Airlines raking in the money
CHOICE has looked at international and domestic flights and estimated that airlines take close to $900,000 a day in total surcharges, approximately $500,000 more than they should be charging. Annually, this means the airlines are over charging consumers to the tune of at least $180 million.
"Using a credit card shouldn't be an opportunity for airlines to fleece passengers at the online checkout. With surcharges ranging from $7 per person per booking through Qantas to $8.50 per person per sector through Tiger, consumers are paying more than they should,” says CHOICE head of media Tom Godfrey.
What should airlines be charging?
The average merchant service fee was 0.82% last financial year for the most commonly used cards on the market, Visa and MasterCard. For a big business like Qantas, the credit card companies would most likely have a better deal and offer a lower merchant service fee. We conservatively estimated that Qantas Group (Qantas and Jetstar) is surcharging roughly 1.825% - a full one percent above the average merchant fee - while Virgin Group (Virgin and Tiger) is charging roughly 1.91%.
In addition to charging in excess of their costs, the way the airlines charge the fees discriminates against lower paying customers. Behind the scenes, the credit card companies and the banks charge businesses a percentage fee for each transaction. But the airlines are charging customers a fixed flat fee, which means passengers booking lower cost fares are subsidising the fees of passengers who buy higher cost tickets such as business class fares.
"By our estimates, Qantas and Jetstar make up the bulk of the surcharge rip off, skimming at least $133 million a year," says Godfrey.
Rules are being abused
This gouging is still occurring, even after the RBA supposedly banned the practice: credit card surcharges are supposed to be based on the reasonable "cost of acceptance". However, our research indicates that excessive surcharging is still occurring.
Is change in the air?
But the RBA is considering altering the rules so businesses are limited in what they can pass on to their customers. It might also introduce penalties for businesses that profiteer from excessive surcharging.
This would be good news for consumers: "Without any enforcement mechanisms businesses can continue to gouge customers without any repercussions," says Godfrey.