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U.K. and Ireland buyer association the Institute of Travel & Meetings sharply criticized British Airways late Friday following news that the airline on 1 March 2011 will introduce a credit card charge of £4.50 (US$7.02) on all non-premium cabin bookings through U.K.-based travel agents, as exclusively revealed by The Beat. A senior BA executive told The Transnationalthat the airline is introducing the surcharge now because not all the major global distribution systems developed functionality to handle it until a few weeks ago. The chairman of the Guild of Travel Management Companies predicted some clients will switch their payment mechanism from cards to agency invoicing.
The strongly worded ITM statement linked the new BA fee to American Airlines' plan to impose a surcharge on bookings made through Travelport GDSs outside the United States and the Caribbean. The statement suggested BA's move was "a signal that more cost offloading will happen in the year ahead and that buyers are becoming increasingly angry by the moves of carriers without buyer consultation." GTMC told The Transnationalyesterday that it had been consulted and had successfully lobbied BA to change some aspects of the new fee.
According to a statement attributed to ITM industry affairs chair Mark Cuschieri, "Airlines will find that savings they make by offloading costs to the buyer could well be reflected in contract negotiations later on and that process is surely not healthy for the industry."
ITM chief executive Paul Tilstone added, "There's no question there could have been better consultation with buyer groups on this a long time before an announcement was made ... There are a lot of buyers quite angry about the weekly announcements of cost increase that keep falling out of airlines' press offices." [BA, in fact, has not issued a press release about its new card fee.]
Explaining why, and why now, BA U.K. and Ireland head of sales and marketing Richard Tams said one GDS only recently introduced the relevant technology. Although KLM and other airlines launched similar surcharges in The Netherlands and Sweden last year, the United Kingdom has a more even split than most European countries of market share between Travelport, Sabre and Amadeus, meaning BA needed all three on board.
Tams also pointed out that BA has charged its website customers a card fee for several years. "For a long time, ba.com has been out of line with our agency channels," he said. "The reason we want to charge across our business is that we need to reflect the cost of using a credit card, especially on non-premium fares, where our margins are lower, and we wanted to make that cost transparent. £4.50 is a recovery charge, not a source of revenue, and we have wanted to charge this for a while, but GDS functionality had not allowed us to separate out this cost. It is only recently that all the GDSs have been ready to do this."
If the technology has only just become fully available, it begs the question of whether more airlines will take advantage of the breakthrough to introduce merchant fee charges for agency bookings. None of the experts interviewed by The Transnationalwas sure. "I haven't heard from any other airlines at all," said GTMC chairman Mike Hare, who also serves as chief executive of Portman Travel. Hare noted airlines often follow the lead of competitors that introduce ancillary fees, but not many carriers followed KLM in the Netherlands and Sweden. [KLM subsequently withdrew its charge in the latter in July 2010.]
Another major question BA's initiative has raised is whether it would persuade some corporate clients to switch from credit cards to agency invoicing. "There will be a shift to some degree," Hare predicted. "It depends on the credit status of the client and whether the TMC wants to give a credit facility, but it is another added-value service offered by TMCs." Hare added that one-quarter of Portman clients pay by card and three-quarters on invoice, a split he believes to be typical for British TMCs.
Yael Klein, U.K. managing director for AirPlus International, said: "We are always worried about it, but we believe our customers will realize the benefits they gain from using a card. When we look at other markets where a fee was introduced, we didn't lose a single customer."
Tom Stone, director of the travel management consultancy Sirius, agreed that cards will remain the chosen payment method for the overwhelming majority of travel managers. "The first thing any organization will do is to work out the financial impact on them, and there may be a tipping point at which changing their payment mechanism becomes worthwhile," he said. "However, I think they will be few in number. My guess is some TMCs will be reluctant to take on giving a credit facility, and the cost of fulfillment plus the back-end rebates attached to many card deals will negate the point of doing it for corporate clients."
Stone, who manages the travel programs of several companies on an outsourced basis, was critical of the BA surcharge. "You can dress this up any way you want, but if it walks like a duck and talks like a duck, it is a duck, and the duck you can't dress up here is that this is going to generate revenue for BA at the expense of its corporate clients. I would rather the airline had increased the fare by £4.50. It would be a lot easier to administer."
Klein said she would rather have seen the cost of using a card spread more evenly among all stakeholders who benefit. "Airlines, corporate customers and card companies, and even travel agents, should have a model to work out who benefits and what the cost should be for each party," she said.
American Express said it was unable to comment.
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