Patrick W. Diemer, Managing Director & Chairman of the Executive Board, AirPlus International

As the managing director for a leading corporate payment provider, I have an opinion about credit card economics that might surprise you. Most of the discussion in the media and amongst corporate customers today focuses on what (and how) the airlines are doing to pass along card fees. However, a fair debate on this subject would require an understanding of why? Now more than ever, airlines are looking for areas to save costs. So it’s logical that distribution and payment would be a part of this savings equation. And while I understand the somewhat inequitable card economics, I think there are smarter ways to leverage the playing field than blanketed surcharging.

I believe the genesis of the merchants’ frustration is that the level of fees charged by most cards exceeds the perceived value. In fact – it is one of the economic realities that the merchants pay the bill: Their proportion is nearly 90 per cent of the total credit card cost – only 10 percent are being paid by the card holder. And this revenue generated is usually used to fund strategic loyalty building with the customer in the form of rewards, rebates and incentives. What’s not always clearly understood in the industry is that not all card companies are alike. Their fees are different, their level of rewards and incentives are different and importantly, their technological capabilities and comprehensive offerings are different. So why should cards all be treated alike?

The new reality is taking shape as I write. In parts of Europe and Asia-Pacific (Hong Kong and Australia, for example) credit card surcharging is already in place. In fact, GDSs in the Netherlands are now technically prepared to handle/display the surcharge fees. And this is not simply related to the major airlines worldwide, but merchants of every size and category from low cost carriers to ferries!

What does this mean for the end user, the cardholder or corporate customer? Certainly regression if they demand that their agencies to revert to paper invoices and manual processes. Customers would then be required to work without the benefits of a credit card-based payment solution to optimize costs and processes related to business travel. They would lose the enhanced invoice data, electronic data integration, global data consolidation and extended payment terms they’ve become accustomed to and have built their travel policy and budget around.

Further discussion is developing in the United States where United Airlines has said it will begin imposing heavy penalties on select travel agencies for continuing to use their merchant contracts after a certain date. These agencies must now become a merchant themselves and bear the credit risk while losing benefits such as improved cash flow and face higher bond liabilities.

So why would United in the US exclude UATP within their decision? First, as a UATP card issuer and merchant, they are well aware of the benefits the UATP card brings. It’s well-known in the industry as the lowest charging corporate payment solution because it’s based on the international airline industry’s own not-for-profit payment platform. As the leading issuer of UATP worldwide, AirPlus has optimized the global data processing and integration and proven to be the preferred partner by multiple airlines worldwide.

To conclude, I’d like to list a few airline benefits from a card-based payment system. These include the outsourced invoice processing, reduction of fraud and credit risk, as well as quick and timely settlement. I believe that airlines benefit greatly from credit card payments and that are indeed prepared and willing to pay for those benefits. Just not at the same scale as they pay today. They simply want to find a fair pricing that fits their cost savings objectives. I believe change is imminent and we’ve been assessing and researching this topic for some time. My proposal is a 50 / 50 share of card costs between the merchants and the cardholder or corporate customer which I believe is a fair allocation of costs. We have proposed that model to airlines and corporate customers alike and their responses are promising. With that in mind , I believe we’ll have new credit card economics which are smarter than surcharging.