Bowing to pressure from 18 lawmakers, United Airlines in July offered extensions until late September on its new merchant fee policy that would revoke the ability of 28 travel agencies to use the airline's credit card merchant accounts to purchase tickets. Opponents urged United to abandon the effort altogether and hoped other carriers don't follow its lead.
If United sticks to its plan, the agencies and perhaps their corporate accounts will need alternative means to purchase, report and reconcile United tickets. No longer allowed to use United's American Express, Diner's Club, Discover, JCB, MasterCard or Visa accounts, the agencies would need to get their own merchant agreements and settle in cash with United through ARC, the carrier told them.
While ARC, the airline-owned bank settlement plan for travel agencies and designated Corporate Travel Departments, offers an ARC merchant account to process service fees, this isn't designed to process airline transactions, according to an ARC spokesman. The ARC program allows agencies to process fees of up to $500--or higher with special approval--at a transaction processing fee of 3.5 percent. The cost, as well as the threshold, could make this an untenable option. Should agencies begin processing airline tickets on this merchant account, the ARC spokesman said, he expected "push-back from the credit card processors" as such use "diverges quite significantly" from the intent.
At presstime, ARC offered purchasers no other alternatives.
Another option, said Consulting Strategies principal David Hillman, is an account with Universal Air Travel Plan, an airline-owned payment system, that would allow the agency to charge ticket costs and obtain the critical data for corporate accounts.
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Corporations or agencies also could establish other direct payment options, but would need to likewise devise the means to collect data that typically comes from credit card feeds and reconcile it with expense reporting and other travel systems. Airlines could provide the data feeds if they wanted, Hillman noted.
"There's no question that merchant fees are on the airlines' 'to do list,' " Hillman said. But United's approach, letter and selection of the 28 small agencies baffled him. "Why target these agencies and not others?" asked Hillman, who questioned whether lawyers would view the move as anticompetitive to the select group of agencies.
Hillman said he could understand if United said it was going to address merchant fees and detailed options for agencies and their corporate clients, "but this was inappropriate and not businesslike," he said.
Lawmakers argued that shifting to an agency merchant account may alter consumer protections or the fulfillment burden of United. In a written response to U.S. representatives and senators who asked for both the implementation delay and details on the move, United said the shift to an agency's merchant account "neither violates nor undermines the Fair Credit Billing Act."
While some have questioned whether agencies could obtain merchant accounts or higher enough lines of credit, given tightened credit limits, especially on small businesses, said Hillman, "Most agencies have merchant agreements already. The big problem is the 2 percent or 3 percent fee."
Questioned about the move during UAL Corp.'s second-quarter earnings call with analysts, executive vice president and COO John Tague said, "We currently do have a number of agencies that have been merchants of record for some time. This merely represented an expansion of the definition as to how we are going to apply that initially. We're going to reserve the right on a continuing basis to optimize the way we approach each of these distribution agreements based upon the commercial relationships we have with those particular parties. I can't really speak to what we will do on a going-forward basis, but you can continue to expect us to take calculated risks, such as these, as we move to improve the economics and performance of our distribution relationships."
Critics asked United to explain how its policy limited to only a small number of travel agencies could generate much savings.
"We could be wrong, but we think it's a test to see the consequences with agencies that cannot hurt them much," said American Society of Travel Agents senior vice president for legal and industry affairs Paul Ruden. "And it's a message to the other airlines: 'Come on in; the water's fine.' "