From April 6th, UK companies have been banned from imposing excessive credit card surcharges on customers. The airline industry has, of course, been one of the worst offenders here, but has anything actually changed for the better?
If you are flying a legacy airline then, frankly, the answer is ‘No’.
The full Government guidelines are here. They make it clear that a credit card surcharge must only cover the actual cost of the company of accepting a card. The issue, of course, is how much that cost actually is.
In reality, a large retailer like British Airways is probably paying around 1% to Visa / MasterCard and 1.5% to American Express. You can add 1% to those numbers for a medium size business and at least another 1% at least for your local corner shop.
However, a company can add “all genuine relevant costs” to the headline fee to get to the sum surcharged to customers. All other indirect and direct costs linked to accepting credit cards, such as additional website costs, can be included.
Airlines also have a specific burden to bear. The credit card companies have been burnt many times when airlines have gone bust, forcing them to issue refunds. Most will now refuse to hand over the majority of the funds for a transaction until after the flight has taken place. Pay for a BA flight in August today on your debit card, and BA gets the money today. Pay on your credit card and it won’t see most of the money until August (assuming BA has the same deal as smaller airlines). This leads to additional costs relating to lost working capital etc which could arguably also be reclaimed via the card levy.
So, where are we?
Historically, Virgin Atlantic has charged a 1.5% fee for using a credit card. This was great for cheap flights and a disaster for expensive long-haul flights. (And, of course, the more expensive the flight, the more likely you are to want the refund cover that a credit card gives you.) Virgin has not changed their model since April 6th, and doesn’t have to – 1.5% is probably not covering its full costs. However, it is a bit of a shocker to be asked for £75 to cover card payment on a £5,000 flight.
BA charges a flat £4.50 per passenger (although American Express cardholders who live in Ukraine are exempt ….). On a one-way ticket to Manchester this could represent 10% of the ticket price, but BA would argue that, for the average customer, it represents a much smaller percentage which is in line with its costs.
The real troublemaker, of course, was Ryanair. They have simply moved to a £7 per person, per sector, ‘administration fee’, which is payable by everyone, however they pay – although this is included in headline advertised prices. The additional fee for using a credit card over a debit card is only £1 per person per sector, which is bordering on reasonable. easyJet also moved to an administration fee on top of their standard credit card fee.
So, no real change. Is anyone surprised?