In the aftermath of 9/11 and the subsequent slump in business, BA, like all other airlines, made frantic efforts to cut distributions costs.
Commission payments to travel management companies (TMCs) were reduced to zero and fees to the GDS ruthlessly re-negotiated. The next target was credit card companies and the fees they charged for use of their cards.
When BA announced in 2002 it would not longer absorb these merchant fees and would no longer accept credit card payments in the UK for discounted corporate fares, it looked a step too far.
Not only were agents incensed but so too were card companies, the biggest of which American Express took the airline to court. This case, where only the lawyers would have benefited.
was settled out of court in 2004.
But this policy was also hitting its customers – and it was this that changed the airline's mind. In its confidential letter to its “valued corporate clients”, BA said it was taking onto account “concerns about our policy.”
But it is the next paragraph that reveals BA's real worries. The letter says that BA's absorption of the merchant fee from October 1 would bring about “a considerable revenue benefit” for clients with a corporate agreement with the carrier.
Crucially it adds: “We hope that the removal of this cost to the company will be taken into account in your response to any proposal made by BA to renew the agreement in the future.”
In other words, BA was seriously concerned that clients, when it came to renewing their corporate deals, would be looking elsewhere.
Clearly when listening to their “valued corporate clients” what they had heard, to put it bluntly, was ‘change this daft policy or we are off'. It obviously concentrated BA's mind.
But the clients were making a fair point. It was only in the UK that this policy applied and it was costing them a lot of time and money.
As Steve Savage, Carlson Wagonlit Travel's UK commercial director, said: “If you work on the premise that a merchant fee is normally about 1.9-2%, and if you apply that to a company that is spending maybe a couple of million pounds with BA on a corporate net deal, this is going to be a hefty financial savings for these companies.
“They have done this to make sure they are still competitive with other international global suppliers. If you compare them with other carriers who do accept the merchant fee and if you had a head to head on the New York route or something like that with BA and other carriers, if their fares are almost competitive on their net deals, there is an incentive for companies to use Carrier B rather than BA.”
There is also the fear among some agents that BA will attempt to compensate for having to absorb merchant fees by putting up fares. But this seems unlikely to happen at the moment and fare could rise for any number of reasons in this volatile climate.
But there is another strand to this tangled tale. Where does this leave the relationship between BA and American Express? It was a volcanic row between these two industry giants. BA will say, only if pushed: “We are in discussions with American Express to define our future relationship.”
Stories that executives from the two sides are still obliged to use plastic cutlery when dining together are - probably - mischievous but such great fallings out do take time to heal.
One industry insider told BTE: “They fell out very badly. BA was out of Amex's preferred supplier programme.
“But it now looks like it is kiss and make up time. I can only assume that some deal has been done behind the scenes. They have done it quietly because neither would want to admit it had climbed down. But we just don't know the details.”