I admit that I forgot writing the linked post from April 2008, in which I predicted:

For travelers, though, there are longer-term implications here: If airlines’ financial viability is a dance on a razor blade, and if accepting credit cards can create a risk of survival, then travelers are likely to see cash-payment incentives (or credit-payment disincentives), going forward.

European airlines have been charging a credit card surtax for some time, to dissuade customers from charging it. And a few months ago in the U.S., discounts were floated as a way of getting customers to pay by cash. And despite the fact that every airline has an affinity credit card that generates points in their loyalty program, Frontier’s bankruptcy is going to put more pressure on airlines to reduce the reliance on credit.

Looks like that’s coming true.

“At this time last year, United had $382 million held back, or *25 percent* [emphasis mine] of advance credit card sales. United reached a deal with Paymentech and JPMorgan Chase Bank to cut that amount to $25 million, but the amount would rise if UAL’s cash balance declines. UAL would also have to post reserves with American Express if its cash balance falls below $2.4 billion — it was $2.46 billion on March 31, according to regulatory filings.”

It sounds like this is the real reason behind the sudden push.

This is big on another front, besides just forcing the fees onto the agents.

Credit card companies don’t always give the vendor the money (less fees) right away. If it’s for a future service, as in the airlines, the credit card company will hold back a certain amount based upon what they see as a risk of having to refund the money. IIRC, it was a major change in the holdback percentage that knocked Frontier Airlines into bankruptcy last year, where the card processor wanted to increase the holdback from 50% to 100% – in other words, Frontier wouldn’t see *any* money until a passenger actually flew.

Simply put, if the credit cards are processed by the travel agents, they’re the ones with the holdbacks as well as the fees; the airline gets *all* their cash up front. I’m not sure what the holdback percentage is for a major airline like United, but I’m sure it’s something more than zero, and that makes for instant cash for them.

I “like” Jonathan’s idea re: booking tickets via United.com. The risk is transferred back to the airline, though I’m not sure if that would violate the agency’s agreement with the airline.

It wouldn’t surprise me if the largest agencies were able to negotiate some more favorable terms, and that the smaller agencies would be forced to accept United’s terms (or stop booking with UA). The worry for agencies should be widespread uptake by other airlines of similar policies.

For what it’s worth, the agencies’ trade group is fighting this. Here is the letter sent by ASTA president Chris Russo to United, in its entirety. He echoes some of the arguments made here, plus makes some others.

Dear Mr. Myrick,

Several of our members have received letters indicating that United has terminated their right to accept credit cards as agents of United. We ask that you rescind this policy immediately. A few points suffice to show that this new policy is both unjust and commercially unfeasible.

While there is a fairness issue at hand, there are many technical and administrative issues that make United’s Merchant Access program impossible. First, over 63 percent of travel agents’ access to merchant services is limited to the Airlines Reporting Corporation’s (ARC) Travel Agent Service Fee (TASF) program, and this program is designed to process service fees, not airline tickets. ARC has a US$500 limit on transactions processed through the TASF program.

Second, United is requiring these agents to absorb United’s cost of doing business. The travel agent is an “agent” and is not the provider of the transportation services to the customer. By acting as the credit card merchant and identifying the agent as the provider of the service on customers’ credit card statements, you are asking agents to absorb the risk of credit card chargebacks related to United’s service performance. Agents already bear the credit costs of charging their service fees. It is not reasonable to expect them to bear your costs, too.

Third, United will save no credit costs if the result of the policy is that consumers, or agents on behalf of consumers, book on credit cards at United.com. This suggests the real purpose of this policy [is] to drive agents away from GDSs to less-efficient booking processes so United can avoid GDS fees.

Fourth, travel agents have been given insufficient time to prepare their systems and procedures to accommodate a process change of this magnitude. Many agents have back office, mid-office, front office, and consumer-facing booking tools that must be reprogrammed to accommodate such a change. Current online booking tools do not have automatic controls that allow an agent to refuse a certain airline’s booking based on the form of payment or to automatically charge a customer’s credit card as a merchant for an individual airline. Agents would need several months, or more, to have their systems reprogrammed and redesigned to accommodate such a change.

Fifth, travel agents’ cost of doing business will increase well beyond the agent absorbing the credit card merchant fees that United will avoid. Agents’ ARC bonds will increase, as agents’ cash sales, presumably, will go up. However, I point out, and believe you know this too, that doing cash sales on a significant volume of business in today’s world is not feasible for most agencies.

Finally, consumers will be disadvantaged as costs shifted from United to travel agents will ultimately be borne by consumers in the form of higher service fees on top of the existing fare level. History shows that fares will not be reduced to reflect the claimed savings in credit costs.

We, therefore, ask that United immediately rescind this policy, which is unfair and commercially unreasonable.

Yours truly,
Chris Russo
President

I can see travel agents booking tickets directly on United’s site using the passenger’s credit card info – I would!