United Airlines shifts credit card merchant processing to travel agents

United Airlines shifts credit card merchant processing to travel agents

United Airlines has put an "undetermined number" of travel agencies on notice that they no longer can use United's merchant processing system for credit card transactions, according to recent reports.

Travel Weekly, a national newspaper of the travel industry, reported the move in late June. A follow-up report on NorthJersey.com pegged the initial number of affected travel agencies as "maybe as few as a dozen," but travel agents and their advocates express concerns that the shift will become widespread, and possibly will spread to other airlines. United Airlines is the nation's third-largest carrier.

The American Society of Travel Agents is organizing protests against the move.

Representatives from the American Society of Travel Agents say United Airlines could shift up to $171 million in annual costs if the company undertakes a total shutdown of the availability of its merchant processing system. If other air carriers follow suit, the cost shift could exceed $1 billion per year. ASTA spokesmen say this could represent an increase of 2.5 percent to 3.5 percent in the cost of corporate travel, or about $20 for a typical reservation, added to the credit card fee.

"United told the agents that when accepting any credit cards for payment, they would have to use their own merchant accounts and settle with United with cash," states the June 24 report in Travel Week. "The carrier warned that the policy applies to any subagents using the selected agencies as their hosts. It also warned that erroneous use of United's merchant account on or after July 20 will result in a debit memo of $75 per ticket. United advised further that it was not considering allowing the selected agencies to pay for third-party access to its merchant account."

Airlines have received federal taxpayer bailouts and are heavily regulated. Therefore, the American Society of Travel Agents is urging its members and, for that matter, air passengers, to send letters of protest to the U.S. Department of Justice, Congress and President Barack Obama. Other protest targets are the major credit card companies and United Airlines executives.

One of the main points of the protest is that because the air travel industry is struggling, the credit card cost shift could place their merchant processing accounts and their customers at risk in case a company such as United Airlines suddenly declared bankruptcy.

United spokeswoman Robin Urbanski said, "Credit card processing costs are escalating at a high rate, and we need to explore ways to reduce expenses."

The key question is whether United Airlines stands to lose more revenue than it potentially could gain. Airline industry analysts are speculating that United Airlines is experimenting with the cost shift in order to measure the reactions and the results, and that other air carriers also will be keeping close watch.

Some travel agents are reporting on blogs that they will strive to avoid doing business with United Airlines. They also have the option of booking directly on United Airlines' Web site, but this could impair their abilities to undertake comparison shopping on behalf of their clients, or to arrange connecting flights with different airlines. Furthermore, travel agents say they now would be acting as merchants rather than agents, and would have to now deal with the Airline Reporting Corp. (ARC) in cash.

According to ARC records, more than 85 percent of airline ticket purchases are made with credit cards through merchant processing accounts, compared with fewer than 15 percent via cash transactions.

Travel agents already have endured cutbacks in commissions, requiring them to adopt fee-for-service models in which they charge their clients directly.

Published: July 23,2023