Four frequent flier programs are under inquiry by the Department of Transportation of the United States in order to ultimately protect members of the rewards programs of the four largest airlines in the United States from practices that may be perceived as potentially unfair, deceptive, or anticompetitive.
Four Frequent Flier Programs Under Inquiry By Department of Transportation
Orders to provide records and submit reports with detailed information about their rewards programs, practices, and policies were sent as letters that are each nine pages in length to American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines by Pete Buttigieg. The information is requested as part of the review by the secretary of transportation of the United States to allow the Department of Transportation to better understand and identify potential competition or consumer protection issues or risks — including the following four items that are replicated verbatim from the official Internet web site of the federal government agency:
- Devaluation of earned rewards: Airlines may apply changes retroactively to rewards that customers already earned in ways that reduce or eliminate accrued value. They may move the goal post by increasing the number of points needed for redemption or status upgrades. Airlines may impose new restrictions, such as increasing the blackout dates for flight redemptions, limiting who can use the points to travel, adding or changing an expiration date, requiring an active account for points to remain valid, or adding new hurdles to qualify for status. They may take away complimentary benefits, require a higher status to receive them, or refuse to honor promotions. When earned value disappears before it can be redeemed, customers have little recourse to reclaim it from the airline. As part of DOT’s probe, airlines must describe each change made to their rewards program over the last six years, how it impacted existing points and status, and what options were provided to members to avoid losing any value or benefits they had already earned.
- Hidden and dynamic pricing: When the true dollar value of rewards is hidden or unpredictable, it can be easier for airlines to devalue rewards without detection. Hiding the dollar value makes it harder to compare the redemption price against the cash price across different rewards. It can mask disparities between a point’s purchase price and its dollar value. Problems created by opaque pricing are compounded by dynamic pricing where the number of points needed for redemption change frequently and unpredictably. As part of DOT’s inquiry, airlines must provide the average dollar value of one reward point, the value of a point when it is redeemed for various services, and the price to purchase a point directly from the airline. They must also identify practices related to dynamic pricing and the financial impact of those practices on consumers.
- Extra fees: Airlines often add extra fees for passengers to maintain, redeem, or transfer points they have earned. These fees may add little benefit but can reduce the value of rewards by making them more expensive to accrue or use. Airlines must identify and describe to DOT each fee associated with their rewards program that is charged to consumers related to the use or administration of their rewards points, the actual cost to the airline for a consumer to take the action for which they are charged a fee, and the rationale for charging the fee.
- Reduction in competition and choice: Rewards programs are a critical financial asset and can be a key part of airline mergers. These mergers can eliminate or reduce competition and choice for rewards consumers, particularly as an airline’s dominance increases in a particular region. Moreover, the integration of two rewards programs can present problems if customers in one or both programs lose value, rewards, or status in the transition. Some rewards practices may create opportunities to collude or price signal. As part of DOT’s inquiry, airlines must describe and provide documents related to their mergers involving rewards programs, the integration process of merging programs, their rewards program partnerships, and how they monitor, analyze, and/or react to other airlines’ competing rewards program.
Southwest Airlines claimed that the benefits of its flexible Rapid Rewards membership program have resulted in the carrier doubling the industry average of seats that are booked with points. None of the other airlines have released any comment publicly at the time this article was written.
The AAdvantage, SkyMiles, and MileagePlus frequent flier loyalty membership programs — which collectively have tens of millions of members — were each valued at greater than $20 billion in 2023.
A public hearing pertaining to airline and credit card programs occurred on Thursday, May 9, 2024 between Pete Buttigieg and Rohit Chopra, who is the director of the Consumer Financial Protection Bureau of the United States.
Smaller airlines that are based in the United States touted the consumer-friendly policies of their frequent flier rewards programs at the hearing — although they expressed some concerns pertaining to competition as to how rewards programs are leveraged by the largest airlines. Officials of the Department of Transportation have also met with eleven airlines that are based in the United States to discuss their rewards programs as part of a larger industry review.
Final Boarding Call
I do not quite agree with the following statement from Pete Buttigieg: “Points systems like frequent flyer miles and credit card rewards have become such a meaningful part of our economy that many Americans view their rewards points balances as part of their savings.” I have argued for years that cash is usually more valuable than miles and points because of significantly fewer restrictions: one can spend cash almost any way he or she chooses — whereas miles and points are at the whim of the issuer as to how they can be earned and used…
…and miles and points almost always devalue faster than cash.
Having enough miles and cash to redeem for an award is always nice — but one should not view them as savings or retirement. They should be saved until they can be used in a way that is most beneficial to the holder — such as a sale or for an emergency situation.
This is another initiative by the federal government of the United States to regulate yet another aspect of what should be a free market economy. No one has ever said, “Oh, boy! A devaluation of my miles and points! I am so-o-o-o-o excited!!!” — especially when no notice is given in advance. I am certainly not defending the airlines for their nefarious practices regarding the way they handle their frequent flier membership programs; but in my opinion, intervention from the Department of Transportation is not the answer — customers speaking and voting with their dollars is the answer…
…and I also do not believe that “many Americans” even know much about frequent flier programs at all — even to this day — let alone know how to earn them and redeem them. If they did, BoardingArea would have more of a mainstream audience than a niche following of travelers.
I do believe one thing: if the Department of Transportation succeeds in their inquiry or probe of frequent flier membership programs, you can bet that you and I will dislike the results even more so than we do today…
Illustration ©2012 by Brian Cohen.
