01.Qantas credit card surcharge - real cost or cost-shift?
Why paying with plastic costs when you fly Qantas
- $7.70 – Fee Qantas charges per passenger, per ticket paid by credit card for domestic flights.
- $30 - Fee Qantas charges per passenger, per ticket paid by credit card for international flights.
- $204 million – Estimate of Qantas' annual revenue from credit card surcharges.*
*Calculations based on Qantas Airways monthly traffic and capacity statistics for the 12 months to February 2012.
New CHOICE analysis estimates that Qantas is collecting at least $204 million per year in payment surcharges – the extra fee added for paying by credit or debit card online.
CHOICE is concerned that the Qantas payment surcharge could disguise the real cost of an airline ticket - that Qantas may be luring consumers by promoting a headline price that does not include all the revenue it is counting on. That is, cost-shifting from the headline price to the payment surcharge.
While Qantas may argue that the surcharge only recovers costs, there is no clarity around which costs are being recovered. If it is simply the costs imposed on Qantas by their bank and everyone paid by another means that did not attract a surcharge, there should be no impact on the Qantas bottom line.
Qantas is Sheriff of Nottingham - with wings
An indication that Qantas may be recovering far more than its costs is provided by Reserve Bank data. The latest RBA figures on merchant service fees shows that the average merchant service fee (MSF) paid by all merchants in Australia is 0.86% for Visa and MasterCard payments. It is reasonable to expect that a large company like Qantas is able to negotiate a much better deal than the market average. But even using the average MSF, the fee Qantas’ bank charges it to accept card payments (based on its net passenger revenue as an estimate of ticket sales) is closer to $94m, for the entire Qantas group. On this estimate, Qantas is being charged around $100m less by their bank than what Qantas is charging consumers in payment surcharges.
How the fees work
The surcharge is added to all payments made by credit, charge or debit card, apart from payments made by Debit MasterCard. While Debit MasterCard is more popular now than when it was first selected by Qantas as the payment method which then also satisfied component pricing requirements, is it still far from universal.
Having a surcharge free payment method is important as it means merchants do not have to include the credit card surcharge in the headline price. So while a merchant can meet their obligations under the Australian Consumer Law, there is a real need to question whether the definition of this requirement is a fair test and is meeting consumer expectations.
Qantas charges its customers a fee of $7.70 to pay for a domestic flight by credit card and $30 for international tickets. These fees are charged per passenger per ticket regardless of whether the ticket is one-way or return. The fee does not change with the price of the ticket nor by class of travel. The estimate of the total annual revenue Qantas makes from card surcharges is based on published passenger numbers.
However, we have had to make assumptions for both the number of passengers purchasing one-way and return tickets (30% and 70%) and also the proportion of flights purchased with a credit, charge or debit card that attract a surcharge (90%), because these figures are not publically available. We’ve only included estimates for Qantas domestic, QantasLink and Qantas International, so the figures would likely be far greater for the entire Qantas group.
A fair go
Airlines tell us that business is always tough, but consumers want a fair go. Consumers use credit and debit cards to buy flights because it’s convenient and secure, they earn reward points, and they can get free travel insurance.
While there are some surcharge-free payment options, the restrictions around timing (online transfer is only available seven days before departure) or availability (not everyone has a Debit MasterCard) mean that consumers do not always consider them to be an option. Consumers understand that there is a cost for all this, though expect the cost to be fair.
For more news, see Consumer news.