Travel Industry

Whose responsibility?

Thanks in large part to Congress’ attention, United Airlines has delayed its deadline to cut 28 travel agencies off its credit card merchant account. Sure, the airline felt the pressure from associations to knock it off, but the signed letter from 13 elected politicians no doubt was the final piece of baggage thrown onto this cart.

Rep. Michael Arcuri (D-N.Y.)  told the press in a teleconference earlier this week that he’s not buying United’s argument that this was a cost-saving initiative limited in scope, because the savings would be too small to be worth the effort. When the numbers don’t add up, suspicion swoops in.

And lawmakers were quick to warn United that it really wants to fly right when it comes to the Fair Credit Billing Act.

But that’s not to say the issue is resolved. United has only gone as far as to say these agencies on the chopping block — one allegedly directs $500,000 in ticket sales to UA every year — may ask for a 60-day extension to get their affairs in order. The company continues to swear this is not a pilot program in a more sinister plan to eliminate travel agents from its business plan.

“Finally, this action neither violates nor undermines the Fair Credit Billing Act,” Jeff Foland, United’s senior vice president of worldwide sales and distribution, wrote in a press release. “There will be no difference in how credit card disputes will be handled from a customer’s perspective. Customers who charge their tickets with travel agents will have the same rights they have always had, including the right to dispute charges to their card issuer for non-performed services. This is the case when the impacted travel agents use United’s merchant account; it will continue to be the case when the impacted agents use their own merchant accounts.”

Mass exodus?

The trouble is, the new policy doesn’t break the ARC sales terms, either, as some industry pundits thought early on, officials at the technology solutions company are saying.

So it’s shaping up to become more a battle of wills: can the travel industry kick up enough dust to get United to slink away from this notion or will an airline desperate for cash damn the brownie points and forge ahead with any penny-saving measure it finds? I’m in agreement with Kevin Mitchell, chairman of the Business Travel Coalition, who is fond these days of bringing up the backlash Northwest Airlines dealt with when it tried to slap a $7.50 surcharge on any tickets the public buys through an agent. Obviously, that went over like a lead balloon in 2004, and according to Mitchell, it took months to rebuild the business that stunt cost the airline.

Today, NW has been eaten by Delta Airlines. Just sayin’.

Photography: stevendamron, marceatsworld

UA's idea isn't flying with the industry

United Airlines has found a sure-fire way to stir the pot this summer. Its announcement last week that the airline will no longer allow some travel agencies to use its merchant account to book United products after July 20 has heaped coals on officials’ heads.

Basically, a handful of agencies (no one has revealed just who and how many) will have to use their own merchant accounts to accept payments and then pay United in cash. The penalty for forgetting is $75 per ticket. Consultants like Robert Joselyn immediately said this smelled like a pilot program to shift the credit card fees and fraud liability to all travel agencies down the road.

And that’s just the opening volley. Among the anonymous comments posted at Travel Weekly within the first 48 hours of the bombshell:

• “With UA continually on the brink of another bankruptcy, what agency wants to pay with cash and take the risk of holding the bag??”

• “United seems bent on angering and alienating everyone they do business with – whether it be the passenger (I can’t tell you how many clients will say never again will they fly on UA) or their ‘travel partners’ who they seem oblivious to damaging their relationship with in every way imaginable.”

• Has United lost their minds??? We are free employees, selling United’s tickets for nothing and hoping maybe we can receive a service fee. The people at United hate the airline and Glen Tilton because they are Harvard MBAs who are in it for themselves and no one else … It’s just a method to drive down labor costs. Sorry, you airline MBAs, it is not going to work for you. You will see!!!”

• “It sounds more like they are having cash flow problems and want to pass the buck. We already push more and more people onto the discount airlines. and if this follow through the gds’s will have a problem and the discount carriers will benefit.”

Except at United Airlines

The ironic twist, of course, is that United isn’t the first to suggest credit card fees are a problem — Continental’s CFO mentioned in January 2007 that it was looking at ways to get around credit cards, including direct bank transfers. British Airways spent three years earlier this decade locked in a legal battle trying to shift American Express merchant fees from its corporate business. It finally pitched its tent and went home in 2005.

But talking and doing are different things, so it’s UA that the American Society of Travel Agents’ legal team now says it intends to take up with the U.S. Justice Department. According to Paul Ruden, the senior vice president of legal and industry affairs at ASTA, this could mean carriers are relaying their intentions without words to get around the antitrust law. He has some damning facts on his side.

As a travel agent and a business journalist, I’m torn between the two sides. Obviously, cost-cutting is a key ingredient in business survival, and I do it myself. Business is not for the faint of heart: it’s a rough and tumble game.

The problems stem when you play out the consequences. Agencies, as many experts point out, will have to charge more service fees beyond the current $10 mark-up at online databases to cover their costs. Meanwhile, consumers are becoming restless and feisty about fees instead of numb and accepting. When airlines unbundled services and began charging $15 here, $25 there, the result was mass irritation. Tacking on another $10 for using an credit card falls in that same category. Not to mention many Americans are beginning to see holes in their income stream and simply can’t afford to pay another sawbuck.

So, naturally, they’ll trot to the airlines’ URL sites directly to book without fees — bad for travel agents, but remember: This is business. Put on your big girl panties or don’t play. However, this also means the passenger load is now the airlines’ full responsibility — their employees are on the hot seat to handle processing changes, cancellations/credits and notifying folks of new itineraries.

It doesn’t take any in-depth musing to determine labor costs could outstrip the estimated $171 million United now pays in credit card fees. From that standpoint alone, it would be nice to save United Airlines from itself.

Which lends some weight to Ruden’s theory that the real end game is to save GDS fees. “Maybe this is partly or all about getting out from under their full-content agreements,” he told ATW. And there are some rules to this game that shouldn’t be broken — like honoring your contracts.

Photography: cliff1066, szlea