Tigerair’s PayPal deal is the first step towards airline credit card charges not being a rip-off

Angus Kidman 23 June 2016

TigerairVirgin_Shutterstock

PayPal provides an opportunity for Tigerair to charge lower fees, and also to protect its profit margins.

When Tigerair announced its latest sale yesterday, it also announced a new payment option: using PayPal. If you book a Tigerair ticket and use PayPal, you'll pay a service charge of $4 per person for domestic flights, or $6.50 for international flights. That's considerably cheaper than the current casual fares Tigerair charges for credit card bookings ($8.50 and $12.50 respectively).

Any option that makes flights cheaper is welcome, but in truth Tigerair doesn't have much choice. Last month, the Reserve Bank of Australia announced that from September it would crack down on surcharges for credit card payments that were obviously much higher than the cost of processing those payments. Rather than charging a flat fee, it expects airlines (including Tigerair) to charge a percentage fee, which reflects the way airlines are charged by credit card issuers.

That poses a particular challenge for low-cost carriers like Tigerair and Jetstar. In truth, much of the profit on the sub-$39 tickets those airlines specialise in come from the credit card surcharges. If those suddenly drop to $1, it's bad news for the bottom line.

The business advantage of using PayPal is that it is not on the list of payment methods being monitored by the RBA, so Tigerair isn't breaking the rules by charging a fixed fee for customers who want to use it. The income Tigerair makes from that $4 a ticket is lower than $8.50, but likely to be higher than the $8.50 it charges right now for credit cards, and all the indications suggest TigerAir will be able to keep doing that with PayPal come September.

There's no guarantee that the RBA might not subsequently decide to crack down on PayPal payment fees in the future, but it will be a slow process. The bank's original investigation into excessive charges for credit cards began back in March 2015, and that was only as a result of attempts at self-regulation by airlines and others manifestly not working.

Bargain-minded travellers won't be worrying about any of this, since they'll know that if you use an Australian-issued debit MasterCard to pay for your Tigerair ticket, you won't pay any surcharges at all. Even then, you'll still have to watch out for high baggage fees and other optional charges like MoveMe. Cheap travel requires constant vigilance.

Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.

Picture: Peterfz30 / Shutterstock.com

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