Ralph Kaiser
Mirroring the success of its 19 airline owners, Universal Air Travel Plan reported record volume of more than $1 billion in October and is expected to surpass $10 billion for the year. Following several years of decline after 11 September, business has picked up in the United States as carriers refocus their efforts on UATP's card. But for this 71-year-old payment company, growth now is occurring on a global basis, according to UATP president and CEO Ralph Kaiser. The Transnationaltalked to Kaiser last week about the company and trends in the payment sector. An excerpt follows:
What is causing the growth in charge volume and how much can be attributed to the deals you've done with PayPal and CheckFree to provide the infrastructure to allow carriers to offer on their Web sites those payment options?
Those deals with PayPal and Moneta (formerly CheckFree Retail Payments) are really going well--almost everyone would categorize it as "better than expected"--and we're seeing a lot of processing volume, but those tend to be leisure sales. We're seeing corporate charge growth in all markets. Particularly U.S. carriers have done really well and reinvigorated their programs. But the majority of our business is outside the U.S. All markets are growing now and we're seeing carriers beating forecasts in all IATA areas, 1, 2 and 3. [International Air Transport Association groupings for the Americas, Europe/Middle East and Africa, and Asia-Pacific]. We're forecasting another 10 percent or more growth for 2008, which is phenomenal growth for us. About 1 percent or 2 percent growth is due to things like foreign exchange and fare increases, [but] most of it is organic. The goal for 2008 is to position UATP with the airlines as, "If you have a payment need, we can probably address it for you." The core business of UATP will always be the corporate charge program. But what we've discovered is that there are a lot of other payment issues out there that we can tackle for airlines. If an airline wants to create its own rewards program, or prepaid or gift card program, we might be able to facilitate that on our exiting infrastructure. We've proven it over the course of 2007 through the alternative payment provider relationships and some things that we're working on that will roll out in 2008.
Several of your 19 airline owners are based outside the United States now. Has the ownership makeup changed?
The shareholder group is definitely global. For example, my board of directors elected from the shareholder group is nine airlines: British Airways, Lufthansa, Continental, United, American, Delta, Japan Airlines, Air New Zealand and Qantas. It is a global company and it has a global focus. We recently added positions in Sao Paulo, Beijing and hopefully are putting someone in Tokyo this month or next month. We added a lot of merchants this year in mainland China, so you'll see UATP transactions there. We'd like to see an issuer in China in 2008, but we know that we have merchant acceptance there now for all UATP accounts around the world. We'll also see more transactions in India, Latin America and other places in Asia-Pacific. UATP in its early days was definitely U.S.-focused and most of its volume came out of the United States. Now, it's totally the opposite. Of the $10 billion we'll do for 2007, about three-quarters will be transacted outside the U.S.
What are the financial benefits to the 13 issuing carriers of UATP versus competing card products?
If they issue the product and that product is used to buy tickets on their own airline, it's a zero percent transaction, an "on-us" transaction. When that same card is used on another airline, an interline transaction, then the airline earns the revenue that otherwise would go to a card company. So the airline acts as a card issuer, just like your bank does when it issues a Visa or MasterCard. UATP's "banks" are airlines, so they earn the revenue from merchants that Visa, MasterCard or American Express issuers would earn. Every time you use your credit card, the merchant pays a little to process the transaction. The difference is that the UATP rate is significantly lower, usually 1 percent less, than a typical charge card rate, 2.2 percent to 3.2 percent. In the U.S., it may be 2.2 percent to 3 percent, but in Latin America it can be over 3 percent. There are some markets where the rates aren't quite as high because they're regulated. We know that some card companies are even raising their rates currently, which is almost hard to believe at a time when airlines are trying to lower their costs. That actually might be why we're seeing more volume moving over to UATP. Over the past year, we even saw where card companies aren't raising rates; they're shifting more business to the more expensive cards that they have. So accepting a corporate card is going to be more expensive than a consumer card in many cases. By shifting companies into different card products, issuers can effectively put them in higher-rate cards without actually raising the rates for airlines. The card associations are doing it. We've definitely heard that American Express is raising rates on some major airlines all over the world. It's coming as a pretty big shock to a lot of airlines.
Is there demand for UATP to expand beyond air, rail and travel agency fees to capture other types of corporate travel spending?
We're looking at adding some non-air spend to the traditional UATP accounts through acquirers. Some corporates have asked our airlines if they could put rental car or hotel on their UATP accounts. We think that's something we'd like to do in 2008 in the centrally booked and billed charge environment. We would do it through acquirers that already have those merchants. We'd just sign deals with acquirers who could then tell all their merchants that now they could accept UATP through that acquiring relationship. If we do add acquirers for non-air, those transactions would probably be a little more expensive to those merchants--the hotels or rental car [firms]--because the acquirer fee will be on top (of our transaction fee), but we still think it will be less than typical credit card for those same merchants. So the lower rate that UATP affords its airlines will probably be available with an acquirer charge layered on top to the hotels and rental car companies. This is not something that's rolling out tomorrow, but we do believe that's the direction we want to go in 2008 because there is demand out there. Anything that the airlines see and want to do, we try to get it done.
For corporations, are there benefits to travelers with the UATP cards?
The benefit doesn't necessarily go to the traveler as much as it goes to the corporate. An airline signs a corporate deal and says, "I'll give you my best fares on these city pairs if you'll use my payment tool." That's the big difference. Individual credit cards tend to reward the traveler. They charge more money to the merchant, then use that money to reward the traveler and breed loyalty to the card--whereas UATP breeds loyalty to the airline and it's the corporation that really benefits through lower fares though a corporate deal that they probably can't otherwise get. In some cases, UATP issuers will rebate corporations for hitting certain travel levels, but that's really going to be an individual, case-by-case basis and it would have to be a pretty sizeable account to receive travel rebates. Some travelers might benefit from lounge access that might come with a UATP account or pre-boarding rights, even if flying economy. But it's not so much an individual reward tool as much as it is a way for companies to save money by getting the most favorable travel deals.