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Travel Agents' Opposition to UA Policy Gains Media TractionJuly 2, 2009 By: George Dooley
The Associated Press, USA Today, the New York Post and San Francisco Business Journal have offered coverage this week of United’s recent credit card decision and several cite comments by the American Society of Travel Agents (ASTA) and the Business Travel Coalition (BTC). As the issue gains traction, United’s financial position is also coming under critical scrutiny.
The AP story by David Koenig notes: “ United Airlines has caused an uproar among travel agents with plans to force them to the pay credit-card fees when their customers buy tickets with plastic. The agents say it's an unfair move by United to shift a cost of its business on to their backs. They add that if other airlines copy United's move, it will end up costing consumers because agents will pass along the fee.”
United, the AP notes, sent notices to some travel agents in the past two weeks saying that , beginning July 20, they must pay the credit-card fee when leisure or corporate customers buy tickets with Visa, MasterCard, American Express or another card.
“It's easy to see why United would consider such a move,” the AP said. “United parent UAL Corp. lost $382 million in the first quarter after losing $5.35 billion last year, and some airline analysts rank it behind only US Airways in having the greatest risk of falling into bankruptcy protection.”
Chicago-based United has been aggressively cutting costs to match a steep decline in traffic, especially in lucrative first- and business-class tickets. Like other airlines, it has imposed fees on baggage and other items, and expects to raise $1.1 billion this year with those charges, the AP said.
"Credit-card processing costs are escalating at a high rate and represent several hundred million dollars each year," says United spokeswoman Robin Urbanski. "We're exploring ways in the current economic environment to reduce our costs and run an efficient airline."
United spent $710 million last year on distribution costs, which includes payments to the distribution systems such as Galileo, the AP said, quoting ASTA president Chris Russo and BTC Chairman Kevin Mitchell.
Charisse Jones of USA Today wrote: “Consumer advocates and trade group representatives are alarmed by United Airlines' decision to make some travel agents pay the credit card fees on flights that they book. They fear that the travel agency industry, and ultimately consumers, will have to shoulder hundreds of millions of dollars in additional costs if other carriers follow United's lead.”
"Credit card processing costs are escalating at a high rate," says United spokeswoman Robin Urbanski, told USA Today, noting that United's distribution costs, which include credit card fees, totaled $710 million last year. "We're continuing to explore ways in the current economic environment to reduce our costs and run an efficient airline.”
USA Today noted that ASTA has sent a letter to United asking it to reverse its action and on Monday filed a letter with the Department of Justice requesting that it be vigilant in making sure several airlines are not colluding to shift costs, in violation of antitrust laws.
Even in the era of do-it-yourself online booking, 50 percent to 60 percent of airline bookings continue to be done by travel agents, says Paul Ruden, the organization's senior vice president for legal and industry affairs, is quoted as saying in the story.
The New York Post offered its take on United as well, in a bylined piece by Josh Kosman titled “United. They Fall (Into Debt).”
“United Airlines is having its own version of the trip from hell," he wrote. "The airline, reeling from a decline in customers and running short on cash, is paying a steep 17 percent interest on $175 million in debt it issued, leading analysts to bet the company is just a few steps from the grave. Indeed, that interest rate represents a full 6 percentage points above where rival airlines have paid in recent debt raisings, and is more than double what it paid nine years ago when it sold $186.4 million in debt at a yield of slightly more than 8 percent, according to Bloomberg data.”
UAL is considered the laggard among the big airlines, even as the airlines' overall passenger demand is off 10 percent compared with last summer, according to the Post. “Also, the company has just $2.5 billion of cash on hand, compared with Delta, which has $7 billion,” Kosman wrote. "To be sure, it's a difficult time for all airlines. However, UAL has some unique challenges. When it was in bankruptcy from 2002 through 2006, it focused on attracting premium customers -- a move that now leaves it vulnerable given there's less business travel and more consumers are favoring price over luxury when it comes to travel.
“Making matters worse, UAL may have near-term liquidity issues, and could begin to get squeezed by credit-card companies that fret they'd have to refund customers who bought tickets out of their own pockets if UAL collapses," The Post article continued. "King said UAL is now in talks with American Express about reaching a new arrangement to address this threat.”
The San Francisco Business Journal has been following the controversy as well. “United Airlines’ new credit card acceptance policy threatens to make life more difficult for corporate travelers and their travel agents," the article stated. "An agent using United’s web site, bypassing such travel systems as Apollo and Sabre, would not allow companies to capture the discounts they have negotiated with United nor would it allow their travel agent to survey several carriers on a route to find the lowest price.”
“United is hoping to shift the cost of accepting credit and debit cards onto selected travel agencies," the paper continued. "Those agencies say the airline’s move shifts to them the risk for paying out refunds if the carrier goes bankrupt. While it’s also likely to reduce the amount of money that United has to keep in the bank to guard against charge-backs, it would increase those requirements for the travel agents. That’s a nonstarter for most agencies — and their banks, which would have to honor charge-back requests that could total billions of dollars in the event of an airline bankruptcy.”