Paying $9 for a 30¢ service

Expensive ... a return booking online for a family of four on Ryanair costs an extra $72.
Expensive ... a return booking online for a family of four on Ryanair costs an extra $72. Photo: AP

Unpopular credit and debit card surcharges imposed by airlines are under investigation, writes Clive Dorman.

Charging for services that used to be free is more than a fashion: it has become essential to the profitability of airlines, an industry that has spent much of the past decade racking up large losses.

But, if so-called ancillary revenue is now the financial salvation of airlines, regulators have also begun pushing back, in particular against those that impose large surcharges for financial transactions that cost a few cents to complete.

For travellers, protecting against price-gouging for ancillary services will become more important.

But let's not forget the bigger picture: air travel is as safe as it has ever been. According to an analysis by the US-based Flight Safety Foundation's Aviation Safety Network (aviation-safety.net/index.php), there were 507 aviation deaths last year as a result of 28 fatal accidents. The ASN says 2011 was the second-safest year by number of fatalities and the third safest by number of accidents.

The chief executive of Ryanair, Michael O'Leary, insists the airline's card surcharge is a legitimate 'administration fee'.

However, at the commercial end of the business, it's as hard as ever to make a buck, which explains the irresistible rise of low-cost carriers (LCC) in the past decade and the subsequent propensity among LCC and full-service carriers to charge ancillary fees.

The Australian Competition and Consumer Commission (ACCC) will be watching as the British government becomes the first - ahead of the European Union's consumer protection rules due in 2014 - to ban credit and debit card surcharges by retailers, including airlines, by the end of the year.

The senior director of Britain's Office of Fair Trading's Goods and Consumer Group, Cavendish Elithorn, said last year: "You can't buy online with cash and people are frustrated about being asked to pay for paying."

Card surcharges imposed by airlines are one of the biggest sources of complaints to the ACCC and Australia's state-based consumer affairs departments. The industry knows this: AirAsia founder Tony Fernandes conceded in an interview last year that its card surcharge was the airline's most unpopular ancillary fee.

One of the British government's main targets for its card-fee ban is Europe's biggest airline, Ryanair, which charges £6 ($9.06) a sector - $72 for a return booking for a family of four - for using a credit or debit card. Ryanair uses the same loophole as Australian airlines such as Jetstar and Tiger: consumers can avoid the fee by using a card such as MasterCard or other forms of payment. This, in turn, creates a penalty for most people, who use other credit and debit cards, such as Visa and American Express. In any case, the impost is higher than that imposed by retailers, who normally charge 1 per cent to 2 per cent of the transaction value. The real cost of a debit card transaction can be as little as 30¢.

Nevertheless, the chief executive of Ryanair, Michael O'Leary, has indicated he will take on the British government in a legal test case. He insists that the airline's credit card surcharge is a legitimate "administration fee".

In the US, the Department of Transport is also cracking down on practices that, until now, have allowed airlines to avoid declaring total taxes and charges on fares. New rules for US carriers take effect on Thursday.

 

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