Rising Fuel Costs Pit Airlines against Credit Card Companies Toronto summit to discuss new payment methods for airline ticketsThursday, March 27th, 2008
Pittsburgh Airlines face slim profit margins because their high fixed costs of labor, equipment and fuel leave them few cost-cutting options. In the face of record-high fuel costs, Airlines have identified credit card fees as their largest controllable cost and are encouraging their customers to pay them with alternate payment solutions, which offer them significantly lower payment fees than traditional credit cards. Conversely, airlines earn billions of Dollars each year from their own co-branded credit cards, which offer customers frequent flyer miles for purchases. The first Airline Payment Summit to be held April 9 – 10 in Toronto will bring together airlines, alternate payment solutions and credit card companies to discuss this complex landscape of airline payments.
According to the International Air Transport Association (IATA), the industry as a whole earned an estimated $5.6 billion U.S. Dollars in 2007, which represented a 1.1% net margin on sales of $490 billion. At the same time, a recent study by Edgar, Dunn & Company and the Airlines Reporting Corporation (ARC) revealed that passengers pay for their airline tickets 83% of the time with credit cards with fees averaging $12 per ticket, costing the industry $1.5 billion annually. In an urgent attempt to reduce this figure, the websites of many airlines are now crowded with a variety of lower-fee payment options, including Bill me Later, PayPal, TeleCheck and Western Union. For business travelers, who tend to book through corporate travel agencies, airlines are encouraging the use the world’s first credit card, UATP- a payment solution for travel purchases that is gentle on fees, since UATP is owned by the airline industry.
Michael Smith, Airline Payment Summit Chairman and Director of the U.K.-based consultancy SeaMountain, says: While on the one hand airlines work to cut traditional credit card payment costs, on the other, mileage-earning co-branded credit cards generate huge amounts of cash for both the airlines and the issuing merchant banks.â€? Smith continues: “Airline co-branded credit cards are among the most profitable cards for banks due to emotional behavior driving customers to collect more and more miles.â€? For each mile that a customer is given by a credit card issuer for purchases, the airline receives a payment of generally between one and two U.S. Cents. For a large airline, this can add up to hundreds of millions of revenue in a single year. The Airline Payment Summit will therefore discuss the question of whether airlines should receive a reduction on credit card fees, since they drive the majority of their direct sales through the credit card channel, while also generating unmatched profits for credit card banks through airline co-branded cards. The event will also examine payments from the point of view of card issuers, which are questioning the value of the frequent flyer miles which they purchase from airlines, since available frequent flyer seats are becoming scarcer and scarcer.
The duality of airline payments- reducing payment costs, while also increasing payment revenues from co-branded credit cards, will be high on the agenda of Airline Payment Summit, which will also present other important payment-related issues for airlines, including barter, fraud, information security, onboard payments, multi-currency payments and more. Event Sponsors include American Express, Bill Me Later, BizXchange, eBillme, Eurocommerce, Global Collect, Guestlogix, PayPal and UATP.
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