Leading Dutch travel buyers say they intend to negotiate back extra costs they will incur as a result of a new KLM credit charge fee of €7.50 for bookings made through travel agents. KLM, which brought in the charge Aug. 4 for its most restricted ticket types, defended its decision to
EuroBTN by saying airlines should not have to subsidize a payment method that primarily benefits travel agents and their customers.
In common with several other European carriers, the Dutch flag-carrier introduced card fees for direct bookings via its Web site in September 2006. However, it has waited until now to introduce a similar fee for agency bookings because it could not find a method to make the charge through global distribution systems. TMCs in the Netherlands have said they will pass on the €7.50 charge to customers.
Herman Mensink, chairman of Cortas, a grouping of the Netherlands' largest travel buyers, said his members do not intend to end up out of pocket as a result of the new charge.
"KLM has every right to impose charges for credit cards, so we will accept that, but this was formerly part of the ticket price," said Mensink. "We will take it into contract negotiations because we will have to pay for the charges. Some of our members have already spoken to KLM about this and the initial indication from is that the airline won't consider it, but there are many levers in a contract negotiation."
Mensink added that his members would almost certainly continue to pay by card because they depend on the method for management information. However, Mario Kriebel, vice president of credit card programs for BCD Travel, is concerned some businesses will switch to settlement through invoicing.
"Our first feedback from customers is that they will stay with cards, but in the long term we expect some will stop using them once they see how large an amount they are paying in fees over a month or two," he said. Kriebel is urging clients to continue paying for KLM flights via card because it streamlines administrative processes and contributes to rebate incentives with issuers.
Welmer Blom, vice president of sales and service for KLM in the Netherlands, explained that card merchant fees cost the airline as much as 2 percent of the settled value of a ticket. He also questioned the extent to which corporate clients would be affected by the move. "The use of leisure-designed airfares is limited among corporate customers, though the amount is growing in these current economic times," said Blom.
The KLM sales chief added that it was unreasonable for airlines to carry the financial burden of the benefits clients receive from using cards.
"Business-oriented travel agents and corporate accounts are encouraged to use credit cards, based on services such as cash flow control, credit terms, management information, automated data feed, insurance and kickbacks," Blom said. "Currently, these services are solely financed out of the merchant fee. In other words, KLM as the merchant is financing the added-value services of the credit card companies towards the corporations and agents. This unbalanced distribution between costs and added-value services is the driver for levying a credit card surcharge for the lower-yielding tickets."
There have been growing expectations in the global corporate travel industry that airlines will start to offload merchant fees, but efforts so far have been less than successful. United Airlines has temporarily suspended its attempt to withdraw assumption of the merchant fee burden for certain agents in the Unites States
(BTNonline, July 20). Earlier in the decade, litigation from American Express ended the refusal of British Airways to assume the merchant fee for all but Universal Air Transport Plan cards
(BTNonline, April 6, 2004).
However, Kriebel expects KLM to be successful because its move does not discriminate between agents or card issuers. Kriebel believes KLM will ignore protests from clients and that its introduction of a charge could prove highly influential.
"It is comparable with the Preferred Fares Program in Germany," said Kriebel, referring to a Lufthansa program that effectively charges €4.70 for every booking made through a GDS. "Corporate clients screamed about it but Lufthansa still did it. This is not the end. Other airlines are watching KLM. We have had a clear signal from one very big carrier that the merchant fee topic is on its agenda."