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British Airways on March 1, 2011, plans to introduce a
credit card charge of 4.50 pounds (US$7.10) on all non-premium cabin bookings through
U.K.-based travel agents. U.K. and Ireland buyer association the Institute of Travel & Meetings criticized the move. According to ITM chief executive
Paul Tilstone, the group now is examining whether credit card merchant fee
charges in some circumstances must be considered refundable and where in the
fare display at the point of sale the charge would appear. "Will it just
be lumped on the end as an additional cost and won't allow for direct
comparison of fares?" Tilstone asked during an interview this week with The Transnational's David Jonas.
Additional excerpts follow.
Are BA's corporate clients considering whether to switch airlines where
possible or pay for tickets in a different way?
Paul Tilstone: It
is potentially all of the above, depending on individual corporate
circumstances. Among the ones I have spoken to, the first step is assessing the
impact and judge whether [there is a possibility to] gain reductions on the
front end. If you estimate that it will cost you another £100,000 on a £20
million spend, some of the buyers are suggesting that the first move may be to
bring that figure into their next BA negotiation on fares. They will have to
look to see if their travel management company can cope with an increased level
of billable costs. There are discussions to be had with the intermediaries;
there is no question.
How open would travel agencies and their corporate accounts be to a change the
cards in Europe are not as prevalent as in the United States. There has been a
move toward increased use of credit cards during the past 10 years, and I would
imagine that adoption has been fairly significant. There is a culture in Europe
that TMC-billed is widely accepted, but the TMCs naturally are trying to move
people away from invoicing and toward credit cards, for cash-flow purposes and
also for [minimizing] risk. Especially during a downturn, when you have a
corporate with a massive airline expenditure and you are waiting to be paid,
that is an incredible risk to have on your books. Also, there have been moves—certainly
in Northern Europe and Scandinavia—to reduce the Bank Settlement Plan terms to
either fortnightly or weekly. A corporate clearing its account on a weekly
basis adds administration cost. They have to weigh that against a £4.50 charge
per ticket and say, "Actually, even though it is an increased cost, we may
still be better off on credit cards and need to find another way to recoup that
£4.50." Some will look at invoicing. The TMCs, depending on whether they
see it as a potential issue that will drive requests for proposals, might
decide either to accept pushback or engage in a discussion about increased
charges for offering that service.
In some ways, this could be seen as a positive aspect to the
general trend of unbundling. It makes the average cost of that merchant process
become obvious as a separate charge. If you are a buyer and you say that you
want the ability to choose whether or not to buy things, then buying the right
to use credit cards, or at least a choice to use invoicing, brings some
transparency—which I use in a very loose way because it is an averaged charge,
not the real charge of doing business, which depends on which card you are
using. The problem is, it is another case of tracking the data, [determining]
where it is offered in the fare display and booking process, and increasing
cost. There are some positive aspects to it, but overall, it is a negative
If this is about offering the choice to each customer on how to pay for a
ticket, why would BA only take a half-step and exclude premium-cabin bookings
from its new policy?
Tilstone: It is a
nod to the high-end consumer, but that is another problem. You are hitting
people buying lower-end tickets. As a percentage of a low-end ticket, it is
vastly higher than what the percentage would be for a high-end ticket. And that
exclusion is not enough to appease corporate clients, especially in light of
the economic downturn and policy changes [requiring corporate travelers to book
economy-class tickets] that have occurred over the past few years.
Would you expect BA to expand this outside of the United Kingdom and other
European carriers, which may not have started down this road, to follow?
airlines that have done this so far all have done it in their home markets.
Quite clearly, this is where they have less risk. In external markets, where
they are not necessarily the favored brand, it is going to be a bit more
difficult for them to introduce surcharging. In the statement ITM made, we did
say it was the marker in the sand. This has been a long time coming across the
whole of the industry, and we are likely to find not only BA extending this
across other markets in the fullness of time, but other carriers following this
type of approach as well, just as BA followed KLM, Air France and some of the
Scandinavian airlines. BA aren't the first to do it, and won't be the last.
To a certain extent, buyers are becoming resigned, with
announcement after announcement, bundle this, unbundle that, increased charge
here, extra charge there. They are becoming angry, no question about it,
because it is taking up so much of their time and, to a certain extent, these
are unforeseen cost increases that they have to take into account and budget
for. But, the market is potentially more open to these sorts of things now.
Overall, we understand the aviation industry needs and probably should create a
more sustainable base for itself. It can't spend five years in huge loss to get
a couple of years in profit and then go back to huge losses. But it's the way
it's being done, without consultation and in bits and pieces. It is causing all
sorts of problems for intermediaries and buyers.
When asked why it made this move when it did, BA suggested the timing was based
on major global distribution systems developing capabilities to handle the
surcharge. Do you accept that rationale?
skeptical travel manager remarked to me that it was funny BA made its
announcement on the day Britain froze over. You never know what prompted them
to issue it. I am less skeptical, but despite this process being [planned for]
March, the engagement with the travel community was incredibly poor, and not
like BA. We have actually had a pretty good relationship with the airline and
have good engagement with them on GDS negotiations and all sort of stuff in the
past. For ITM, our main issue is that we heard about it on the same day as
everyone and had no say in the matter. I cannot understand how that is good for
the industry in the long run.
Source: The Transnational