competitive reasons, queried United about this issue. She also asked if United had plans to make its website "user-friendly." The response was, "We are unable to comment on your … questions as they involve forward-looking or third-party relationships." The email was signed "United."

The client with the negotiated fare buys travel in the Northwest through Expedia. The agent expects that the client will shift management of this contract to Expedia, as well.

Another client is considering getting a UATP account to pay for United tickets, the agent said. For other clients, the Denver agent said the agency would book at United.com, manually re-enter the data into the GDS and, from there, download to the back-office system.

United has "opened a can of worms," the agent said.

There are problems with United’s "not-so-great website," the agent said. It is not clear how exchanges will be managed, an important consideration given that business travelers make frequent trip changes and the site cannot accommodate corporate ghost cards.

In addition, the agency has corporate clients with PerksPlus memberships and three individual clients who are members of Global Services, an invitation-only elite-traveler program. They regard the United move as a disservice, the agent said, and they have told United their views in letters. Other clients have written to the airline, as well.

The Denver agency has merchant accounts, but the agent "doubts anyone wants to pay the extra 3%."

Like the other agencies, Travel Leaders in Pembroke Pines, Fla., is selling away from United as much as possible. In this case, that may mean that the $160,000 currently spent annually on United tickets will fall to $20,000 to $30,000, said Jacob Marzouca, president of the $12 million corporate agency. In codeshare cases, he is plating on the partner airline.

Saying that part of his response is intended to be "a statement" about United, Marzouca said he will place United business through a consolidator and "let [United] pay the GDS and credit card fees."

This can work for a small volume, he said, but if a preferred supplier did this, "I would probably have to sell or form an alliance, with the understanding that it is just putting a finger in the dike."

Marzouca said he was surprised he did not see more resistance from other agents. He believes that the trade could make United back off by moving just a small fraction of the business.

As for United’s potential strategy of hitting a few agencies, then waiting to "come back and make another strike," he said, "This is guerrilla warfare."

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