Advertisement
Credit Card Increases, Frequent Flyer Cuts

You'll soon be facing two new reverses in your ongoing struggles with travel suppliers. Although the preliminary indications are relatively obscure, they presage possible big new developments in the next few years. You need to start planning now.

Plastic Complication

Advertisement

Allegiant quietly initiated a new way of treating plastic. Its all-up fare displays now feature a "debit card" price; if you want to use a credit card, you pay an extra $4 per flight regardless of the base price. The fine print still lists a higher base fare, then subtracts a $4 "debit card discount," but the net effect is the same: You pay $4 more to buy with a credit card than with a debit card.

What's going on here? Airlines (and many other merchants) would like to avoid the fees that credit card issuers charge. For "card not present" transactions, including Internet buys, industry reports say those fees are roughly 2 percent of the transaction cost, although high-risk suppliers pay more. Debit card fees are lower at about half that figure. And even a 1 percent difference represents lots of dollars on the multibillion dollars in airline revenues. 

The reason for Allegiant's use of a "debit card discount" rather than "credit card surcharge" stems from a bit of Orwellian logic: Contracts between the card systems and merchants specify that merchants can't add credit card surcharges to nominal list prices, but they are allowed to give "cash" or "debit card" discounts. Go figure.

So far, none of the other "usual suspects" airlines has introduced such pricing. But, as I've often noted, nothing catches on in the airline business as fast as a bad idea.

As far as I can tell, major suppliers are divided about how to approach the problem:

  • Some seem to believe that travelers prefer to use credit cards and that acceptance of credit cards tends to encourage sales.
  • Others want to get rid of the standard contracts so they can surcharge credit card purchases. Merchants and consumer organizations in Australia already successfully lobbied a ban on those "no surcharge" contracts.

As consumers, you have a big stake in the outcome to this battle. Credit cards provide some important benefits that debit cards do not:

  • Legal protections, such as chargeback laws, apply to credit cards but not to debit cards.
  • Debit cards typically do not provide such ancillary credit card benefits as rental-car collision protection, other types of "insurance," and warranty guarantees.
  • Debit cards typically do not award miles, points, or cash discounts.
  • Credit cards allow you to repay a purchase over extended time periods, while debit cards deduct a charge from your bank account immediately.

As this battle develops, I expect to see some blurring of the distinctions and the addition of some benefits to debit cards, maybe as for-pay options. And independent payment systems such as PayPal will likely play a much bigger role. For now, however, you just need to keep watching developments and to decide on any given transaction whether to pay more for a credit card buy than with a debit card.

Frequent-Flyer Devaluation

Delta announced it has reduced the miles it awards for travel on "unpublished" fares, including student, consolidator, group, and similar fares. Mileage earning will run from the standard 100 percent to as low as 25 percent, depending on the fare class.

Unpublished fares in the Asia Pacific region are exempted due to some contract fine print.

I suspect this is the first of many such devaluations. When American started the first frequent-flyer program, the spread between the highest and lowest fares was much less than it is now, so earnings based on miles flown made some sense. Now, however, my belief is that most airlines would prefer to base earnings on amount paid or the equivalent rather than miles flown. Foreign lines and some smaller U.S. lines, which established programs much later, adopted this system. I believe that the giant U.S. airlines will try to follow as quickly as the public relations impact will allow. The clear conclusion: Miles and mileage programs don't improve with age.

You Might Also Like:

Find Cheap Flights!
Find Cheap Flights!
Get Prices
Find Cheap Vacation Packages!
Get Prices
Find Cheap Hotel Deals!
Get Prices
Find Cheap Car Rentals!
Get Prices
Find Cheap Cruises!
Get Prices
 

Ed Perkins on Travel is copyright (c) 2012 Tribune Media Services, Inc.

Read comments or add your own insight!
Please enable JavaScript to properly view and use this web site.