Considering giving your credit card a workout and booking a holiday in the next few months? You might want to consider what your chosen airline will be charging you as the new credit card surcharge. In November last year the Reserve Bank of Australia (RBA) approved a revision to the card surcharging restrictions which have the effect of only allowing business to charge what they call the ‘reasonable cost of acceptance’. My understanding of this is that instead of being able charge whatever surcharge they sought fit, they can only recover the amount it actually costs to accept the payment – e.g. what the bank charges them, although there seems to a bit of wiggle room as to what costs can get captured in this statement.

The aim of this change by the RBA is to reduce the sometimes excessive or random credit card surcharge that shows like “Today Tonight” and “A Current Affair” loves to run stories on, showing how a family’s holiday was ruined by the extra fees charged. Of course, this doesn’t just apply to airlines, but anyone who accepts cards as a form of payment in Australia. Who hasn’t cringed at some merchants fees at some time or another?

I’m in the process of planning a trip to Europe, so I thought it would be interesting to have a look at how the changes would affect the overall cost of my airfares; hopefully helping me decide if it’s better to buy before or after these rules take effect on the 18^th March this year. After spending a decent amount of dough to maintain status last year, I intend to fly Qantas or more likely a Qantas codeshare flight operated by Emirates, so most of my analysis is based on these airfares, but the principles should apply to any airline you choose to fly with.

Firstly I looked at what it would cost me under the current rules, which for Qantas is pretty simple with a flat rate charge at different rates for domestic or trans-Tasman, and International flights at $7.70 and $30AUD per person per booking respectively. Virgin Australia are the same, however to get across the Tasman will instead cost you $10, and if you’re lucky enough to book an international flight in a currency other than AUD, there doesn’t appear to be a credit card charge at all. I’d be interested to hear if that’s an error as it doesn’t seem right.

I also found it interesting that if you search for Virgin Australia fees, the page it brings you to is titled “Fees for Optional Services”. Although technically true, the reality is that most people will use a credit card and it wasn’t that many years ago where everyone was pretty much forced to use credit cards as the only form of payment. The current fees, as of when I looked at them for the main Australian airlines are shown below (however for up to date fees and rules, check with your airline)

Current Credit Card Surcharges

Given these fees are per person per booking, it doesn’t matter how many people are on the booking, the fee will increase accordingly and thus it can be easily turned into a percentage of the airfare. If your airline charges a flat rate fee per booking, not per person, my comparisons below won’t work if you add more than 1 person.

Knowing what it will cost me under the current system was pretty easy with just a few clicks on the airlines website providing all the details – they don’t plaster them on the front page, but they hardly hide them in uber fine print. Thus it would be hard to follow the tabloid claims that these are “hidden fees”. The hard part comes in at working out what the fees might be under the new regime, as no airlines I could find have published what they are going to do. Just as banks do after the RBA drops interest rates, I’m sure airlines are waiting for someone else to make the first move.

Checking a few banks websites for their merchant fees didn’t help me too much, with so many variables such as volume and value affecting how much they charge. Thus, I thought it would be best to use what the RBA think these costs would be, which they estimated at 1-2%. Being slightly cynical, I chose to use the upper end of that scale, as it makes sense that if business can charge more, they probably will.

Selecting some random dates about a month away I went looking on the Qantas website for the cheapest airfare available, a flexible economy ticket and a business class seat on three routes to test how the new charge would compare to the older fare:

• Melbourne to Sydney
• Melbourne to Singapore
• Melbourne to London.

Calculating the “new” surcharge based on the RBA estimate, I found that if you bought the cheapest fare on a trip to Sydney or Singapore you’d be better off with the new process, saving about 50% on the domestic hop and about 30% on the trip to Singapore. Unfortunately, that’s where the savings end. If you need flexibility on your ticket, want to fly in a premium cabin, or want to fly further afield than our Asian neighbours on a cheap ticket, it will cost you more under the new scheme; and in some cases, a lot more!

Depending on what your travel habits are will dictate whether you perceive these as good or bad changes. If you primarily fly around the golden triangle routes of Melbourne-Sydney-Brisbane on cheap tickets, you’ll probably save enough to buy yourself a coffee, but probably not a coffee from an airport vendor. That 50% saving sounds impressive, but 50% of $7.70 doesn’t leave you with much. Similarly the $9 saving on a thousand’ish dollar airfare to Singapore doesn’t suddenly make it affordable to everyone nor would it probably make you suddenly consider flying to Asia.

These new measures start to hurt if you fly in the premium cabins, with the $30 credit card surcharge for a business class fare to London could theoretically jump to just shy of $200. Some might say if you can afford a six grand airfare, you can afford another $200; an argument I’m not overly comfortable with. It would make sense if airlines considered waiving or reducing the percentage amount for premium cabins to make them sound more attractive and not overinflate the price for these cabins that are, according to Qantas anyway, a struggle to sell in the current economic climate. Of course just because it makes sense, doesn’t mean it will happen.

It will be interesting to see just what airlines set their credit card surcharges at, come March 18. Will they use the basic percentage fee (as exampled above), or will they try and calculate the total cost of all their “acceptance costs” over a year and divide that by the number of bookings they expect to sell to remain at a “fixed” price surcharge. There seems some latitude in the RBA decision as to how it is implemented, and only time will tell how much more, or perhaps less we will be paying for the optional convenience of paying with the method of payment business and banks almost forcefully encouraged us to use not so long ago.

Either way, I wouldn’t bank on these changes making any of your post March 18 travel materially any more affordable, thus I’d probably book upcoming airfares based on when you’re going to get the best price for the airfare and cop whatever surcharge is around at the time. Or as the airlines would say, you can always avoid this fee by paying with cold hard cash, as long as it’s not real cash and more so a direct deposit from your bank to their bank.