Aussie airlines accused of credit card fee gouging

By Vanessa Tripodi

You may curse and grumble when you look at the accumulation of fees at the end of your credit card statement this month, but your anger might just be misplaced if you've been jet-setting recently. Consumer group Choice has cited examples of Australian airlines making up to a 500 percent profit from credit card fees charged to passengers booking their flights.

Choice found that airlines such as Qantas and Tiger use a set fee rate for credit card transactions, where almost all other merchants will charge a percentage of the credit card transaction. Where the interchange fee for a Mastercard transaction is 0.88 percent and a Visa card 0.6 percent, even if airlines were to charge just 1 percent of the transaction fee, they should easily be able to cover most of their costs.

Instead passengers booking short, domestic flights are often subsidising the fees for first class and international customers. Qantas charges a flat fee of $7.70 per passenger for domestic bookings and $25 for international fares, while Tiger Airways will charge you a $6 "convenience fee" per person, per flight when you pay with your credit card. Choice are also questioning the credit card fees from the airlines as they are taking the opportunity to charge their passengers multiple times for the same flight and the same transaction. Where a fee is charged per person per flight, for a family of four booking their tickets, all seats are likely to be booked and paid for in one transaction, which is surely not worth a processing fee for each seat's purchase.

In a statement by Qantas, the airline denied fee gouging and stated that the fees they charged did not allow them to derive any net revenue from the transactions, and their fees were actually less than they had to incur to accept the credit card payments. However, for a family of four booking flights worth $1,000, Qantas are making a 180 percent profit from their fees and Tiger would collect a 380 percent profit, hardly numbers equivalent to their own processing costs.

The airlines also don't see themselves as the culprits of any wrongdoing as their fees are disclosed on their Web sites and at the time of booking. This is also one of the reasons a Qantas spokeswoman gave for charging customers a flat fee -- it is easier to provide transparency when disclosing flat fees and charges in advertising. Tiger Airways also told Choice that their fees were consistent with the administration costs and the necessary costs to cover security, fraud prevention and bad debt.

The per person, per flight charges the airlines are passing onto their customers are just another example of the free-for-all that was created in 2003 when the Reserve Bank of Australia lifted the prohibition on credit card transaction fees being passed onto the consumers. The exorbitant fees also belie the airlines' specials and sales, as passengers on short flights may be paying almost as much in fees as they are for their seats.

Australians gravitate towards using their credit cards for payments such as flights for the security that comes with the transaction. Not only is there a clear paper trail if the airline loses your booking, but you can also feel confident booking flights over the phone or Internet when you are able to pay with your credit card. Not to mention the fact that a number of credit cards offer attractive rewards schemes and collecting points is easy when you are booking flights.

Article by Vanessa Tripodi

Published: October 9, 2009