Do you find it annoying when you go online to book a flight and the airline wants to charge you a fee for booking?
On a recent trip, Virgin Australia Holdings Ltd (ASX: VAH) charged $7.70 (including GST) as a booking fee for each passenger, simply because we paid via a credit card.
Qantas Airways Limited (ASX: QAN) charges a similar fee for domestic travel within Australia but ramps it up to $30 (before GST) for a credit card payment for an international flight. Qantas subsidiary Jetstar and Virgin subsidiary TigerAir both charge $8.50 (again before GST).
Well, their days may be numbered after the Federal government today agreed with the recommendations of the David Murray-led Financial System Inquiry (FSI). The Inquiry recommended the government simplify and lower interchange fees to reduce costs to merchants and prices for consumers. Specifically, the inquiry wants to prevent merchants from over-surcharging customers paying with credit and debit cards.
Some banks charge higher interchange fees (fees they pass on to other banks and then to merchants) to offset the cost of providing value-added services to their credit cards – such as frequent flyer points, travel and purchase insurance, and other benefits.
In the case of the airlines, the FSI specifically identified that the fees charged are higher than the airlines cost of accepting credit card purchases on most purchases. While the airlines have introduced a number of payment systems that don't attract surcharge fees, such as POLi, BPAY for bookings at least 7 days prior to departure and credit vouchers, both Qantas and Virgin charge fees for debit and prepaid cards used to book flights.
Virgin defends its fees by stating on its site that the booking fee "…covers a range of costs, activities, fees and charges in relation to the booking, including (among other things) the reasonable costs of accepting card payments". They also refer to it as a 'Booking and Service' fee, suggesting there are other costs besides covering their costs of processing.
Unfortunately for the airlines, those days may be coming to an end, and they will either have to incorporate those other 'fees' into the cost of a ticket and cut the credit card processing fee, or layout in detail what the fee covers.
Foolish takeaway
I expect both Qantas and Virgin to take the news seriously and take some action to lower or change their booking fees.
Another bonus for Australians is that a minimum spend limit (e.g. $10 minimum spend) via a credit card for some smaller merchants could disappear, allowing us to make small purchases on credit.
