Should Frequent Flier Loyalty Programs Be Regulated by the United States Government?

S hould the frequent flier loyalty programs of airlines be regulated by the Department of Transportation of the United States?

The Department of Transportation already requires that airlines disclose the rules of their frequent flier loyalty programs and provides guidance to airlines for disclosing costs they may assess related to bookings of award travel.

This letter was written by Matthew Hampton — who is the Assistant Inspector General for Aviation Audits of the Department of Transportation of the United States — where an audit has been initiated pertaining to the oversight of the frequent flier loyalty programs of airlines and is being conducted at the request of Alan Grayson, a member of Congress who represents the ninth district of Florida:

For more than 30 years, major airlines have offered frequent flyer programs to encourage travel on their respective airlines and secure customer loyalty. In addition to earning awards by flying, participants can earn awards for free travel by using certain credit cards and purchasing services from non-airline partners such as hotels and rental car agencies. Currently, there are an estimated 647 million members enrolled in various frequent flyer programs worldwide, with 306 million members enrolled in U.S. airline programs.

The Department of Transportation (DOT) does not have regulations directly related to the terms of airline frequent flyer program contracts. These are matters of individual airline policy. However, DOT does require that airlines disclose their frequent flyer program rules. DOT also provides guidance to airlines for disclosing costs they may assess related to bookings of frequent-flyer award travel.* Failure to adhere to DOT’s guidance could constitute an unfair and deceptive practice in which enforcement actions can be pursued against the airlines.

In July 2014, Representative Alan Grayson requested that we examine airlines’ frequent flyer program practices. In particular, Representative Grayson expressed concerns about the lack of transparency for consumers when airlines change their frequent flyer program terms and conditions. Accordingly, our audit objective will be to assess DOT oversight of airlines’ compliance with frequent flyer program disclosure requirements.

We plan to begin our audit later this month and will contact your audit liaison to schedule an entrance conference. We will conduct our work at DOT Headquarters and selected airlines (to be determined). If you have any questions, please contact me at (202) 366-0500 or Scott Macey, Program Director, at (415) 744-0434.

* Under DOT guidance, any government fees or taxes or mandatory carrier charges, such as processing fees the consumer must pay in frequent-flyer award programs, must be shown on the airlines’ Web sites.

In general — although I personally do not like the recent trend in frequent travel loyalty programs in general — I believe in the free market economy where decisions are based on supply and demand and would rather have that than government intervention dictating against market trends. As I pointed out in this article on November 15, 2013, there are several factors which have significantly changed the “game” of frequent flier loyalty programs — including but not limited to consolidation; reduction of capacity; ancillary fees; improvement of the economy; and more frequent travel loyalty program miles and points available for fewer awards.

It was in July of 2009 when a letter was signed by the chief executive officers of 12 domestic airlines based in the United States at that time, which basically asked for your assistance to restore and enforce regulations and limits to “control excessive, largely unchecked market speculation and manipulation” pertaining to oil contracts which supposedly fueled a rise in oil prices per barrel. Remember that letter? You were to have contacted the members of Congress who represented you, letting them know that you are joining other Americans and the airlines in a unified front to pull together as a nation “to reform the oil markets and solve this growing problem.”

So — did you do that?!?

In my opinion, the government should enact laws designed to protect its citizens — such as ensure that airlines follow strict standards of safety to mitigate the possibly of danger to passengers — rather than dictate to airlines how to operate their frequent flier loyalty programs. Of course, that is a general opinion to which you and I could certainly conjure plausible exceptions…

…but I believe that our efforts would be better spent maintaining our perspective in life and adjusting our expectations, rather than attempt to force airlines to adjust their frequent flier loyalty programs to our tastes. Our wallets should do the talking or we should do the walking. Although I believe that things happen in cycles, for now the glory days of the frequent travel loyalty program are behind us.

Does that mean that it is time to give up on frequent travel, miles and points? I personally do not believe so. Although fewer and farther between, there are still opportunities to be had. I just do not believe that those opportunities should be available because the federal government of the United States forced airlines to do so…

…besides, why stop there? How about regulating those programs by sandwich shops where if you have 12 holes punched on your card, you get a free sandwich?

In April of this year, the justices of the Supreme Court of the United States ruled unanimously in the case of Northwest, Incorporated versus Ginsberg that the lawsuit initiated by S. Binyomin Ginsberg against Delta Air Lines was barred by the Airline Deregulation Act of 1978. How might the landscape of frequent flier loyalty programs have been affected had he won his case? More importantly, what would the airline industry be like today if it was still regulated by the federal government like it was until the late 1970s — before there was even such a thing as frequent flier loyalty programs?

In my opinion, the Department of Transportation should stay out of this one. The primary initial purpose of a frequent flier loyalty program was to give a perk to someone who demonstrated loyalty to the airline — both in dedication and in revenue. How an airline operates its frequent flier loyalty programs does not directly impact its primary purpose, which is to transport passengers as safely as possible.

Of course, with the advent of affiliate credit cards, the frequent flier loyalty program “game” has itself changed significantly.

However, if an airline attempts to purposely defraud its members with the way they operate their frequent flier loyalty programs, is that not already under the jurisdiction of the Bureau of Consumer Protection of the Federal Trade Commission — a federal agency of the United States which has existing laws in place to protect consumers?

What are your thoughts?

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