Is there a backlash against credit cards brewing among U.S. airlines?
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A short piece in Travel Weekly, the industry trade magazine, points to a potential problem for U.S.-based travelers and consumers:
[Travel industry financial-services bigwig Airlines Reporting Corporation] has been working on an incentive program that would reward travel agencies when corporate travel buyers switch from credit cards to cash when paying for airline tickets.Under the plan, ARC would pay a rebate to ARC-approved travel agencies and corporate travel departments if they switched air accounts of $1 million or more from credit card to cash payment. The amount of the rebate would be less than the fee the airlines pay to credit card companies.
The plan reflects an ongoing concern among carriers about credit card merchant fees. Airlines see those fees as the next distribution cost that must be tackled, following on travel agent commissions and GDS costs.
Uh oh.
Bottom line: Airlines don’t want you paying with a credit card, since they give a small percentage of each sale to the credit card processing company. Naturally they’d love to keep that money.
Europeans, for example, are already accustomed to this. Take Ryanair, which charges 2.50 euros per flight per passenger if booking with a credit card. That adds up fast. Other airlines have less onerous policies, but there’s still a “convenience fee” added on for using plastic.
But credit cards aren’t just a convenience for shoppers. (And I’m not just talking about earning miles or points.) Credit cards carry important consumer protections that would be lost if airlines and agencies started preferring cash or debit. When there are schedule irregularities or airline bankruptcies, credit card companies can get you your money back. And cards come with insurance coverages that cash never does. (During our honeymoon, my Visa covered all our expenses when a tropical storm delayed our departure by a full day. Try getting that with cash.)
So as a consumer, and as a red-blooded American, I love my plastic. I’m not alone. It may be hard to get Americans to switch to cash, but it sure looks like the airlines are going to try.
Update: The ARC cash “discount” program has been shelved, for now. But the idea remains in circulation, even if this specific proposal didn’t work out at this time. “The airlines’ concerns included technical ones and ‘political issues,’ namely their relationships with credit card companies,” according to TravelWeekly. This is an idea that will come up again. Consider yourself warned.
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July 24th, 2007 at 10:45 am |
Yep, this has almost nothing to do with credit card fees and everything to do with avoiding chargebacks. Regardless of what the back of the ticket says, if you aren’t on that flight you can contest the charge! Neither Visa nor MasterCharge give a flip that your ticket is “non-refundable”; their question will be “did you render the promised service to the cardholder or not?” The End. And in this day and age of being removed from a plane for looking at a flight attendant cross-eyed, that’s a big deal.
July 24th, 2007 at 11:01 am |
Ooh, I hadn’t thought about chargebacks. Though recouping 1 to 2% of all airline ticket sales is a pretty big reason to try to avoid credit card fees, too, don’t you think?
My question, though, is how prevalent such chargebacks actually are. I had not heard before that you could chargeback a ticket even if you “violated” the rules of the contract of carriage. Have you (or has anyone else) had experience charging back a non-refundable ticket if unable to get onboard a flight paid for with a credit card?
July 24th, 2007 at 11:21 am |
Ryanair might be able to charge an extra fee in Europe, but aren’t vendors prevented from doing this in the states as a result of their agreements with the credit card companies. I think I saw something on the Consumerist to this effect.
July 24th, 2007 at 12:07 pm |
True, there is some question as to whether or not this would violate a retailer’s agreement with the credit card firms, but there are other examples out there of places that charge an add-on fee for using credit. When I renewed my license plates/registration in Illinois, for example, the state of Illinois wanted $3 or so for the “convenience” of using credit.
July 24th, 2007 at 1:14 pm |
This has everything to do with merchant fees, known as interchange fees. Just like everything else, these fees also impact the bottom lines of grocery stores, gas stations, florists and retailers among others. All of these businesses have already passed the fees onto consumers but Visa and Mastercard continue to raise the fees so expect prices to continue to rise as well.
I’m working with UnfairCreditCardFees.com and we’re working with Congress to get the card issuers to disclose more and lower the fees.
July 25th, 2007 at 5:59 pm |
It’s no longer going to be convenient to use credit cards if the fees keep going up and are passed on to the consumers.
Brandon Watts
Criteo Evangelist
July 26th, 2007 at 1:58 pm |
Those are great points. I never thought of chargebacks either. But those fees that credit cards charge to merchants apply to everyone. That’s why you see smaller mom and pop grocery stores and small restaurants have a minimum purchase amount to use a credit card. Surely, the airlines can spare a little money on a ticket that costs hundreds.
July 26th, 2007 at 1:59 pm |
The AA seats do look very high tech. But I’d have to try them out in person.
July 30th, 2007 at 5:43 am |
When last behind the check-in counter for an airline, cash ticket purchases were one of the criteria for “secondary screening” of said passenger… wonder how this would come into play for screening?
December 13th, 2007 at 12:23 am |
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