UNITED WE FALL: United puts the squeeze on the Flying Public AGAIN!

United Airlines’ Dangerous Cost-Shifting Scheme

Why Consumers Will Pay Substantially More for Air Travel When Travel Agents are Forced to Pay Airline Credit Card Costs

Contact: Kate Hanni 707-337-0328
Stay Tuned for Public Press Release

BACKGROUND

United Airlines (UA) has told many travel agents and signaled its competitors that it will introduce on July 20, 2009 a radical new cost shifting scheme in the U.S. marketplace. If it succeeds, it will represent the most drastic and misguided scheme ever concocted since the airline industry was deregulated in 1978.

UA will endeavor to shift responsibility for payment of credit card merchant fees, an airline cost of sales, to travel agencies (TAs) who will then have virtually no choice but to pass them on to consumers in the form of higher TA service fees, or to absorb them and risk extinction. This is much more nefarious than just a price increase for consumers; it could remove trusted travel advisors from the distribution chain.

The leisure travel consumer, who purchases some 70% of all airline tickets, is a prime target UA plans to (a) extract supra premium prices from over time at united.com, (b) immediately shift substantial financial risk to and (c) exploit to build cash reserves in advance of its next bankruptcy filing.

Just barely a year after U.S. airlines turned irrevocably to charging consumers twice for product features such as baggage and seats already charged for in the price of an airline ticket, UA is now floating as a trial balloon a scheme that would have the consumer pay its credit card costs. Credit card merchant fees are likewise currently baked into the price of a ticket. This comes at a time when leisure fares have begun a double digit ascent. Consumers need to understand how they will be harmed should this unprecedented industry proposal succeed.

This document will provide the relevant facts and key assumptions, and will call out areas of likely negative impact on consumers.


RELEVANT FACTS

1. UA informed an unspecified number of TAs that effective July 20, 2009 they will not be able to sell UA tickets using UA’s credit card merchant agreements.

2. The policy applies to Visa, MasterCard, American Express, Discover, Diner's Club, JCB.

3. TAs would need to establish merchant accounts with the credit card issuers and settle in cash with UA via the Airline Reporting Corporation (ARC).

4. Under this scheme, some $171 million annually in credit card merchant fees could be transferred from UA to TAs.

5. Targeted TAs that continue using UA’s merchant facilities will receive a $75 debit memo for each ticket sold.

6. TAs can avoid merchant fees and debit memos by booking tickets on UA’s website.

7. UA indicated that TAs may have payment and settlement options through GDSs.

8. It is today not feasible for TAs using their own merchant accounts to book through GDSs. When using a consumer's credit card in the GDS, the charge is to airline’s merchant account. As such, the TA would have to sell “as cash” in the GDS, and accept a credit card outside of the normal workflow.


KEY ASSUMPTIONS

1. For competitive reasons, the only way UA can succeed in implementing its policy on July 20 is if virtually every other large airline indicates it will match UA. In short, UA’s pre-announcement of this scheme is both a trial balloon and smoke signal to its competitors. The additional assumptions and projected consumer impacts that follow are predicated upon a successful industry-wide adoption of UA's transfer of its credit card sales costs to TAs.

2. This UA policy is more than just a wholesale transfer of sales-related expenses; it is targeted. UA is not looking to transfer all its merchant fee costs, just those for consumers who use a TA.

3. Many TAs, especially in today’s tight-credit environment, would not likely be approved for merchant agreements involving high volumes of airline tickets. This would be terminal for these TAs.

4. Some TAs with their own merchant accounts would be at risk of losing their agreements because of a substantial increase in average transaction price; their credit limits would be exceeded. Today, TAs generally use their own merchant accounts for only relatively small service fees (e.g., $30) and not ticket sales (e.g., $300).

5. Those TAs approved for merchant agreements may not find the maximum charge volume allowed, or discount-rate levels offered, sufficient or affordable enough to stay in business. This scheme upends established credit relationships in the travel distribution chain and puts processing costs and financial risk in a place where they cannot and should not be borne.

6. Those TAs approved for merchant agreements may find high reserves and holds required by card companies and processors economically unworkable, forcing TAs to service customers using inefficient airline.coms where merchant fees will presumably be avoided; however, soaring administrative costs, plummeting agent productivity and customer service degradation would soon doom these TAs.

7. Well-resourced larger TAs currently possessing their own merchant agreements, or approved for such agreements because of this new airline industry policy, would be forced to pass the new merchant fees on to customers in the form of higher ticketing service fees. What’s more, most TAs today pay significantly higher discount rates than do large airlines.

8. Those TAs attempting to increase cash transactions would find their ARC bond requirements increasing substantially; in the current economic environment many TAs would simply not qualify for higher levels.

9. Ticketing service fees would be driven to even higher levels as TAs' cost of doing business would skyrocket as systems would need to be radically reprogrammed, i.e., this program is as big as Secure Flight in terms of required system changes to GDSs, back office accounting, mid and front office processing and online booking tools; the booking process would be made significantly more cumbersome and costly to execute.

10. The TA instead of being an “agent” would now be the “service provider,” aka the “merchant,” in the eyes of charge card companies. This risk-transfer to TAs would raise a multitude of new obligations and liabilities such as removing protections from TAs when airlines fail to perform.

11. In accepting merchant fee responsibility, TAs tie their very business survival to airlines’ financial viability. In the case of an airline bankruptcy, the consumer credit card transaction would have been with the TA merchant, but the TA would have paid the airline in cash within a matter of days. As such, the consumer could not request that the credit card company reverse the charge, and the TA would have no way to get the cash back from the airline since it would be just another unsecured creditor. Consumers would demand that TAs refund the ticket amount or if the consumer had not yet paid his credit card invoice, refuse to pay the charge. Consequently, a bankrupt airline would in turn cause the bankruptcy and failure of countless TAs, especially in airline dominated hub airport cities -- while being able to keep cash for tickets that it would not fulfill because it either stopped operating or cancelled the service on which the tickets were sold.

12. In an industry where many companies are serial Chapter 11 filers, it is perhaps no accident that under the UA scheme the TAs that had paid cash for ticket sales are not likely to qualify for the bankruptcy protection given to consumer deposits.

13. TAs would have to deal with the financial impact (e.g., higher costs; reduced financial flexibility) of having the necessary capital on hand to transact with ARC in cash.

14. TAs in the U.S. clear transactions with ARC, and as such, they would be on the line for the entire cost of a ticket in the event of charge card fraud, even though the airline is the service provider. Heretofore, since airlines have been the service providers they have had the means and incentives to take action by denying service to travelers involved with verified fraudulent transactions. For example, it is the airline, not the TA that has the chance after telephone or online sales to physically verify the identity of the traveler at time of check in and to refuse service as necessary.

15. Taken together, these negative impacts are lethally discriminatory toward the TA airline ticket distribution channel and would put it at an insurmountable competitive disadvantage vis-a-vis the airline-direct channel. This sets the stage for TA bypass and considerable consumer harm.


INJURIOUS CONSUMER IMPACTS

1. Consumers who continue to use TAs would pay airlines' credit card sales costs, likely finding TA service fees 50% to 100% higher due to merchant fees being passed on as well as systems reprogramming costs and significantly increased TA administrative and process costs.

2. As TAs go out of business, the independent TA channel for airline ticket distribution will have been substantially weakened, diminishing consumers’ access to complete and accurate information regarding air travel alternatives. And once airlines weaken the neutral TA channel, why would we not expect airlines to start charging all consumers who were to book directly with the airline a “credit card convenience” charge? Ironically, airlines would be in a position to justify such a move later on the grounds that “travel agencies do it.” In any event, there can be no doubt that consumers would pay unnecessarily higher airfares.

3. Better-financed TAs would be able to raise service fees even higher while offering less customer service, especially for those consumers who do not have access to the Internet or who are otherwise uncomfortable with online financial transactions or navigating complex airline websites. The UA move, if matched, would lead to more consolidation and more failures of TAs.

4. New merchant fees and additional costs would create a material price gap between the total-cost of a ticket booked via a TA versus at airline.com. Especially in a recession, unsuspecting consumers would be enticed to airline.com by perceived lower fares, and perhaps short-term inducements, but where the absence of comparison shopping and unbiased, expert TA advice would lead to higher fares paid.

5. As investigated and disclosed by the European Commission last year, the majority of airlines operating in Europe had websites that were misleading and deceptive in the way fare information was displayed. A dominant airline-direct channel, in Europe or the U.S., without the competitive discipline from online and traditional TAs, and with plenty of opportunity to tack on to quoted ticket prices other fees and charges for “extra services” -- would likely lead to ever-higher overall prices paid by consumers for air travel.

6. The consumer would be placed at risk if a booking were made through a TA who in turn had to purchase from an airline in cash and luggage were lost, or there were another airline non-performance problem. Who would be liable since the ticket form-of-payment would have been cash, even though the traveler would have paid with a credit card?

7. The consumer would be placed at risk in a dispute with an airline that, for example, refused to issue a refund. Today, the consumer can work with his credit card company. Under the proposed new process, the credit card transaction would have been with the TA who paid the airline cash. As such, the consumer would have virtually zero leverage with the airline and would be harmed financially.

8. Unknowingly, consumers would help finance UA and matching carriers' next trips into bankruptcy. A consumer would have no recourse vis-à-vis the airline in the event an airline filed bankruptcy after the TA had acted as merchant because UA and matching airlines would have required the TA to pay them in cash, which the airlines would have received from the TA and not the customer. It is the TA that would be a creditor of the bankrupt airline, not the customer. Under these circumstances, it would appear to be an open question as to whether the customer would have any ability to protest payment to the TA as the TA would not have defaulted and would in fact have fully performed its contract with the consumer by paying cash to UA. The TA, in turn, would not likely be able to enjoy any of the protections the bankruptcy law affords to consumer deposits. So, UA would, in effect, be maximizing its cash on hand in the next Chapter 11 proceeding on the backs of TAs and consumers.
…

FlyersRights.org to the Rescue!

Passengers aboard US Airways Flight #1576 received hotel, taxi and food vouchers thanks to passengers David Anderson and Peter Pimino, who had the presence of mind to use cell phones to call FlyersRights.org at 1-877-FLYERS-6 (1-877- 359-3776).

Flight #1576 was beset by mechanical troubles immediately upon boarding. Passengers were initially held on the tarmac for 90 minutes due to what they were told was a wiring problem. After returning to the gate for repairs to the wiring (during which passengers were allowed to return to the terminal for 15 minutes), passengers were re-boarded, only to be held on the tarmac for an additional 4 hours for yet another mechanical problem.

While passengers became increasingly restless (some screamed at the crew and actually threatened to open the emergency exits), Anderson and Pimino had the presence of mind to call FlyersRights.org. By now, it was 6:00 PM.

We advised them that, in the event of a mechanical delay, they were entitled to be re-booked immediately to an alternate flight or, in the event no flights are available, to hotel, taxi and food vouchers. We also asked them to use their cell phones to photograph the event; their photo appears above. Thanks to their quick thinking, the flight was immediately taken back to the gate, passengers were allowed re-booking (without a fee), and those who had to stay overnight were given cab fare, a meal and hotel accommodations.

Remember: whenever you’re stuck on the tarmac, call FlyersRights.org at 1-877-FLYERS-6 (1-877- 359-3776). If your delay is caused by mechanical problems, you have certain rights under the law.

Incidentally, this is one more reason why you should always carry a cell phone aboard an aircraft. You may need to make a vital call, a video or take photos to document your horror story.

Kate Hanni
FlyersRights.org

Data on Airlines’ On-Time Performance Raises Questions

June 16, 2009

Itineraries

By SUSAN STELLIN

The latest government statistics show that the airlines had a 79
percent on-time record in April, an improvement over the more typical
75 percent rate.

What those figures do not reveal, though, is that just two-thirds of
the flights that take off or land in the United States are counted,
making the recent gain more of an estimate than an accurate measure of
the industry’s overall performance.

The Transportation Department requires only airlines earning more than
1 percent of domestic passenger revenue to report data about flight
delays, cancellations, mishandled bags or other service problems. But
that leaves out roughly 25 percent of all domestic flights, many
operated by regional carriers, as well as about 1.3 million
international flights.

Passenger advocates have been pushing for a more comprehensive and
accurate reporting system, arguing that the reporting requirement was
written when regional carriers operated fewer flights. Even airline
analysts acknowledge that the system is flawed.

“The data is anecdotal at best,” said Michael Boyd, president of the
Boyd Group aviation consulting firm. “The entire reporting system
reflects an airline industry that no longer exists. It’s not a reliable
system. That 1 percent number leaves out a lot of carriers that are an
integral part of the major carriers’ operations.”

Some of the carriers not included in the data are Spirit Airlines,
Virgin America, Midwest Airlines, Colgan Air, Mesaba Aviation (a
subsidiary of Northwest Airlines) and many regional partners of the
larger carriers.

According to the Regional Airline Association, its members operate 52
percent of all domestic flights in the United States, up from 43
percent in 2000. Many fly under names that passengers know as
Continental Connection, Delta Connection, Northwest Airlink, United
Express and US Airways Express.

As the regional carriers’ operations have grown, some have moved into
the group required to report statistics to the Transportation
Department, among them Atlantic Southeast, ExpressJet, Comair, Mesa and
SkyWest. Pinnacle Airlines reports data voluntarily and American Eagle
has been reporting statistics for years.

Nineteen carriers now submit data to the department, versus 10 airlines
in 2002.

“We are considering expanding the reporting,” said David Smallen, a
spokesman for the department’s Bureau of Transportation Statistics, but
he declined to specify a timetable.

When the department issued its rule in 2002 requiring the carriers to
begin reporting information about the causes of delays, the agency
exempted smaller carriers and code-share partners from the rule, citing
the cost burden. But the text of the rule stated, “The department
intends to revisit, at a later date, the issue of whether to expand the
air carrier universe for on-time reporting.”

At the time the department was considering the rule, the Air Transport
Association, which represents the nation’s largest carriers, submitted
comments urging the department to include smaller airlines in the
mandate.

The association said that the carriers exempt from the reporting
“contribute a disproportionate, higher number of airplanes to the
congestion mix since these airplanes generally have fewer seats.”

David Castelveter, spokesman for the Air Transport Association, said
via e-mail that the group had “no current formal position” on the
matter.

Roger Cohen, president of the Regional Airline Association, said he
believed that adding more carriers to the statistics would not
“materially change the overall numbers.”

“Isn’t the 75 percent, which is now being captured, a big enough
sample?” he asked.

But the airlines point to even small gains in the on-time statistics,
and Congress and government agencies rely on the data to determine how
to address problems like delays.

In fact, adding more regional carriers to the reporting requirement may
significantly affect the statistics, since there is some evidence that
smaller planes may be subject to more or longer delays.

In comments filed with the department as it considered the 2002 rule,
the Regional Airline Association noted that regional carriers were
subject to “a high level of ground delays not experienced by major
carriers,” and aviation experts acknowledge that larger planes tend to
be given higher priority when airport backups occur.

The group FlyersRights has also been pressing the Transportation
Department to more closely monitor the reporting of long tarmac delays,
expand the requirement to include smaller carriers and collect better
data on the causes of delays.

According to the statistics, only 5 percent of all flight delays are
attributed to factors within the airlines’ control, which means that,
for a vast majority of delays, the carriers are not responsible for
accommodating passengers with refunds, hotel vouchers or flights on
other airlines. Most delays are attributed to national aviation system
issues, bad weather or a combination of the two.

But passengers continue to question the official data.

Teresa Chaisson and her daughter were on a Delta flight (operated by
Comair) from Washington Reagan to Kennedy Airport in New York on April
21, and spent more than five hours on the tarmac waiting to take off
before the flight was canceled around 11 p.m.

The official statistics say that the flight was canceled due to weather
— yet every other flight left Reagan airport that day — and that the
plane sat on the tarmac only for a little over three hours, not five.

“I would bet on my two kids’ lives it was definitely not that short a
duration,” Ms. Chaisson said. “There shouldn’t be any chance for
inaccurate reporting.”

Copyright 2009 - New York Times Company

FLYERS DEMAND CONGRESSIONAL ACTION ON REGIONAL CARRIERS’ SAFETY

“Closed-Door
Meetings of Washington Special Interests and ‘Voluntary’ Inside Fixes
Won’t Cut It This Time,” Says Hanni

WASHINGTON (June 10) – The nation’s largest consumer group
representing airline passengers today demanded “immediate,
comprehensive and enforceable legislation” to protect the 160 million
passengers of the nation’s regional airlines.

The demand came in the wake of shocking revelations at a three-day
National Transportation Safety Board inquiry about shoddy safety
practices by regional carrier Colgan Air, a subsidiary of Pinnacle
Airlines, which operated Continental flight 3407 from Newark to Buffalo
on which 50 people died on February 12.  The NTSB hearing revealed
that inexperienced, overworked, poorly-paid and poorly-trained pilots
may have reacted inappropriately when the aircraft stalled after an ice
buildup on the wings.

“Closed-door meetings of Washington special interests and ‘voluntary’
inside fixes won’t cut it this time,” said FlyersRights.org Executive
Director Kate Hanni.  “We’ve had years of FAA inaction and
closed-door cozy regulation, and it led to calamity in just a few
seconds.  What’s needed now is for Congress to assure the flying
public that the crews of regional carriers are experienced,
well-trained, well-rested – and better paid than if they’d taken a job
managing a Bob Evans restaurant.”

Yesterday, Transportation Secretary Ray LaHood and FAA Administrator
Randy Babbitt suggested a “voluntary” approach to safety improvements
by the regional carriers, following “closed-door” meetings next week
involving airline industry executives and union officials.

“Airline executives and union bosses aren’t the ones who risk their
lives on these flights every day.  These regional carriers
represent half of all U.S. flights and carry 22% of all passengers
who’ll board a commercial aircraft today.  We have every right to
open, transparent action by our Congress, not handshakes between
industry executives and bureaucrats behind closed doors.”

FlyersRights.org is the largest airline passengers’ rights association
in the U.S. with 25,000 members.  Besides the FlyersRights.org
website, the organization maintains a toll-free hotline
(1-877-FLYERS-6) which passengers and airline employees can use to
anonymously report breaches of health and safety standards.

FOR BACKGROUND, SEE Washington Post Article

A Flight from Paradise to Hell - Photo Update!

Napa, CA – June 4, 2009: Delta flight 510 from Turks and Caicos bound
for Atlanta on April 10th, 2009 started out like any other flight for
vacationing tourists who had spent a week in the sunny Caribbean
paradise. The passengers, spring breakers, families, and retirees were
tired and a little depressed that their vacations were over, but they
had no idea how their vacation would end.

The flight was scheduled to land at Hartsfield International Airport in
Atlanta at 5:04 pm, but the plane circled for a while due to
thunderstorms below, and was ultimately diverted to Columbia, S.C.
Metropolitan Airport where it landed at 5:44 pm. And there they sat,
and sat, and sat. Five and a half hours later they were finally
permitted to get off the plane - not into the terminal, but into a
cold, stark room with about 20 folding chairs.









Over 120 passengers, US citizens guarded by armed security personnel
and police, and nowhere for men, women and children to sit but a cold,
concrete floor. “One elderly woman had to be removed from our “cell” by
paramedics,” said one passenger. Listen here: Hotline Call

U.S. citizens, stuck for six hours on the tarmac, then thrown into a
concrete cell for hours and treated like criminals in their own country.

Some eleven hours after they boarded the plane in Turks and Caicos, the
criminals were moved to the terminal area that was wrapped in police
tape, and finally given the chance to purchase food. One family's
bill came to $63.85 for seven scrumptious airport hamburgers!



And a couple of hours later Delta bought them pizzas!





Congress is currently considering a new FAA Reauthorization bill that
several consumer groups have urged that passengers’ rights legislation
be included that define specific limits for tarmac delays, and that
would require airlines and airports to develop contingency plans for
such emergencies.

This stranding event is outrageous. Here again we have senior citizens
and children trapped without food and water. And neither the airport
nor the airline had a plan, despite Delta's voluntary "commitments" to
deal effectively with these tarmac strandings.

FlyersRights.org has 25,000 members and is the largest non-profit
airline passengers rights coalition in the U.S. The organization
operates a toll-free hotline 1-877-359-3776 to assist stranded airline
passengers. Please contact Kate Hanni at 707-337-0328 or or
Kate@flyersrights.com.