British Airways reversed an unpopular, three-year-old policy of not accepting payment card merchant fees on corporate net fares in the United Kingdom. The airline signaled its change of heart to corporate clients last month, one week before unveiling a jointly branded corporate card with American Express aimed at the small- and midmarket. BA and Amex previously had fallen out so badly over the merchant fee issue that they resorted to suing each other through the New York courts
(BTN, June 24, 2002).BA's decision to resume absorption of the merchant fee from October, which followed Amex reducing the fee it charges the airline, is significant for travel buyers globally. Many low-cost carriers charge their passengers a card-handling fee. BA's action on net-fare merchant fees was regarded widely as a test case for whether corporate clients would have to start picking up the tab from mainstream carriers. This is because card companies applied their merchant fees on BA net fares to travel management companies instead, and they in turn passed the cost on to their clients.
However, unlike the elimination of travel agency commissions, this airline distribution cost-reduction campaign did not catch on. "It doesn't seem to have happened," acknowledged Tiffany Hall, head of global sales and distribution for BA. "Not many carriers did that."
News of BA's U-turn pleased U.K. travel buyers, because it will reduce processing and purchasing costs. In 2002, BTI UK estimated BA's decision was costing clients an average 2 percent per transaction. Amex was understood to have charged BA a merchant fee of 2.8 percent, higher than any other card provider.
"This is good news," said AstraZeneca U.K. travel manager Ken Gledhill. "It simplifies what became a complex area when the card charges were separated out. It takes the cost away from corporates too."
British Council global contracts manager Kevin Watts said: "This will be a saving for companies that buy a lot of corporate net fares."
Asked why BA changed its mind, Hall said: "The feedback from our customers was that they didn't like it, and we reviewed our arrangements with the card companies." Hall hinted that many clients have not lost out in any case during their three years of picking up the merchant fee. "Clearly, they took this into account when doing negotiations," she said. "They were looking at our total price and those of other airlines."
Amex head of commercial card for the U.K. and Benelux, Paul Abbott, hailed BA's decision as a victory for corporate customers. "It certainly created process challenges for customers and in some cases it created additional costs," he said. "This is a very positive step that BA has taken."
Combined with the launch of a new card, BA's move signals an almost-complete ending of hostilities with Amex. Both parties agreed to drop legal action last year
(BTNonline, April 6, 2004), but BA continued to refuse to absorb the merchant fee until now.
"We have reached a very good agreement that's definitely good for them, because we lowered the merchant fee, and good for us because it will enable us to grow our business much faster in the U.K.," American Express Corporate Services president Ed Gilligan told BTN. "That was one of the things I wanted to get done when I moved to the U.K. more than a year ago. It took longer than I would have liked, but it ended up in a very good place."
The new Amex/BA card, to be launched later this year, rewards both cardholders and their employers. Cardholders receive BA Miles for their spend through the card, while employers receive points they can use to redeem tickets for the traveler of their choice. The card is aimed at the 13,000 businesses that are members of BA's OnBusiness program, which provides benefits to organizations too small to negotiate tailor-made deals with the airline.
The one outstanding issue between the two companies is restoring BA to preferred supplier status with Amex's TMC business. The decision to delist BA when the merchant fee row broke out in 2002 raised eyebrows at a time when Amex positioned its card and TMC businesses as having an arm's-length relationship. Both companies said negotiations are continuing on restoring BA's preferred status.