The Beat Letters: On Richard Eastman, United And Strawberries

I read with interest Richard Eastman's letter about United Airlines' recent move to pass the cost of selling their inventory onto the agency community, but have to disagree with the logic of his strawberry analogy. Richard asks: "If strawberry farmers don't pay the credit card charges absorbed by your local grocery store as a cost of bringing the strawberry to the buyer, why should airlines pay those charges?" [more]

The difference here is that the local grocery store purchases the strawberries from the strawberry farmer and then resells them to its customers; it does not simply offer them in the store on behalf of the farmer on a sale or return basis. As a result, if there is a merchant fee involved in the transaction between the farmer and the store, then the farmer does indeed have to absorb that cost. Having purchased the strawberries, the grocery store then sets its own price for them and resells them to its customers, and quite rightly absorbs any costs of sale involved in those transactions.

This is very different to the current airline-agency-traveler model, where the agencies do not typically purchase the ticket from the airline in order to resell it to the traveler. The agency is simply the intermediary between the traveler and the airline, marrying the airline’s desire to sell its inventory to the traveler’s desire to purchase it. The commodity in the transaction is still the airlines’ own inventory, not the agency’s, and it is transacted directly between the airline and the traveler so, rightfully, the transaction costs fall on the airline and not on the agency.

Clearly (and understandably) the airlines would prefer to change this model so that they can reduce their costs. One option is to eliminate the merchant fee, by forcing the agency to essentially purchase the ticket from the airline and then to resell it straight to the traveler. By requiring the agency to pay the airline in cash, they successfully eliminate the merchant fee. Alternatively, agencies who are unwilling or unable to accept the costs incurred in being a reseller will have to use other avenues, such as the airline's website, rather than the global distribution system, where they can ensure the transaction is still directly between the airline and the traveler. In this case, although the merchant fee remains, the GDS fee is avoided, again enabling the airline to reduce costs.

Both “solutions” create new difficulties for the agency community, in having to absorb the merchant fee themselves, or pass it on to the client (difficult to do for a premium cabin ticket where the merchant fee could climb into the hundreds of dollars), or restructure their workflows to accommodate changes in where they can afford to source tickets to name just a few. The question that United needs to ask itself is, can they afford to introduce a model that so disadvantages their primary distribution outlet? After all, as Richard would agree, there are other strawberry farmers out there!

~ ATP International USA SVP & General Manager Nick Sharrard

With reference to Richard Eastman's ruminations on United's stealthy move, I would point you to Abraham Lincoln: Known as the master story teller and possessor of incredible wit, Lincoln once spun out a tale in a coutroom that is recalled to this very day in courtrooms around the world ... A farmer was out tending to his crop when he spied his young son rushing up to him from a distance, all excitable and out of breath. "Son what's wrong?" asked the father. The boy, barely able to speak, sputters, "Pa, Pa, I was in the barn and I seen the hired man and sis up in the hayloft! Pa, he was unzipping his pants and sis was a lifting up her skirt!" The father attempts to settle his son, who exclaims, "Pa...they're fixin' to pee on your new hay!"

“Son,” the farmer replied as he took off for the barn, “You have the facts 100 percent correct, but you’ve come to the wrong conclusion.”

~ Balboa Travel's Joe da Rosa