United Responds to Credit Card Cost Transfer CriticismJuly 17, 2009 By: George Dooley
The Business Travel Coalition (BTC) has released a copy of United Airlines' July 2 response to the BTC’s criticism of the carrier's credit card/cost transfer policy that takes effect July 20. Kevin Mitchell, chair of the BTC, concluded his initial letter by urging United to come clean about its intentions, saying, “If UA has no intention of making 'major or broad' moves regarding a credit card merchant fee cost-transfer scheme, now would be the time to let the industry and BTC know before we launch the next phase of our campaign to stop this.”
United’s Jeffrey T. Foland, senior vice president of worldwide sales and distribution, replied with the following letter:
We understand well the value that travel agencies provide and will continue to invest accordingly in those relationships. The commercial arrangements that we have with individual agencies take many forms and we will continue to have the appropriate commercial conversations with each of our partners directly.
Unfortunately, claims made in your letter are misguided, apparently based purely on rumor or speculation within the agent community. We have not made any broad or major moves, having communicated directly with only a relatively small number of non-aligned agencies on commercial program changes, and have no intention of taking the matter public.
As an industry, we have a mutual interest in providing customers with safe, on-time flights with good service, and to earn a reasonable profit in doing so. Costs of distributing our product are significant, including the increasing costs of credit card usage, and we will continue to focus on ways to reduce these costs while we run an efficient airline for our customers.
We agree that the industry needs to work together on important issues such as investing in Next Generation technology and stopping oil speculation. We are doing our part through forums such as ATA to help drive the industry in this direction, and appreciate your support.
Since the July 2 exchange, United’s policy has faced sharp opposition from the travel agency industry and trade groups, including ASTA, the BTC ,the National Tour Association (NTA) and the Interactive Travel Association (ITSA). Rank and file ASTA member travel agents have responded in large numbers and made their concerns known to members of Congress. Congress, in turn, has expressed concerns to United, including members of the House and Senate.
Excerpts from the BTC letter to United are included below.
“I appreciate your focused effort to control and reduce costs and wish you Godspeed. However, the threat posed to the competitive functioning of the distribution system, to corporate managed travel programs and to consumers is just too grave for BTC and others to ignore.”
“What’s more, something just does not make sense regarding your explanation. You state: “Costs of distributing our product are significant, including the increasing costs of credit card usage, and we will continue to focus on ways to reduce these costs while we run an efficient airline for our customers.” You then go on to say: “We have not made any broad or major moves, having communicated directly with only a relatively small number of non-aligned agencies on commercial program changes, and have no intention of taking the matter public.”
“If the increasing costs of credit card usage is the problem how does focusing on a small number of low producing, non-contracted agencies that would drive a small amount of cost to UA address it? Something doesn’t add up unless UA’s early move was the trial balloon most observers believe it was, and that UA is really just in the early stages of a broad based cost shifting move – in which case you would be “taking the matter public,” as has already happened.”
“I understand that at least some of the charge card companies are supportive of UA’s merchant fee cost-transfer concept as they anticipate securing higher discount rates from travel agents than from UA and other airlines, should they match. In addition to transferring your credit card costs to the consumer, and causing them to be substantially increased under TA merchant agreements, you will be introducing unprecedented complexity and driving significant new
costs for TAs that will also be passed to the consumer in the form of higher service fees.”
“Airlines passing credit card costs, and more egregiously, transferring financial risk to the consumer, will not sit well with Congress, the U.S. DOJ or the State AGs. The optics of credit card companies and merchant banks, many of which received TARP moneys, quietly conspiring with major airlines to screw the consumer will highly motivate these officials to take action. They will be duty-bound to do so.”