Airlines are now adding a range of credit card surcharges – here’s a full list and a look at when it’s worth paying them

In May 2016, the RBA made changes to credit card payment regulations that changed the way in which surcharges for credit card payments could be applied.

Airlines and hotels have gone about implementing new surcharges according to the legislation in the last few months, with a number of different surcharges now in place.

We have summarised them for you in this guide – along with our thoughts on when it may make sense to pay a surcharge.

Summary of Surcharges

The table below summarises the new payment surcharges now in place for airlines selling tickets ex Australia.

Which card should you use?

The general rule when deciding to use a payment method that incurs a surcharge is to balance the cost of the surcharge with the benefit received from using that payment method. This can be thought of as the ‘net benefit’ of the payment transaction. It is increasingly important to make sure that you choose the card that maximises the ‘net benefit’ in your favour.

One way to do this is to use a credit card that earns you bonus points on your airline purchases.

Credit cards that offer bonus points for spend on travel transactions generally are a great starting point – you’ll pick up an extra point or so per dollar spent, depending on the card used.

If Qantas Frequent Flyer is your program of choice, you should look to use the following credit cards that earn bonus Qantas points on each dollar spent at Qantas.

Alternatively, if Velocity Frequent Flyer is preferred program, then look to use the following credit cards on your airline purchases, which earn you bonus Velocity points per dollar spent with Virgin Australia.

Consider Using PayPal

Virgin Australia provides an opportunity through PayPal to make a substantial cut to surcharges applied to premium long-haul tickets without compromising any rewards points from being accrued.

PayPal allows transactions to be made through any credit card, including the more lucrative point earning American Express cards, while having a fixed fee of $23 per booking. So if you’re more inclined to purchase long-haul Business or First class tickets, you’ll find the surcharge cut from $70 per person (the cap on long-haul Virgin Australia flights), to just $23, a saving of over 67%!

Should you pay the surcharge?

Whether to pay the surcharge will be based on a number of factors, including the payment method you use to purchase your ticket and the related surcharge, the number of points you earn, where you are flying and your airline of choice.

We have gone through some examples below which detail the calculations you should make when determining whether your next trip should be purchased using a credit card.

In our calculations, we generally set the value of a frequent flyer point to around 2 cents – this is high, but makes the calculations simpler to understand.

We’re not advocating you should pay for specific surcharges here, just showing how to run the numbers for yourself.

Example 1: Flying Sydney to Brisbane return in Economy Class on Qantas, spending $500

Using a credit card earning 0.5 Qantas points per dollar spent

In the above scenario, you will be $1.50 worse off if you use a standard Visa or Mastercard earning 0.5 Qantas points per dollar spent.

Using a card earning 2 Qantas points per dollar spent

Now in this scenario, when using a credit card that earns you double Qantas points with your points valuation of 2c, the value you get from your points outweighs the surcharge that is payable.

Example 2: Flying Sydney to Brisbane return in Business Class on Qantas, spending $1,400

Using a credit card earning 0.5 Qantas points per dollar spent

In the above scenario, you will be better off if you use a standard Visa or Mastercard earning 0.5 Qantas points per dollar spent, thanks to the $11 surcharge cap kicking in.

Using a Qantas American Express Discovery card earning 2 Qantas points per dollar spent

In this scenario, you are better off – thanks in part to the double point earn, along with the surcharge capping.

Example 3: Flying Sydney to Los Angeles return on Virgin Australia in Economy Class, spending $1,800

Using a credit card earning 0.5 Velocity points per dollar spent

In this scenario, you are worse off if you use a standard Visa or Mastercard earning 0.5 Velocity points per dollar spent.

Using an American Express Velocity Escape card earning 2 Velocity points per dollar spent

Like the previous example, if you utilise a bonus points earning credit card, you’ll come out on top.

Example 4: Flying Sydney to Los Angeles return on Virgin Australia in Business Class, spending $8,000

Using a credit card earning 0.5 Velocity points per dollar spent

This example highlights the benefit provided to consumers purchasing expensive premium tickets due to the cap imposed on the surcharge.

Even with a relatively poor earning credit card, given the cap applicable on the surcharge, you come out better off by paying the surcharge, albeit by only a small amount.

Using an American Express Velocity Escape card earning 2 Velocity points per dollar spent

Again the cap on the surcharge factors heavily here, and when using a bonus point earning credit card, you come out well on top when purchasing premium tickets.

Summing Up – when to pay credit card surcharges for airfare

In the above examples a pattern emerges with respect to the ‘net benefit’ derived from purchasing an airline ticket.

If you select a credit card that earns bonus rewards points, or are purchasing a business or first class ticket, then it is more likely you’ll come out on top.

However – you should ensure you have in mind your own value of a point, and know whether any of your credit cards offer bonus points for travel or with specific airlines – then you can calculate this for yourself.