Yahoo Finance Why credit card charges hurt the travel industry
January’s travel sales are still in full swing. This weekend, Cathay Pacific has a flash sale offering Perth in Australia from London or Manchester, via Hong Kong, for £569 return.
For the equivalent of eight days’ work at the National Living Wage, you can fly almost 20,000 miles, accompanied by food, drink, in-flight entertainment and 30kg of checked baggage.
But anyone booking a trip this weekend may be forgiven for fearing they might get an unwelcome shock closer to departure.
Customers of Value Added Travel, a Croydon holiday firm, have this week received a letter saying: “Due to changes in global economic conditions, there will be an additional fee of £15 per person added onto every booking from 13 January 2018 to compensate for changes in taxes.”
The letter is signed by JK Mesuria, managing director of Value Added Travel, who gave me a miscellany of reasons for surcharging travellers: “Costs have grown astronomically. We’re getting sickness claims left right and centre. VAT has been added in the UAE.”
The Package Travel Regulations require tour operators to absorb up to 2 per cent of the total holiday cost before applying a surcharge; Mr Mesuria told me the average booking was worth £5,000, so the levy is well below 1 per cent.
ABTA, the travel association, was unimpressed. A spokesperson said: “Any attempt to surcharge on a package holiday without following the regulations would be illegal.”
“If you look at our terms and conditions,” countered the Value Added boss, “we can do this, as long as we give people warning.”
It may be coincidence, but this weekend new European rules on credit and debit card charges take effect. They are intended to put an end to credit card surcharges, which until now have been 2 per cent or more. Under the new EU regulations, known as Payment Services Directive 2, the customer can choose how they pay without penalty.
Well, that was the idea. Given a choice, a rational consumer will always pay with credit card, because it helps personal cash-flow and provides extra protection. The new legislation doesn’t take cost out of the system, though; it just shifts the charge from customer to retailers. Transaction costs will increase overall in line with the inevitable switch from debit to credit cards.
The extra fees come out of the travel agent’s profit margin. A fashion store with a mark-up of 50 or 60 per cent might barely notice a 2 per cent credit card fee. But in the very marginal constituency of travel, the levy represents a large slice of 10 or 12 per cent commission.
For travellers, the consequences of the new rules could be as unwelcome as they are unintended. Last week I revealed that Iglu, the UK’s leading independent cruise and ski agent, had told some customers that payments by credit or debit cards, rather than by bank transfer, “will incur a £25 handling fee per transaction”.
Iglu customers were unimpressed. One told me: “It discriminates against the many who still do not have access to computer banking.” Others were annoyed at the extra faff, and concerned about the security implications.
Please try harder, demanded customers – and it appears that Iglu has done so. Richard Downs, the firm’s chief executive, told me: “We’ve found another solution, which is based around electronic funds transfer.”
Customers with a balance to pay are sent a web link. To minimise mistakes, key details are filled in: Iglu’s bank account and the balance to pay.
“All the customer needs to do is put in their sort code and bank account number, and press go,” says the Iglu boss. The payment is protected by the direct debit guarantee scheme, as opposed to a bank transfer which involves sending hard-earned cash into a cybervoid.
Rivals will watch closely to see how Mr Downs’ cunning plan works out. In the long run, it could benefit travellers and the industry by reducing the money leaking out of each transaction from travel to banks.
Meanwhile, if that trip to Perth for £569 appeals, you’ll need to book by Wednesday and travel from mid-April to mid-June, late August to late September, or in the five weeks from 1 November. But go ahead and put it on plastic: Cathay Pacific will not charge you an extra Australian cent.
