Michigan BTA

1. Michigan BTA • Matthew Talbot, Business Intelligence & Technology Manager for AirPlus International • Credit Card Economics & Ancillary Fees Thursday, February 25th, 2010

2. Ancillary Fees – Where are we heading? • Voice Your Opinion 4. Q & A • Credit Card Economic Realities

3. Background: The four-party credit card model Issuing Bank Acquiring Bank Interchange fee e.g. 2.35% Merchant fee Rebates / Rewards Annual fees e.g. 2.50% Corporation /Cardholder Merchant • Annual fees are often exempted for medium and large corporations • Rebates are becoming commonplace in many countries • Bonus programs are on the rise for SMEs (especially reward programs)

4. Background: The three-party credit card model Merchant fee Rebates / Rewards Annual fees e.g. 2.50% Corporation /Cardholder Merchant

5. Merchant service fees range from 1.75% to 2.5% Typical fees for corporate cards at airlines, hotels, & rental cars: • American Express • Visa/MasterCard • 2.54% (global average merchant fee) • Around 2.50% for commercial cards US • UATP (AirPlus) • 1.75% and up

6. Credit card benefits • To Merchants: • To Corporates • & Cardholders: • No invoice processing • Spreading of financial risk and lower fraud • Quick settlement of amounts • High quality customer data • One simple, electronic invoice for efficient settlement • Robust data for internal reporting and analysis • Data consolidation on a global level • Data integration into expense reporting tools • To Travel Management Companies: • No invoicing or processing • No risk or collection, improved cash flow • Agency neutral • One form of payment for all expenses

7. Merchants pay a significant proportion of the total bill Card Holders Merchants • Annual fees (if any) • FOREX fees • ATM fees • Other fees • Revolving credit • charges • Rebates up to • 100+bps • Merchant Service Fee 70% - 90% of total 10% - 30% of total

8. Merchant Fees – Seismic Changes in the Global Landscape Distribution Economics - The Downward Spiral Airlines overpay distribution intermediaries for their services Market economics force travelintermediaries to use the excess funding to buy their customers Rebate/Incentive competition drives airlines costs higher. Costs passed on to you - the end user!

9. Globally the credit card business model is under attack • Surcharging • Differentiated acceptance • You pay a fee charged by the merchant for each transaction • Corporate Net Rates will exclusively be linked to a merchant-determined form of payment • Non acceptance • Merchants decide to not accept specific forms of payment

10. Examples:KLM introduced surcharges in offline booking channel • Since 4 August 2009 in The Netherlands, KLM has implemented: • 7.50 € credit card surcharge on certain lower ticket classes • 45% of the tickets purchased by corporates are affected •  SN Brussels and Finnair have followed in The Netherlands • Case study: The Netherlands and Sweden

11. European low cost carriers are in the mix too • MasterCard prepaid card only “free” form of payment • Other forms of payment are assessed 5 € • Note: Ryanair only accepts MasterCard & Visa • Ryanair announces surcharge via Twitter

12. In Asia… • Here the majority of airlines do not accept credit cards for net fares • Net fares make up 90% of all corporate tickets • Corporate agencies either absorb the merchant fee, book code-share flights which accept credit card or surcharge the customer • Hong Kong

13. And Australia: • Qantas charges differentiated surcharges by credit card type: • 1.1% for MasterCard and Visa • 2.2% for Amex • Tiger charges a “convenience fee” of $6 per passenger per flight for domestic travel, and $5 per passenger for international bookings Source: www.choice.com.au

14. The first initiative in the USA • From 20 July 2009 (+ further postponement) • Certain agencies are charged a $75 per ticket penalty fee should they continue to issue under United’s merchant agreement • Cards affected include Visa, MasterCard, Diner’s and American Express • UATP is exempt • Will TMCs accept this fee and pass it along to the customer? • Or, if they set up as a card merchant, will they then pass along their merchant fees directly to their customers? • United Airlines

15. Differentiated Surcharging example from Denmark

16. Merchant FeesChanges in the Global Landscape • “Challenges to the current credit card business model will result in greater transparency to the components of the interchange model, and ultimately, to the unbundling of interchange pricing and shifting of roles in the payments value chain among current and new players.” • A New Business Model for Card Payments, • Amy Dawson and Carl Hugener, Diamond Consulting

17. 2. Ancillary Fees – Where are we heading? • Voice Your Opinion 4. Q & A • Credit Card Economic Realities

18. Ancillary Fees include: • Bag fees • In-flight meals & beverages • Premium seat fees • Economy Plus Seating • Airline club access • Change Penalties • Upgrades • Standby fees

19. These fees were once bundled – and already included in the ticket price. • Now, as airlines begin to unbundle these fees, a new reality emerges for our industry: • Pay for what you use!

20. The Cost - $1.9B collected in Q3 2009 alone and rising • Prices change frequently • E.g. US & AA recently announced they will match the other airlines in raising baggage fees to $25 for first bag and $35 for second bag • Some studies show that ancillary fees represents only 1% of air costs*, some up to 30%** • Most fees are waived for elite flyers • Change penalties continue to rise • Is this even considered an ancillary fee? * TRX (as reported in The Beat) **NBTA 2010 U.S. Business Travel Buyers' Cost Forecast. • It is difficult to quantify the cost of ancillary fees:

21. Tracking fees… • http://www.exploreflightfees.com/#

22. Cost Impact & Budgeting Expense Process & Reporting Policy & Compliance Questions you need to think about: • Should a policy be developed for ancillary fees? • Will it prompt travelers to use a service they would not normally use? • Once added, do you have the manpower and reporting in place to enforce it? • Projecting traveler use of services is difficult • Data doesn’t currently associate service purchase with specific trip/project • Fees are adjusted frequently • Expense systems must be changed to provide new categories • Airlines should enhance reporting for their corporate customers • Enhanced Corporate Card reporting to support program needs

23. Examples:Data on Fees Provided to Card Companies - CO ?

24. Examples:Data on Fees Provided to Card Companies - UA

25. Examples:Data on Fees Provided to Card Companies - AA ? ?

26. Everyone is working towards a solution – But Not Together! Developing EMDs GDS’s are looking at building merchandizing platforms Working to introduce standardized codes for ancillary fees has set a deadline to standardize fees in 2012

27. Everyone is working towards a solution – But Not Together! • No tie back to the original ticket number  no reporting • Some airlines say that 90% of travelers would agree to pay for these fees at the time of booking through their travel agency • Easy for them to say • And who handles refunds? • Agencies may very well charge their own fees in order facilitate the myriad of airline’s fees purchased through them

28. There is no silver bullet • Standardization across the industry • Airlines sending the data in a standard format differentiating for all types of fees • The data needs to be the same regardless of source • Travel policies redesigned to account for these fees • But a good solution has to include: For AirPlus, we want to increase the transparency of customer’s travel data for effective cost control. We would like to see an industry standard as this would allow us to provide the necessary data needed to match a fee with the original ticket.

29. Ancillary Fees – Where are we heading? • Voice Your Opinion 4. Q & A • Credit Card Economic Realities

30. What are your thoughts? • Is it important to you to have visibility into these fees? • Are all fees of equal importance? • What information do you need and what will you do with it? • Who needs information regarding fees? • Where will the decision to accept a service for a fee be made…during the original booking process, pre-trip, during the trip or on-board?

31. What are your thoughts? • Do you want to be able to charge fees back to a lodged/ghost card? • Is it important to you to be able to negotiate these fees? • Your average ticket price may stay the same or even decline but the total cost of air may go up. How do you explain that to your CFO?

32. Voice your opinion • Remember that YOU have a voice! • As nothing has yet been resolved, we ask for you to share your ideas with the industry. • Talk with your vendors. • Urge for a common solution to be found to resolve this issue • Sooner rather than later! • Encourage the development of a total cost calculator to provide greater transparency to what fees would be charged - help make better buying decisions.

33. Ancillary Fees – Where are we heading? • Voice Your Opinion 4. Q & A • Credit Card Economic Realities

34. Q & AThank you!Matthew Talbot Business Intelligence & Technology ManagerAirPlus International, Inc.mtalbot@airplus.comwww.airplus.comwww.airpluscommunity.com AIRPLUS. WHAT TRAVEL PAYMENT IS ALL ABOUT.