Michigan BTA

WHAT TRAVEL PAYMENT IS ALL ABOUT.

Michigan BTA

Thursday, February 25th, 2010

P. 1

Matthew Talbot, Business Intelligence & Technology Manager for AirPlus International

Credit Card Economics & Ancillary Fees

Agenda

AIRPLUS. WHAT TRAVEL PAYMENT IS ALL ABOUT. P. 2

2. Ancillary Fees – Where are we heading?

3. Voice Your Opinion

4. Q & A

1. Credit Card Economic Realities

AIRPLUS. WHAT TRAVEL PAYMENT IS ALL ABOUT.

Background: The four-party credit card model

P. 3

Merchant feee.g.

2.50%

Corporation /Cardholder

Acquiring Bank

Merchant

Issuing Bank Interchange fee

e.g. 2.35%

Annual fees are often exempted for medium and large corporations Rebates are becoming commonplace in many countries Bonus programs are on the rise for SMEs (especially reward programs)

Annual fees

Rebates / Rewards


Background: The three-party credit card model

P. 4

Merchant feee.g.

2.50%

Corporation /Cardholder

Merchant

Annual fees

Rebates / Rewards


Merchant service fees range from 1.75% to 2.5%

P. 5

American Express

Visa/MasterCard

2.54% (global average merchant fee)

Around 2.50% for commercial cards US

UATP (AirPlus) 1.75% and up

Typical fees for corporate cards at airlines, hotels, & rental cars:


Credit card benefits

P. 6

To Merchants:

To Corporates

& Cardholders:

No invoice processing

Spreading of financial risk and lower fraud

Quick settlement of amounts

High quality customer data

One simple, electronic invoice for efficient settlement

Robust data for internal reporting and analysis

Data consolidation on a global level

Data integration into expense reporting tools

To Travel Management Companies:

No invoicing or processing

No risk or collection, improved cash flow

Agency neutral

One form of payment for all expenses


Merchants pay a significant proportion of the total bill

P. 7

Card Holders Merchants

• Annual fees (if any)• FOREX fees• ATM fees• Other fees• Revolving credit

charges• Rebates up to

100+bps

70% - 90%of total

10% - 30%of total

• Merchant Service Fee


Merchant Fees – Seismic Changes in the Global Landscape

P. 8

Market economics force travel intermediaries to use the excess funding to buy

their customers

Rebate/Incentive competition drives airlines costs higher. Costs passed on to you - the end user!

Airlines overpay distribution

intermediaries for their services

Distribution Economics - The Downward Spiral


Globally the credit card business model is under attack

P. 9

Surcharging

Differentiated acceptance

You pay a fee charged by the merchant for each transaction

Corporate Net Rates will exclusively be linked to a merchant-determined form of payment

Non acceptance Merchants decide to not accept specific forms of payment


Examples:KLM introduced surcharges in offline booking channel

P. 10

Since 4 August 2009 in The Netherlands, KLM has implemented:

7.50 € credit card surcharge on certain lower ticket classes

45% of the tickets purchased by corporates are affected

SN Brussels and Finnair have followed in The Netherlands

Case study: The Netherlands and Sweden


European low cost carriers are in the mix too

P. 11

MasterCard prepaid card only “free” form of payment

Other forms of payment are assessed 5 €

Note: Ryanair only accepts MasterCard & Visa

Ryanair announces surcharge via Twitter


In Asia…

P. 12

Here the majority of airlines do not accept credit cards for net fares

Net fares make up 90% of all corporate tickets

Corporate agencies either absorb the merchant fee, book code-share flights which accept credit card or surcharge the customer

Hong Kong


And Australia:

P. 13

Qantas charges differentiated surcharges by credit card type:

1.1% for MasterCard and Visa

2.2% for Amex

Source: www.choice.com.au

Tiger charges a “convenience fee” of $6 per passenger per flight for domestic travel, and $5 per passenger for international bookings


The first initiative in the USA

P. 14

From 20 July 2009 (+ further postponement)

Certain agencies are charged a $75 per ticket penalty fee should they continue to issue under United’s merchant agreement

Cards affected include Visa, MasterCard, Diner’s and American Express

UATP is exempt

Will TMCs accept this fee and pass it along to the customer?

Or, if they set up as a card merchant, will they then pass along their merchant fees directly to their customers?

United Airlines


Differentiated Surcharging example from Denmark

P. 15


Merchant FeesChanges in the Global Landscape

P. 16

“Challenges to the current credit card business model will result in greater transparency to the components of the interchange model, and ultimately, to the unbundling of interchange pricing and shifting of roles in the payments value chain among current and new players.”

-A New Business Model for Card Payments, Amy Dawson and Carl Hugener, Diamond Consulting

Agenda




4. Q & A



Ancillary Fees include:

P. 18

Bag fees

In-flight meals & beverages

Premium seat fees

Economy Plus Seating

Airline club access

Change Penalties

Upgrades

Standby fees


These fees were once bundled – and already included in the ticket price.

Now, as airlines begin to unbundle these fees, a new reality emerges for our industry:

Pay for what you use!


The Cost - $1.9B collected in Q3 2009 alone and rising

P. 20

Prices change frequently

E.g. US & AA recently announced they will match the other airlines in raising baggage fees to $25 for first bag and $35 for second bag

Some studies show that ancillary fees represents only 1% of air costs*, some up to 30%**

Most fees are waived for elite flyers

Change penalties continue to rise

Is this even considered an ancillary fee?

* TRX (as reported in The Beat) **NBTA 2010 U.S. Business Travel Buyers' Cost Forecast.

It is difficult to quantify the cost of ancillary fees:


Tracking fees…

P. 21

http://www.exploreflightfees.com/#


Questions you need to think about:

P. 22


Examples:Data on Fees Provided to Card Companies - CO

P. 23

?


Examples:Data on Fees Provided to Card Companies - UA

P. 24


Examples:Data on Fees Provided to Card Companies - AA

P. 25

?

?


Everyone is working towards a solution – But Not Together!

P. 26

Developing EMDs

Working to introduce standardized codes for

ancillary fees

has set a deadline to standardize fees

in 2012

GDS’s

are looking at building merchandizing platforms


Everyone is working towards a solution – But Not Together!

P. 27

No tie back to the original ticket number no reporting

Some airlines say that 90% of travelers would agree to pay for these fees at the time of booking through their travel agency

Easy for them to say

And who handles refunds?

Agencies may very well charge their own fees in order facilitate the myriad of airline’s fees purchased through them


There is no silver bullet

P. 28

Standardization across the industry

Airlines sending the data in a standard format differentiating for all types of fees

The data needs to be the same regardless of source

Travel policies redesigned to account for these fees

But a good solution has to include:

For AirPlus, we want to increase the transparency of customer’s travel data for effective cost control.

We would like to see an industry standard as this would allow us to provide the necessary data needed to match a fee with the original ticket.

Agenda




4. Q & A



What are your thoughts?

P. 30

Is it important to you to have visibility into these fees?

Are all fees of equal importance?

What information do you need and what will you do with it?

Who needs information regarding fees?

Where will the decision to accept a service for a fee be made…during the original booking process, pre-trip, during the trip or on-board?


What are your thoughts?

P. 31

Do you want to be able to charge fees back to a lodged/ghost card?

Is it important to you to be able to negotiate these fees?

Your average ticket price may stay the same or even decline but the total cost of air may go up.

How do you explain that to your CFO?


Voice your opinion

P. 32

Remember that YOU have a voice!

As nothing has yet been resolved, we ask for you to share your ideas with the industry.

Talk with your vendors.

Urge for a common solution to be found to resolve this issue

Sooner rather than later!

Encourage the development of a total cost calculator to provide greater transparency to what fees would be charged - help make better buying decisions.

Agenda




4. Q & A


WHAT TRAVEL PAYMENT IS ALL ABOUT.

Q & A

Thank you!

Matthew TalbotBusiness Intelligence & Technology ManagerAirPlus International, Inc.

[email protected]


Michigan BTA

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