DOT Launches Probe of Airline Rewards Programs
The U.S. Department of Transportation (DOT) has launched an inquiry into the four largest U.S. airlines’ rewards programs with the aim of protecting rewards customers from potential unfair, deceptive, or anticompetitive practices.
As part of the probe, U.S. Secretary of Transportation Pete Buttigieg sent letters to American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines ordering them to provide records and submit reports with detailed information about their rewards programs, practices, and policies.
The agency’s probe is focused on the ways consumers participating in airline rewards programs are impacted by the devaluation of earned rewards, hidden or dynamic pricing, extra fees, and reduced competition and choice.
“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,” U.S. Transportation Secretary 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. Our goal is to ensure consumers are getting the value that was promised to them, which means validating that these programs are transparent and fair.”
Frequent-flyer programs were originally based on the number of flights or miles a member would fly. However, in recent years, spending on airline-branded credit cards has become a major part of these programs, and an important source of airline revenue.
The CFPB said in a report earlier this year that it received more than 1,200 complaints about credit card rewards in 2023, an increase of more than 70% from pre-pandemic levels. But that includes hotels, retailers and other businesses that also offer loyalty programs with credit cards.
Given the proliferation of rewards programs in air travel, DOT has initiated a review to examine the fairness, transparency, predictability, and competitiveness of airlines’ rewards programs. The agency is specifically requesting information and documents relating to:
- 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.
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