Thursday, June 25, 2009

United's Fee Passalong Could Tilt Playing Field Back Toward Airline-Direct Channel

United Airlines' decision to test the waters and have some travel agencies foot the fees for credit-card transactions when selling United flights could conceivably tilt the airline-online travel agency marketshare-skirmish back toward the airlines.

As Tom Botts noted in the Hudson Crossing Travel Industry Insight Blog: "If adopted even more broadly and applied to the Online Travel Agencies, they would be forced to reinstate some sort of booking fee in order to cover the costs of paying credit card merchant fees. This would return a pricing advantage to the websites that has recently been removed by all of the major players in an attempt (which we have heard has been successful) to drive growth."

In fact, PhoCusWright financial analyst Jake Fuller, in his recent report, Does the Model Work Without Fees?, cited "indications of a mid-teens increase in air-transaction volume since waiving fees [in March and April] suggests a rise in [OTA] share to 37% and that OTAs would be able to offset at least some of the lost fees through volume."

Fuller pegged the OTAs' share of online-flight bookings at 32 percent in 2008, down from a peak share of 44 percent in 2002.

So if a bunch of major carriers follow United's lead on credit-card fee avoidance and the OTAs are forced to reinstate some form of consumer-booking fee to shoulder the new burden, then the increased volumes that the OTAs have seen in the last few months may evaporate as some consumers return to airline websites for flight-booking.

And, as Nadine Godwin notes in her Travel Weekly piece, United's initiative could drive more travel agent bookings to, as well.

Godwin writes: "Alternatively [instead of agents absorbing the fees and booking United flights using their own merchant acounts], it could push agencies to book at the carrier's website rather than the GDSs, leaving United to pay credit card merchant fees but bypass GDS fees."

Travel organizations quickly are taking sides on the issue.

ASTA (American Society of Travel) has taken a dim view of the United plan and reportedly stated that it would be asking the Justice Dept. to monitor possible airline collusion on the issue since carriers have openly aired their feelings on the question of reducing credit-card fees for some time.

And Robert Joselyn, a prominent travel industry consultant, reportedly is urging travel agents to book carriers other than United as a form of protest to convince the airline to rescind its new credit-card policy.

After greatly reducing their GDS fees several years ago, many airlines identified credit-card fees as the next battleground in the drive to reduce distribution costs -- but United's is the first potentially game-changing attempt.

In a July 2007 Travel Weekly article, Al Lenza, then Northwest's vice president of distribution and e-commerce, said credit card fees were soaring and it was critical for Northwest to trim its "dependence on credit cards."

Lenza was the point man in Northwest's ill-fated drive in 2004 to have agents pay a "shared GDS fee" in an attempt to reduce Northwest's distribution costs. After vehement protest by travel agencies and the GDSs, Northwest withdrew the plan.

Lenza left Northwest in 2008 when it merged with Delta, and The Beat reported in February that he began working at United on distribution strategy.

1 comment:

JB said...

Agencies will never be able to get the necessary multi-million dollar lines of credit from credit card processing companies.