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 nation's third-largest airline, 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.
In the notice, a United vice president told the agencies to report the sale to the airline as a cash transaction. He warned that agencies that try to assign the credit-card processing fee to United's account would be dinged $75 per ticket.
Credit card companies typically charge merchants between 2 percent and 3 percent of the transaction amount per card swipe.
United won't say how many travel agencies got the notice or exactly how they were selected. Some agents believe United picked on smaller agencies or ones that do little business with United to minimize the hard feelings if the airline drops the plan.
The move could push agencies to buy tickets for their customers on United's Web site rather than using one of the global airline ticket distribution systems such as Sabre and Galileo. That would force United to foot the credit-card fees but avoid paying fees to the distribution systems.
It's easy to see why United would consider such a move.
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.
"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.
Roger King, an analyst with Credit Sights, said United could be trying to reduce the amount that credit card companies hold back from United to offset the risk that some of the tickets will be returned or not honored by the airline.
At this time last year, United had $382 million held back, or 25 percent of advance credit card sales. United reached a deal with Paymentech and JPMorgan Chase Bank to cut that amount to $25 million, but the amount would rise if UAL's cash balance declines. UAL would also have to post reserves with American Express if its cash balance falls below $2.4 billion — it was $2.46 billion on March 31, according to regulatory filings.
The fee proposal has drawn opposition from the American Society of Travel Agents and the Business Travel Coalition, whose leaders say they will ask federal and state officials to investigate for possible collusion if other airlines follow United's lead.
Kevin Mitchell, president of the travel coalition, called United's move a trial balloon, comparing it to an effort by Northwest Airlines to impose a distribution-cost surcharge on travel agents in 2004. Northwest backed down.
Travel agents, who were forced to adapt when airlines took away their commissions on tickets several years ago, say forcing them to pay United's credit-card fees on merchants is a step too far.
"The credit card fee should be a cost of doing business by the maker of the product, whether it's an airline or a store," says Jean Covelli, president of The Travel Team Inc., an agency in Buffalo, N.Y.
Agents say they will be forced to pass the fee on to their customers, and it's not spare change.
"We have multimillion-dollar accounts, so you can see what a 3 percent fee would do," says Covelli.
Agents also said consumers wouldn't be able to get their credit card company to resolve a dispute with United because the card transaction would be through the agent instead.
Chris Russo, owner of Travel Partners in Colorado, said United's goal might be to shift more ticket sales to its own Web site, something airlines have been trying to do for years.
"We look at this as a very large threat to our ability to compete at selling airline tickets," Russo said. "We are their largest distribution system, but we're also the one they think costs them the most money."
Russo says if United's plan sticks, he'll have to shift more of his work to selling cruises, tours and vacation packages, something he started doing when commissions were cut.
"We'll have to reinvent ourselves again, but we'll survive," the travel agent says. "We were supposed to be gone a long time ago."