Qantas and Virgin say credit card surcharges don’t recover full cost of processing payments

Airlines have defended their fees for paying with credit and debit cards. (Petr Kratochvil/Wikimedia Commons)
Qantas says credit and debit card processing costs are “material”. (Petr Kratochvil/Wikimedia Commons)

Consumers are not the only ones being stung with paying by credit card, with Australia’s two major carriers telling a Senate committee their surcharges and booking fees recover less than the reasonable cost of processing credit card payments.

Qantas group executive for government and international affairs Andrew Parker said credit and debit card processing costs were “material” and went beyond merchant service fees, covering fraud prevention, equipment, infrastructure and people costs in addition to “substantial investments” in developing technologies.

“Overall, Qantas recovers less than its total of card acceptance through card surcharges,” Parker told the Senate Economics References committee in Canberra on Monday.

“In fact in 2014/15 our analysis has shown and I am happy to share with the Senate today, Qantas recovered 81 per cent of its reasonable cost of card acceptance as defined by the RBA’s guidance note.

“Unfortunately this point is consistently ignored by Choice and other voices.”

Parker said about 10 per cent of Qantas passengers and one-third of Jetstar passengers paid for their flights via a fee-free payment option. Further, the lowest Jetstar fares had the highest number of fee-free payments.

Also, the cost of processing credit card payments varied between card types. While the often quoted figure is that merchant processing fees were about 0.81 per cent for Visa and Mastercard, Qantas head of sales and commercial planning David Orszaczky said the airline paid “significantly more than that”.

“We believe that the average across the market of 0.81 is heavily weighed down by a number of large retailers, particularly the large grocery chains who would be paying well below the average figure,” Orszaczky said.

“In Qantas’s case, the average merchant service fee that we pay is a factor of the mix of the different types of cards that are used.

“The vast majority of cards that Qantas would accept for Visa and Mastercard are not standard cards attracting the lowest level of fees but they are at the higher end of the fees that are passed on by Visa and Mastercard.”

Virgin general counsel and group executive for corporate risk Adam Thatcher had a similar story for the Committee, saying its booking and service fee was not a credit or debit card surcharge but instead covered a broad range of costs related to the booking process such as the merchant service fee, fraud protection and IT infrastructure.

Also, like Qantas, Virgin incurred higher costs for processing credit and debit card payments than other merchants.

Thatcher said the airline negotiated the rate of the merchant processing fee “as hard as we can” with the banks. However, the airline had “very little control over them”.

“It is a significant number of millions of dollars that we are out of pocket by,” Thatcher said.

“These costs exceed the revenue collected by the fee by a material amount.

“There are significant costs to processing credit card payments.”

Prime Minister Malcolm Turnbull said in October the government planned to limit the cost of credit and debit card surcharges to the cost of processing those transactions from July 2016.

Summary of credit card booking fees for Australian carriers
Virgin Australia

$7.70 per person per domestic booking
$10 per person per short-haul international booking
$30 per person per long-haul international booking

Jetstar

$8.50 per passenger per domestic flight
$8.50-$12.50 per passenger per international flight

Tigerair Australia

$8.50 per person per domestic flight
$12.50 per person per international flight

Qantas

$7 per person per domestic or trans-Tasman booking
$30 per person per international booking

All airlines also offer at least one fee-free payment option such as POLI or direct debit

(Source: airlines’ website)

Comments

  1. says

    I seriously doubt this is correct. Three points:
    1. I took my family of five trans tasman on QF and was charged $7 per person. A quick bit of addition tells you that is $35. All processed on one card at one time for one flight. If its costing them $35 to process a card there is a very serious problem.
    2. I work as a consultant to retailers. The cost to process cards is much less than the numbers claimed above for the clients I deal with. There must be a systematic problem with the processes, measurement or costs. I suspect is related to internal costings.
    3. The negotiations with banks etc., appears especially weak. They should seek an industry solution and strike a better arrangement. As it’s a pass through cost/profit centre it probably gets little attention.

    I get around it by using BPay where possible.

  2. David Pennycuick says

    I’m sorry but I just don’t believe them….
    Why would the cost of accepting CC payment be so much more for an airline than for any other business. Their testimony in the Senate simply does not ring true.
    What would have surprised me would have been if one of the airlines stood up yesterday and admitted that they had been sprung gouging.

  3. Raymond says

    “We believe that the average across the market of 0.81 is heavily weighed down by a number of large retailers, particularly the large grocery chains who would be paying well below the average figure,” Orszaczky said.

    What I don’t understand is, wouldn’t the airlines be considered ‘large’ businesses as well? Why can’t they also leverage some of their buying power to get a better deal with the banks? Wouldn’t there be a large volume of transactions with Qantas and Virgin, just as there is with Woolworths and Coles?

  4. Keef says

    I agree with Mal and David, I to booked 3 people on the same flight in one booking and was stung the per person credit card fee not a one of credit card fee, $90.00 as against $30.00.
    Can our senators be so stupid that they cant see this? Sorry I forgot, I am talking about politicians here, yes they can be so stupid as not to see this if they did surely they would ask the question of the counsels.
    Perhaps the counsels for the airlines should bring this to the attention of the senate inquiry, whoops silly me, once again my mistake, they are acting on behalf of the airlines so why would they point out this.

    It is disgusting that the airlines continue gouging the traveling public.

  5. Dave says

    Its clearly a gouge and they know it. Its like keeping the fuel surcharge the same even when fuel prices have dropped. And you wonder why people are choosing other airlines instead of QF/VA for international travel.

    How come I can spent $200 on groceries and no charge, but I but a $200 flight and it costs be $7 or more extra.

  6. Liam says

    Ok so the equipment, infrastructure etc behind it is more than they recover… Even if I buy that, how does it compare to the old days where they had to have offices and staff on every corner to take bookings and payments? My bet is its significantly lower. It’s a cost of doing business and should be built into the base base and advertised as a total price, don’t tack it on when the sale is nearly done as a surcharge.

  7. Mike says

    A $7.70 fee on a $59 fare is clearly a price gouge. That’s even more than taxis add to a fare for using a credit card!

  8. BH says

    Even if they were in the ‘wrong’ would you expect them to admit it..?
    I’ve had a similar experience. If I was to book a $1500 ticket for one person you are hit with one payment fee. On the other hand if I was to book three seats for a total of $1500 and make the one payment I would wear three payment fees. It’s not as if they are making three separate transactions on my one card. If they were forced to do that then I would understand to some extent.
    Whoops.. I think I just gave them an idea on how to keep doing it after a rule change…

  9. Michael Angelico says

    As a business owner I can tell you that the airlines are correct – merchant fees are a heck of a lot higher than Choice say they are. IT infrastructure is a major cost too, and practically needs round the clock staff support because it’s non-standard. Work that out at $120k/year for specialist IT staff. Charging a separate fee on each ticket in a transaction is a bit rich but don’t get the idea that anyone can get fat on card surcharges.

  10. Simon says

    Like any addict, the airlines will tell what ever lie they can to ensure they continue to get their fix!