Bye-bye to the big airline fee rip-off

Banking is one of Australia’s least price-competitive industries – along with supermarkets, the petroleum industry and airports – while the airline business is so price-competitive in its drive to attract customers it is probably the world’s No.1 way for investors to lose their money.

Put banks together with airlines, however, and you have airlines behaving like banks, price-gouging with the worst of them.

And so it has been with credit-card surcharges, which cash-hungry airlines have turned into a plunder of merciless profiteering.

The cheaper an airline’s seats, the worse the gouging, it would seem. Tiger Airways recently increased its credit/debit card booking fee from $7.50 to $8.50 per one-way sector when the merchant fee charged to the airline for the transaction is 20 cents or less.

For a family of four, that means a gouge of $68 on top of the cost of the airfares for a service that cost only 20 cents to provide.

But they’re all doing it. The Australian Consumers Association watchdog, Choice, last year estimated that Qantas was making a net profit of around $100 million a year on credit card surcharges after merchant fees.

The only way to avoid airline credit card fees has been the inconvenience of acquiring a credit/debit card specified by the airline or using a non-credit-card system of payment such as BPay. The vast majority of customers pay the fee.

All that will change on Monday, March 18, when new rules introduced by the Reserve Bank prohibit airliners and other retailers of charging more than the “reasonable cost of acceptance”.

"The RBA is clearly saying that surcharges should be set at what retailers are paying their banks to accept card payments and that in most cases this should be around the level of the merchant service fee," Choice’s head of campaigns Matt Levey said in November when the start date for the new regulations was announced.

"We know from the RBA's own data that retailers are being charged by their banks an average of around 0.87 per cent for MasterCard and Visa, 1.84 per cent for American Express and 2.10 per cent for Diners Club.

"From March 18, 2013, consumers should expect to see surcharges limited to around these levels, and if they see anything much higher, they should tell their bank or card provider."

It’s not just the airline industry under the pump to abandon such fee-gouging. The new regulations will also apply to retailers like the taxi industry, whose Cabcharge's so-called 10 per cent "fee on financial services" received a Choice “Shonky” Award.

According to the RBA, the total cost of accepting card payments in taxis is around 5% of the total transaction value.

"Whether Cabcharge wants to call their 10 per cent hit a surcharge or a fee on financial services or anything else, the writing is well and truly on the wall," Mr Levey said. "It's time to stop slugging consumers with unjustified fees for using credit cards."

The silence from the airline industry, however, has been deafening. There have been no announcements about what will replace the current system of credit card fees after March 18.

Some industry sources are suggesting the airlines will change to a percentage fee of 1 or 2 per cent on credit card bookings, which would greatly reduce the cost of cheaper tickets.

A $1 or $2 fee on a $100 cheapie, for example – the merchant fee the airline is paying – is much less of a disincentive than a flat $17.

However, a percentage fee on more expensive international fares could see the price increase. For example, instead of the current flat fee of $30 for Qantas international tickets bought with a credit/debit card in Australia, a 2 per cent fee on a $2000 fare would increase the price by $40.

The bottom line, however, is that what is actually now being banned is lying. Nothing is a bigger insult to an average person’s intelligence than being told naked price-gouging is a reasonable fee for service.

It will be hard for the airlines to give up such gouging when many of their new ancillary fees – baggage fees, seat selection, priority boarding – are charges for services that cost next to nothing to produce.

The story Bye-bye to the big airline fee rip-off first appeared on The Sydney Morning Herald.

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