Qantas Credit Card Service Fee - Important

[Steve Franklin]

Hi there.
As seen in the smh. Qantas denies that their CCSF (credit card service fee) is unjust because they are charged more in merchant fees than they charge passengers. seems fair right?

Let me tell you why this is NOT what it seems.

1. The CCSF is supposed to be representative of the merchant fees Qantas themselves get charged. But the nice people at Qantas do better than that. Because as they state, they are getting charged more than they pass on. But we all know that could be a cent under breakeven and that's what we'll assume.

2. Visa/MC make up 83% of the CC market in Australia. Amex and Diners make up 17%. If you apply the merchant fee rates provided by the RBA (google merchant fee rba) in that ratio, you come up with an average of 1.03%

3. Now we know the rate, we can work out what the average flight cost is, because that is what the CCSF is based on, the cost of the flight which in turn is the driver for the cost of the merchant fee that Qantas get charged.

Cost of the Average flight

Domestic $7.70/1.03% =$747.57
International $25/1.03 = $2427.18
　
4. Using Qantas own 2008 report, we take the total number of passenger flights for both international and domestic and divide them by 2 (on the assumption that almost all journeys are return, and then multiply it by the average cost of the flight. This should give us a good gauge of whether the total revenue from all these average flights adds up to what Qantas says it does.

Total domestic flights in 2008= ( 28,905,000/2) * $747.57 = $10.804 billion.
Total International flights in 2008 = ( 9,716,000/2)*$2427.18 = 17.912 Billion
Total revenue for national and international flights in 2008 = $28.72 Billion
Total revenue from ALL streams reported by Qantas in 2008 (including all freight revenue)? $16.2 billion.
　
Why the gigantic descrepancy? It's because the CCSF is not remotely representative of the actual costs to Qantas which is why when you reverse engineer it - it doesn't work.

There is only one scenario where I can make it work so that they are exactly at break-even.

As discussed, by market, the Amex/Diners cards have by far the smallest
market penetration at a mere 13%. To make the numbers work to the point where Qantas can technically be able to say you are not recovering all costs, I'd need to more than reverse the ratio:

88.5% value for Amex/Diners (@1.80%)
11.5% Visa/MC (@.01%) which we know is not remotely supported by the statistics.
　
Think about it.

If Qantas' objective was the simply pass the merchant fees on to you, they would charge you an average percentage of the total cost of the transaction and not some fixed fee that has no bearing on the total purchase price.

So knowing all the above, how can they state categorically that they get charged more merchant fees than they collect?

Qantas can only charge the CCSF in Australia, they were one of the first to take advantage of the deregulation in 2003. BUT they can not charge it to people purchasing their tickets from the U.S, UK etc

So that leaves me with only one conclusion. They are using their Australian clients to subsidise the merchant fees they are unable to claw back for all flights purchased outside of Australia. WE ARE PAYING FOR OTHER PEOPLE!

And this is why despite us paying such outrageous charges that they can state with complete honesty that they do not recover all the merchant fees they are charged.

Personally...I think it's disgusting, that an Australian airline, our national carrier would gouge their own customer base like this and I for one will never fly them again.

For the rest that enjoy Qantas, I urge you to take it up with them. Ask them if what I state is true.
If anyone would like to do the numbers themselves you only need two pieces of info.
The RBA rates and the 2008 Qantas annual report, both available in the public domain.


I can't link to them as I don't have posts under my belt, but please take a look.

(Ps. The RBA rates take into consideration all aspects of fees including card holder not present transactions)
　
　

　

 

[JohnK]

The credit card service fee is a joke and unfortunately the Reserve Bank, ACCC, Dept of Fair Trading etc are too gutless to investigate and do something about it.

How can Qantas (or Virgin) say that they are only recovering merchant fees and yet charge a flat rate per flight/booking. We pay $7.70 regardless of whether the value of the flight is $79 or $579. A credit card service fee of ~1% would be more than enough to cover the costs of the merchant fee.

Just like fuel surcharges this is nice little money spinner that is not going to go away that easily....

 

[AnonymousCoward]

Hi Steve,

Welcome to AFF.

There appear to be a number of assumptions in your calculations (e.g. the actual rate paid by QANTAS, the ratio of cards used etc).

When a company goes on the record as saying that they are doing "x", that potentially open them up to legal liability and possible civil prosecution if they are found to be lying or deliberately deceptive. Which is why I rather doubt that QANTAS is making a huge amount of money out of this (if any).

In any case, most people have options to avoid paying CC fees (e.g. you can BPAY instead). If you feel you are being "ripped off" by QANTAS, then why not utilise one of these other options that might be cheaper for you?

AC

 

[Mal]

One of the things I find very interesting is that Ryanair and British Airways both charge credit card fees for UK based billing addresses.

So, I don't believe it is illegal to charge a surcharge in the UK.

However - I don't believe Qantas does ex-UK. So why don't they? Perhaps it's because they are not a dominant player in the UK market, whereas they feel that they are in Australia.

 

[Dave Noble]

One of the things I find very interesting is that Ryanair and British Airways both charge credit card fees for UK based billing addresses.

So, I don't believe it is illegal to charge a surcharge in the UK.

In the UK it is indeed not illegal to surcharge in the UK for credit cards; BA does not surcharge debit cards

Ryanair is, iirc, based in Ireland rather than the UK

Dave

 

[medhead]

Interesting numbers. but I think there are some fundamental problems, which you touched on. I'll try to explain but please bear in mind that I'm waiting for my MEL-ADL flight having just got off a red eye from PER. so the brain box is in low gear.

As you said, not all of the flights are sold in Oz. therefore you can only multiple the average flight cost to those flight sold in OZ and subject to the CCSF. Those flight sold overseas most likely have a different average cost/price.

Where you say total flights, I assume you actually mean total seats. But the questions how many of those seats are award seats? QF get revenue from award seats from the FFP division, but I beat it is less than what they get from a cash paying pax.

Also i don't recall paying the CCSF when paying the taxes for my lastest award flight. The booking that I completely today, was actually 3 flights with the payment of one surcharge. So I'm not sure the divide by 2 on the total number of flights is valid. I would guess that it is probably more like 3 or 4 seats on average that earn the surcharge.

But don't get me wrong, I think what you've tried to do is very clever and to be appauled. I never would have thought of this. well done. However, I just don't thing that there is enough public information to get a proper answer to the questions you've raised.

 

[BlueAU]

....

Also i don't recall paying the CCSF when paying the taxes for my lastest award flight. The booking that I completely today, was actually 3 flights with the payment of one surcharge.

There is no CCSF (QF YR) on Award Flights. Correct.

Also, if you make a booking (Pay QF YR) and then later change it, and need to pay more, there is no additional QF YR on it too :!:

Personally, to me, it's just another money making scheme, not actually charging PAX for merchant costs !! If they were, then they should charge a percentage each transaction. No CCSF on QP memberships either.

 

[Steve Franklin]

Hi Steve,

Welcome to AFF.

There appear to be a number of assumptions in your calculations (e.g. the actual rate paid by QANTAS, the ratio of cards used etc).

I have used the rates provided by the RBA. They provide the total average cost across these cards from all merchants. These account for all fees charges etc. The only assumption I make here then is that Qantas pays at least the average rate and not more or less.

I would expect that given the size of Qantas, and the volume of transactions it would be fair to assume they are big enough to negotiate a an 'average' rate.

As for the alternatives. Yes. I agree, they do provide alternatives, but that's not my point. My point is that they publicly state that they only recover part of the fee. Which is meant to make it feel fair to us. But they only recover part of the fee because they don't charge the CCSF on flights orginating outside of the country. So the argument that they don't recover all costs is unfair because it's not comparing apples with apples.

 

[MEL_Traveller]

My first thought when QF says they recover less than they are charged was whether they were including ALL fees and charges levied by cc companies including bad debts and chargebacks etc (particularly for international transactions this could lead to a loss, although not in the current climate of the strong dollar).

 

[Steve Franklin]

.

As you said, not all of the flights are sold in Oz. therefore you can only multiple the average flight cost to those flight sold in OZ and subject to the CCSF. Those flight sold overseas most likely have a different average cost/price.
.

The calculation is used only to demonstrate that the average cost per flight is and how when you use the CCSF to calculate the average - it doesn't work. It should, but it doesn't.. They don't charge on ff flights because there is no CC involved.

And because they don't charge the CCSF on flights orginating outside of Australia it makes their merchant fees so much higher that they can keep increasing our CCSF and still legitimately claim they don't make a cent.

 

[Steve Franklin]

Also i don't recall paying the CCSF when paying the taxes for my lastest award flight. .

The other thing I didn't mention which i should have is, that if the CCSF is reflective of the cost of the merchant fees for the flights then based on the my calculation, they are paying 1.81% per $ on average.

The average for a visa/mc is around .88pc so there is no doubt they are shafting us. Hence the choice award.

 

[Steve Franklin]

My first thought when QF says they recover less than they are charged was whether they were including ALL fees and charges levied by cc companies including bad debts and chargebacks etc (particularly for international transactions this could lead to a loss, although not in the current climate of the strong dollar).

Perhaps. But if you have a look at any of their press releases, they are VERY specific about what the charge is for. It's for merchant fees which do not included such items. Check out the RBA xls sheet, it explains it very clearly.

 

[equus]

2. Visa/MC make up 83% of the CC market in Australia. Amex and Diners make up 17%.

....

As discussed, by market, the Amex/Diners cards have by far the smallest
market penetration at a mere 13%. To make the numbers work to the point where Qantas can technically be able to say you are not recovering all costs, I'd need to more than reverse the ratio:

88.5% value for Amex/Diners (@1.80%)
11.5% Visa/MC (@.01%) which we know is not remotely supported by the statistics.

As they say, there are lies, damn lies and statistics. You are illustrating a basic misconception that the published "statistics" are relevant to this situation. They are not.

Credit card scheme market share, penetration, etc on a global basis for Australia are completely irrelevant when considering share of spend on Qantas.

If you wanted to look at something which might be slightly closer (but still way off), you should try and find the Corporate card market share (which will look nothing like the overall scheme share).

I have no knowledge of current shares, but do know that many years ago, Diners Club had a negligible market share when measured by number of cards, merchant acceptance and number of transactions, but still managed to actually have the largest market share of any card scheme in Australia by dollar spend - almost entirely related to the corporate travel of some very large clients.

Not only will the spread of card schemes used be different to the general market, within shemes there are different rates for "premium cards" (i.e. Visa charges higher for platinum etc). Care to guess whether the ratio of premium cards to regular is higher or lower for airline spend than it is for the market as whole?

Short of actual data from Qantas, there are so many unknown figures that anything can be "proved".

That said, it doesn't mean that the way Qantas levies the surcharge is fair to everyone - but it doesn't need to be. If you don't like it, then there are ways to avoid paying it (the simplest of which would be to fly another airline. Oh, wait, some of the others are even worse....)

 

[equus]

Perhaps. But if you have a look at any of their press releases, they are VERY specific about what the charge is for. It's for merchant fees which do not included such items. Check out the RBA xls sheet, it explains it very clearly.

If you look at the article you refered to in the first place, the actual quote is

''Qantas does not derive net revenue from the fees,'' Mr Rushton said. ''Our collections are lower than the costs we incur for accepting credit cards.''

Costs incurred for accepting credit cards include lots of things other than just the merchant fee, including charge backs, annual charges, telephone and IT charges etc.

 

[Steve Franklin]

As they say, there are lies, damn lies and statistics. You are illustrating a basic misconception that the published "statistics" are relevant to this situation. They are not.

Uh..yes they are. The merchant rates that the RBA publish take account of that. That is why it's called an 'average' it includes:

'Merchant service fees' include ad valorem or flat fees that relate to the value or number of transactions acquired.
Encompasses 'Other' fees which I have include annual fees, terminal fees, terminal rentals, monthly fees, joining fees and other fees or associated costs charged to merchants.
Purchase value includes the value of total card-present transactions arising from electronic point of sale and voucher-based purchases, and the value of total card-not-present transactions arising from internet, mail or telephone purchases;

Further more, without making zero assumptions you can calculate that Qantas takes an average of 1.81%. In the case of mastercard/visa the rates are way way below that, less than half in fact.

For Diners/Amex they are around that mark. Check the RBA rates.


My point is not the service charge and flying with other airlines blah blah blah. My points are.

1. I don't mind paying a service fee if it reflects the charges they are levied and not just a clandestine revenue channel for Qantas.

2. I don't want them to use me to subsidise their os clients fees.

3. Their rationale for charging what they do on the CCSF is that it's fair because they don't pass on everything they get charged. But that's only true because they only charge SOME customers the fee which means that perception that they aren't charging YOU everything they get charged is false.


You need to ask yourself why they charge a fixed rate??

And if you think I'm wrong, then Choice is wrong as well. Don't shoot the messenger, I'm just shedding more light on what Choice has done.

 

[Steve Franklin]

If you look at the article you refered to in the first place, the actual quote is

''Qantas does not derive net revenue from the fees,'' Mr Rushton said. ''Our collections are lower than the costs we incur for accepting credit cards.''

Costs incurred for accepting credit cards include lots of things other than just the merchant fee, including charge backs, annual charges, telephone and IT charges etc.

and if you have a look at the statement from Qantas from September 2008 they said "

Effective 19 September 2008
FREQUENTLY ASKED QUESTIONS​

1. Why does Qantas charge the Credit Card Service Fee?​

Qantas is charged a merchant service fee on all credit and charge card transactions by the credit or charge card providers.
Since July 2003 Qantas has implemented a credit card service fee on credit and charge card transactions to partially recoup the significant and increasing cost to Qantas of credit and charge
card merchant fees.


Merchant fees.

And what are you telling me you're happy to share some of Qantas risks on chargebacks etc?


The other thing here people is that they used to charge 1% and then they changed in to $3.30 and then they doubled it to $6.60 and now to $7.70 and you know what they claimed?

Increased merchant costs.


However in that same period of time, the average merchant fee rate fell 60 basis points (adjusted for inflation)


How do you justify that?


​

 

[docjames]

Qantas can claim it any way they want (and roll in any cost they want to justify it as cost-only charging) - it's a total rip off.

Why does it cost Qantas $7.70 for a tranaction when it costs other companies (eg. Harvey Norman, Coles, Woolworths) nowhere near that? Hmmmm. It's because Qantas have set the price near to the maximum the consumer will bear, and know people will pay it. And their "out" clause is "you can pay by another method which is free" which although true, is far less convenient, so you're paying effectively by convenience, time cost etc.


BTW, i'm not so sure Qantas alone should be singled out, plenty of other airlines carry on with this and other charges that are unjustifiable, it's just a way of making the headline price look better. See car dealers (until the new, ineffective, laws).

 

[Steve Franklin]

Costs incurred for accepting credit cards include lots of things other than just the merchant fee, including charge backs, annual charges, telephone and IT charges etc.

You work for Qantas right? Cabin crew?

But anyway neither here nor there, but being that you seem to be defending them, answer me this.

Lets take an extreme example. I pay for me and 100 of my relatives to fly with Qantas on a $100 one way flight and I stick it on the visa. The total cost $10,000.

Total CCSF $770

Total cost to Qantas @ .88pc = $88

Even if I paid with an Amex at 1.8pc it would only be $180.


So why do they charge the CCSF per booking? It's not like they process each person as 100 individual transactions, it goes through as 10,000 and once only.

The fixed CCSF is no accident. You're right saying that people can chose another airline, that is what I'm trying to achieve here. I'm trying to inform people that perhaps there are other airlines that don't charge as much as what Qantas do.

 

[trippin_the_rift]

The credit card service fee is a joke and unfortunately the Reserve Bank, ACCC, Dept of Fair Trading etc are too gutless to investigate and do something about it.

How can Qantas (or Virgin) say that they are only recovering merchant fees and yet charge a flat rate per flight/booking...

Look at how QF word it. They don't use the words 'recover merchant fee's, but rather to 'cover costs'.

What costs are associated? Easy.

The board makes a descion to add cc fees, overall price per pax increases by 5%, board takes 2% of that in bonuses. This also means more work for the accounting department who wanted a 2% payrise for the extra work.

QF board negotiates this to 0.5% thus saving the company 1.5%, again, their 2% bonus is justified.

If QF were to ever use the words "this is to recover merchant costs" they'd land in hot water.... think about it.

Personally I think the RBA needs to ammend the policy so that businesses can only charge what the bank charges them in merchant % fees and nothing more.

 

[Steve Franklin]

Personally I think the RBA needs to ammend the policy so that businesses can only charge what the bank charges them in merchant % fees and nothing more.

Can I get an AMEN?!

Precisely. The problem is that Qantas can charge whatever they like, they can charge 100 per transaction if they wanted SO LONG as it's transparent. The transparancy of the fee is the only legal requirement.