DOT Questions Airlines on Loyalty Programs: What It Means for Frequent Flyers
American, Delta, Southwest, and United must supply information about loyalty programs the DOT says may be unfair and deceptive
Photo: Courtesy of United
The country’s four largest airlines must answer questions about their frequent flyer programs, part of a formal inquiry by the U.S. Department of Transportation (DOT) into the “fairness, transparency, predictability, and competitiveness” of these lucrative loyalty schemes.
The DOT has written to American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines, asking for a raft of information about their loyalty programs, including changes they’ve made to the schemes over the last six years and any additional fees travelers face to use and keep their accrued miles.
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“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,” Secretary of Transportation Pete Buttigieg said in a statement.
“These programs bring real value to consumers, with families often counting on airline rewards to fund a vacation or to pay for a trip to visit loved ones. But unlike a traditional savings account, these rewards are controlled by a company that can unilaterally change their value,” he continued.
The DOT’s probe will focus on four areas:
- The devaluation of points already earned by travelers, such as through the addition of blackout dates when points can’t be redeemed, expiration dates, and changing thresholds for elite status
- Hidden and dynamic pricing, which airlines use to disguise the real value of points
- Additional fees travelers face to redeem or transfer miles
- Anti-competitive impact of deals that allow travelers to redeem miles with partner airlines and of the merger of airlines and their loyalty programs
Information Requested
To assist with the investigation, the DOT wants the four airlines to disclose the average dollar value of their reward points, including the value when they’re redeemed for various services.
The carriers must also disclose every fee related to their loyalty programs and detail how much consumers must spend on co-branded credit cards to reach each status level.
Photo: Courtesy of CardMapr.nl on Unsplash
The DOT also wants documentation of every change carriers have made to their loyalty programs since 2018, including the reason for the change and how it was communicated to members.
It’s additionally asking airlines to compile a list of their ten most common customer complaints about their rewards program, including the average dollar amount of each dispute and typical resolutions.
Oversight
The DOT is targeting the country’s four largest airlines because of the “outsized role” they play in shaping the airline rewards market, Buttigieg wrote in a letter to the four CEOs.
The loyalty programs under scrutiny aren’t just shortcuts to family vacations and better seats for frequent flyers. They’re also huge money-spinners for the airlines, which use them to lock in customers with the promise of perks and free flights and rake in millions through co-branded credit cards that offer miles for spending.
However, regulators are concerned that consumers aren’t getting the rewards and points they’re promised by frequent flyer programs.
Regulatory Scrutiny and Industry Response
The partnership of airlines and credit cards, particularly, has drawn scrutiny. In May, the Consumer Financial Protection Bureau (CFPB) and DOT held a joint hearing about credit card rewards, which they say can be marketed with bait-and-switch tactics and devalued arbitrarily. The CFPB said consumer complaints about credit card rewards—of which frequent flyer points are often the biggest attraction—had soared by 70 percent since before the pandemic.
Photo: Courtesy of Alaska Airlines
Meanwhile, the proposed Credit Card Competition Act, sponsored by Senators Dick Durbin and Roger Marshall, is targeting “unfair, abusive, and deceptive practices” from airlines and their credit card partners.
The aviation industry has pushed back against stricter regulation of its loyalty programs. Following the announcement of the latest probe, lobbying group Airlines for America (A4A) said the programs are a “way carriers can say ‘thank you’ to travelers.”
“US carriers are transparent about these programs, and policymakers should ensure that consumers can continue to be offered these important benefits,” the group added.
Also responding to the investigation, Southwest said that points within its Rapid Rewards program don’t expire and that it has double the industry average of seats booked with points.
In a similar statement, Delta defended its SkyMiles program and said, “providing a meaningful rewards experience is the top priority” within the program.
Biden Administration’s Stance
The Biden administration has fiercely advocated consumer rights in the aviation market. It’s issued new regulations that require airlines to issue prompt, automatic refunds to passengers whose flights are canceled or significantly delayed and levied a historic fine on Southwest for its failings during Christmas 2022.
Photo: Courtesy of Denver International Airport.
However, the administration’s proposed rules requiring airlines to be more upfront fees for baggage, seat assignment, and itinerary change have hit turbulence. In July a federal court agreed with airlines that these fee disclosures could harm their business and paused the implementation of the rules pending a full review.
And with the Biden administration entering its final months, it’s unclear what will become of those fee transparency regulations and this new probe into loyalty programs.
