A growing number of airlines, facing rising fuel prices, are trying to reduce their online payment expenses by signing up for alternatives to credit cards.
"Credit cards really are the last area where there's an ability to save money," said Ralph Kaiser, the president, chief executive, and chairman of Universal Air Travel Plan Inc. "Credit cards have traditionally been a more expensive form of payment than anything else."
The biggest airlines can pay $250 million to $300 million in card fees each year, Mr. Kaiser said.
His Washington company, which is owned by several airlines, offers a corporate payment card and runs a payment network for 240 carriers and travel agents worldwide. Last month it said it would route payments made to carriers through Bill Me Later Inc. It also supports payments made through PayPal Inc. and Moneta Inc. It does not handle consumer credit card payments.
Mr. Kaiser said that UATP has been promoting alternative payment systems since 2005, and that interest from carriers and consumers is starting to take off.
The amount of money spent at U.S. airlines through alternative payment methods has doubled in the past year, he said. He would not provide exact figures, and he made it clear that alternative methods are not "something that's going to replace credit cards entirely."
Some carriers were trying to negotiate lower fees with the card networks as early as 2005, but few said they were considering alternative payment systems then.
Airlines are turning their attention to alternative payments now because there is little else they can do to cut costs as fuel prices rise, he said. "The price of oil has added pressure in general to find savings anywhere that can be found, and one of the challenges for airlines is they've done a very good job, particularly in the U.S. market, of squeezing costs out of their operations."
Midwest Air Group Inc., Northwest Airlines Inc., Southwest Airlines Co., JetBlue Airways Corp., Delta Air Lines Inc., and AirTran Holdings Inc. offer at least one alternative method through UATP, he said. He expects another U.S. airline to join the list each month through early next year, and his company plans to begin offering alternative payments to its foreign airlines this year.
Some airlines have struck their own agreements to accept alternative payments. Continental Airlines Inc. has used Bill Me Later for nearly two years.
The online travel company Orbitz LLC accepts Retail Expansion Network Inc.'s PaidByCash. Sabre Inc.'s Travelocity accepts only credit and debit cards.
Mary Anne Gillespie, PayPal's vice president of sales, said the eBay Inc. unit is benefiting from the air industry's efforts.
"Independent of us, airlines are trying to drive business to their least-cost channel, which is the Web," she said. "Since that's a goal, companies like PayPal can say 'Well, we have an alternative payment option,' and it becomes very good news to them."
PayPal payments can still be charged to credit card accounts, but the fees PayPal charges merchants are generally less than what they would pay an acquirer to accept card payments directly.
John Reistrup, Bill Me Later's vice president of travel and entertainment marketing, said lower costs are not the only benefit of his company's system.
For example, Bill Me Later's instant credit ("Essentially, a customer can travel now and not have to pay for three months.") can appeal to business travelers who want to submit their expenses and get reimbursed by their employers before the bill is due, he said.
Mr. Reistrup said the contract with Continental has a clause created specifically for business travelers who buy expensive tickets: For fares above $1,500, Continental flyers who use Bill Me Later have six months to pay their bill.
Financing options also appeal to many consumers, who are facing some of the same economic pressures as the airlines do, he said. Consumers would like to "take in a lot more paychecks before they pay for their vacation" without having to postpone the vacation itself.
So far this year Bill Me Later's volume with all travel companies has risen 70% over the same period last year, Mr. Reistrup said.
Frontier Airlines Holdings Inc., which filed for bankruptcy protection in April, cited access to card funds as one factor in its downfall. In its bankruptcy filing, Frontier said its processor, First Data Corp., told the airline it needed to more than double the collateral required under their processing agreement, to $130 million, and retain half of Frontier's proceeds from card sales.
The companies reached an agreement in June that allowed Frontier to continue to take credit cards; they did not disclose the collateral and retention details.
Bruce Cundiff, a research analyst for Javelin Strategy and Research of Pleasanton, Calif., said, "I definitely see airlines in a variety of ways, not just payment types, looking for cost-cutting measures." Cost is not the only reason they are turning to alternatives, he said. "It's also related to the needs they see among their customer base" — many prefer PayPal, for example, over entering their credit card details online out of security concerns.
For the most part, credit card fees are not doing major damage to the airlines, Mr. Cundiff said. "It's just so strange that, even more than oil companies, it's the credit card companies that are being vilified. It all comes back to interchange. … It's just an easy target. It's a line item, but honestly I still see it as a cost of doing business."
Many airlines have deep relationships with credit card providers, as evidenced by the abundance of cards tied to flier reward programs, he said, and they are not eager to strain those relationships.
Card brands and issuers "do not feel threatened at this point," Mr. Cundiff said. "I don't think it's an immediate call to action."
Jennifer Roth, a senior analyst with the global payments practice at TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc., said, "Yes, these alternatives are threats, absolutely, but you have to take the impact into perspective. … People are paying with credit cards still."
