from www.btnonline.com BA Nets Out Card Fees: Amex De-Lists BA As Preferred In Response By Amon Cohen JUNE 24, 2002 -- Corporate clients in the United Kingdom are considering ditching American Express as their card provider and even switching business from British Airways as the two travel giants face off over merchant fees on corporate net fares. Buyers also fear that BA's refusal to accept the merchant fee on net fares is the thin end of a wedge that will see more airlines take similar action for a widening range of fare types. Amex and BA temporarily stepped back from the brink of all-out legal hostilities over the issue last Wednesday, when Amex dropped the 30-day deadline in its threat to terminate its merchant agreement with the airline. Amex said it would not end that relationship with BA on 30 days notice unless the U.S. District Court rules that it is entitled to do so. In return, BA dropped the piece of its lawsuit in which it sought an injunction to prevent the termination. While the two parties continue discussions to resolve the issue, the case still goes on against Amex for breach of contract by making the threat that travelers would not be able to buy BA tickets with an American Express card. The long-standing partners market a co-branded charge card in the United Kingdom, but Amex believes its agreement with BA prevents the airline from refusing the merchant fee on any fare type. However, despite the temporary cooling of the argument, BA and Amex already may have done sufficient damage to each other to lose business for both parties. "This is a serious issue for some of our members and they are looking at their airline and card contracts," said Loraine Holdcroft, executive director of the Institute of Travel Management for the U.K. and Ireland. Jim Tweedie, Carlson Wagonlit Travel executive vice president for northern Europe, said: "A number of our clients with Amex cards are considering their options to see if there are better alternatives." Corporate buyers are angry with BA for refusing any longer to absorb the merchant fee on corporate net fares. The new policy, which came into effect June 1, means travel agents will pick up the tab instead and pass it on to their clients. Corporate buyers therefore regard BA's policy as an indirect price increase, averaging out at about 2 percent. They also are angry with BA for not consulting with them before announcing the decision. Amex has positioned itself as the corporate buyer's champion over the issue, but it may end up the loser if clients decide it is easier to switch cards than to drop the U.K.'s dominant airline. Amex is believed to charge BA a merchant fee that is more than double what is demanded by credit card companies—somewhere between 2.5 percent and 2.8 percent for Amex, compared with 1.2 percent for Visa and MasterCard. With agencies now passing these fees on, Amex suddenly appears an expensive option to corporate travel buyers. The only travel management company not passing on the merchant fee for whichever card its clients happen to use appears to be American Express. It instead is charging a flat handling fee of 2 percent, less than the merchant fee for its own card but more than the merchant fee for Visa and MasterCard. Along with Amex's travel management company de-listing BA as a preferred supplier, this raises accusations that American Express is putting the interests of its card business before those of its travel management company's corporate clients. Asked why it is imposing a blanket 2 percent handling fee instead of varying according to the client's card type, an Amex spokesperson said: "It is a cost pass-along. The fee covers both the direct cost of being the card-accepting merchant, plus the additional administrative costs associated with that role." A representative from BA expressed the airline's disappointment about its de-listing as a preferred supplier, which was confirmed by other sources. Those sources speculated that corporate clients of the travel management company that do not have their own direct deal with BA will be steered toward other carriers when booking flights. The origins of the merchant fee controversy lie in the Future Shape and Size review. This overhaul of corporate strategy, announced by BA's executive board on Feb. 13 to stem its growing losses, set a cost-savings target of $960 million per year, of which $150 million was to come from distribution. The airline accordingly made further reductions to its already minimal booking payments to U.K. travel agents, increased its drive to distribute through the Internet and announced that it no longer would absorb the merchant fee on card payments for net fares. The one exception to this is Basys, BA's own version of the UATP card. Although the effective price increase has been much smaller than several fare hikes imposed by BA in recent years, the anger it has generated among U.K. corporate buyers has been immense, as much for the delivery of the decision as its practical implications. "Our accountant looked at it, put a red line through it and said, 'That's coming straight off my bottom line,' " BAE Systems travel commodity manager Martin Searle told a recent Association of Corporate Travel Executives forum—staged, ironically, at BA headquarters in London. "Now, I need to prepare travelers for an increased transaction fee on BA tickets. As a major corporate client, no one from BA knocked on my door and said, 'We've got a few problems—any ideas?' " Equally unhappy is Kevin Watts, chairman of the Business Travel Liaison Group, which represents more than 20 of the U.K.'s largest travel buyers. "BA is shedding its own costs and transferring them to the customer," he said. Developing the theme, Tom Stone, director of travel management for Universal Music International, has written to BA to complain, as have several other corporate buyers, that the airline changed the rules in mid-contract and has hurt its biggest customers. "Our agreement was made with the merchant fee taken into consideration," Stone said. "We are all being squeezed by the current economic climate and this punishes those who support BA most loyally." Travel managers in the United States also are getting involved. "We have had discussions with BA and have indicated we are not happy unless they work something out, which they are indicating is possible," said Kevin Brady, Merrill Lynch vice president of global travel services in New York. "We have not yet come to an agreement." Despite their anger with BA, many observers believe corporate buyers are more likely to attempt to negotiate back the de facto price increase in subsequent deals rather than drop BA as a supplier. Instead, it is card companies, especially those that charge the highest merchant fees, that are more likely to suffer. "My travelers do not care about the color of their card, but I would have a lot of dissent if they were told they had to change airlines," one travel manager said. Other travel managers have complained that the influence of BA's Executive Club loyalty program remains so strong that they would be unable to switch business from the airline. In defense of its decision to drop the merchant fee, BA manager for corporate sales in the U.K. and Ireland Stephen Humphreys admitted the airline had raised prices for customers. "In the first place, yes, it will be a transfer of cost to the corporation," he told the ACTE forum, "but I would like to think that in time the transparency it brings will help the whole industry to reduce costs." BA also has pointed out that it has not accepted the merchant fee on corporate net fares in Australia, Mexico, Singapore and Thailand for several years, although these are insignificant markets compared with the United Kingdom. In response to its protests about not being consulted, the airline has resorted to a familiar defense of not being allowed to signal financial changes to stock markets. While the wrangle continues between BA and Amex, travel management companies are carrying out urgent analyses for their clients to assess the new cost of their chosen card provider. An Amex spokesperson expressed confidence that clients would remain with the card because of the advantages it offers, particularly in terms of enhanced management information. The prevailing view in the U.K. travel industry also is that corporations that rely largely on the Amex card for their management information will stay loyal. "The Amex card is fundamental for the way we operate," one travel manager told BTN. Agents also are preaching that cards in general are the most efficient and effective way to handle travel payments. However, there are fears that more airlines will emulate BA and that the refusal to handle merchant fees will spread to published fares. "How much is this a toe in the water?" asked BTLG's Watts. "Is it in BA's mind not to accept merchant fees period?" Another senior travel industry source said, "This will spread to other airlines and other types of fare." Tiffany Hall, BA general manager for sales in the U.K. and Ireland, said there were no plans to refuse the merchant fee on other fare types. --------------------------------- Do You Yahoo!? Sign-up for Video Highlights of 2002 FIFA World Cup