TRAVEL

The airline's attempt to pass along credit-card fees has angered agents and may signal a wider conflict looming over ticket distribution

As U.S. airlines seek to cull every last cost from their operations, travel agents are gearing up for what one agent calls a "battle royal" over a recent decision by United Airlines (UAUA) to pass along credit-card processing fees to 28 travel agencies. Those costs, which amount to 2% to 3% of the price of an airline ticket on average, are currently paid by airlines as part of the ticketing process. Wall Street is eager to assess whether United's move will prove successful, given that shifting such costs to agents and fliers could represent billions in savings across the industry.

Agents argue that United's card-fee experiment makes no logical sense because such a small agency group will not yield much in cost savings for such a large carrier. Instead, some agents contend the airline is hoping to spark an industry-wide assault on distribution costs, with travel agents' card fees merely the first front.

In a July 17 letter responding to 13 members of the U.S. House of Representatives who expressed concern about the matter, United says its change is limited and "in no way was intended to be a broad move in the marketplace, as has been interpreted by outside organizations." The Chicago airline also agreed to offer a 60-day extension on the fees to agencies that request one. Senators Ron Wyden (D-Ore.) and Jeff Merkley (D-Ore.) also wrote to United CEO Glenn Tilton in the past week, urging him to delay the program.

The company's new stance on card fees is designed "to improve travel agency performance and to more closely align them with us, to create a relationship that is mutually beneficial," United spokesman Robin Urbanski says.

Driving Sales to Airline Web Sites

Ending the payment of card-processing fees to agents is likely to force many of them to book United tickets on the airline's own Web site. "It would be a pain. But yeah, it could be done," says one Colorado agent, who declined to be identified because she is negotiating with United over the issue. "Ultimately, I think it might all go to that."

Airlines have long sought to drive sales to their own sites as a way to control costs, and much of the leisure travel business has migrated there. Indeed, Southwest Airlines (LUV) controls virtually its entire ticket inventory by largely restricting sales to its Web site. However, corporate travel remains largely the purview of travel agencies or, at larger corporations, internal booking systems overseen by agents or agency-affiliated travel management companies. The American Society of Travel Agents says its members generated $69 billion in sales for airlines last year, much of it in corporate travel, where companies have designed an array of cost controls on employee travel.

"At some point, consumers are going to figure out what’s going to happen to them and they’re going to rebel," Paul Ruden, senior vice-president for legal and industry affairs at the agents' trade group in Alexandria, Va., says of rising travel costs.

ASTA says United's campaign could ultimately force agents to accept liability for an airline's failure to perform if the merchant relationship changes and the agent is no longer an intermediary, but the vendor responsible for the service. Indeed, that issue—and whether United's change may alter consumer protections in the Fair Credit Billing Act—appears to have piqued the interest of some in Congress. Agents envision a worst-case scenario in which they are left as unsecured creditors in an airline bankruptcy, with scant recourse to recover money they have already paid the carrier. United says that won't happen.