Sky high credit surcharges

Airlines are charging customers disproportionate credit card booking fees.
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02.What about Virgin and Jetstar?

Competing airlines also have high surcharges, but they’re not as bad as Qantas or Tiger. All the fees discussed here relate to credit card transactions and include GST; they can often be avoided, with zero or different fees sometimes applying to internet banking, debit cards and other payment methods:

  • Jetstar $3 per sector per passenger for domestic flights; $5 per sector per passenger for international flights.
  • Virgin Blue $3.50 per flight per passenger for domestic trips, and $6 per passenger, per flight, for international. These fees apply to Visa, MasterCard, American Express and Diners Club transactions.

So with both airlines, if you book a return flight, the fee applies twice for each passenger on the booking. This means a family of four on a domestic return flight, for example, would pay $24 and $28 surcharges respectively even for a single credit card transaction.

"No justification"

The major credit and debit card schemes, MasterCard and Visa, see no basis for high surcharges * which obviously discourage consumers from using their cards. When asked about airline surcharges, Chris Clark, Visa's General Manager for Australia and New Zealand, says some merchants have turned surcharging into a "profit centre". "There is no justification for merchants to impose surcharges that exceed their cost of accepting cards. If a merchant does apply a surcharge, the amount should be clearly disclosed at the time of purchase and it should bear a reasonable relationship to the merchant's cost of accepting a card for payment."

Eddie Grobler, Executive Vice-President, MasterCard Australasia, agrees that some merchants are surcharging to generate an additional revenue stream. "Indeed, many merchants that surcharge for card payments do so when cards are the only form of payment available to the consumer. This fee is often completely disproportionate, and in many cases unrelated, to the cost incurred by the merchant for handling the card. Some merchants have been known to charge up to 10% extra for accepting a credit or debit card."

MasterCard is calling on merchants to remove surcharges, or at least reduce them to resemble the cost of accepting cards * typically less than 1% of the value of the transaction.

Action needed

Surcharging is an outcome of payment system reforms that bring interchange fees – a large part of the cost to process credit card transactions – out into the open. Previously, card schemes were able to charge merchants whatever they liked, and imposed a “no surcharge” rule whereby retailers weren’t allowed to pass on those costs to consumers as explicit fees. Retailers were effectively forced to hide these costs on behalf of the card schemes in the overall price of their goods and services. And while the majority of industries have chosen to continue to absorb and hide interchange fees, at least they’re lower than before – a good thing, as these costs are ultimately borne by consumers.

To date, relatively few industries have chosen to explicitly surcharge customers for making credit card payments. When they do, they’re required to disclose that fee. Theoretically, such surcharges should be subject to competitive pressures, but in the case of airlines, and taxi companies which are adding a 10% surcharge, the system seems to have broken down.

In 2008, the Reserve Bank of Australia stated that "there are some cases where surcharges appear considerably higher than these (merchant service) fees. This latter outcome is likely to reflect the market power of the merchants concerned." There’s no doubting the market power of some of these airlines – particularly Qantas – and an argument is building that unless they reduce their fees, they should be prevented from charging them.

Avoiding these fees

  • Ask the airline about payment methods where surcharges don’t apply.
  • Consider going through a travel agent or website that doesn’t apply surcharges, if the overall price is right.
  • If you feel that you were charged a credit card merchant fee that wasn’t disclosed before the transaction went through, you can appeal it. Contact your local fair trading department for details.

To see the Merchant fees for credit and charge cards, visit the RBA website.


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