DOT Probe Investigates Four Largest Airline Rewards Programs

The U.S. Department of Transportation (DOT) has launched a federal inquiry into the four largest U.S. airlines’ rewards programs in an effort to protect customers from potential unfair, deceptive, or anticompetitive practices.

According to a news release posted by DOT on Thursday, 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 with detailed information about their rewards programs, practices, and policies.

The probe is focused on the ways consumers participating in airline rewards programs are impacted by the alleged 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,” Buttigieg said in the release. “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.”

Airline loyalty programs are extremely effective marketing tools that drive customer loyalty and incentivize them to stay loyal. Rewards points are typically earned by making purchases with the airline’s co-branded credit card, by flying on the airline or its partners, or by other activities specified by the airline or its credit card partner. These points can then be redeemed for flights, upgrades, and other products and services.

The value of rewards is set by the terms and conditions that govern their use. Because many airlines reserve the right to change their terms, the DOT probe argues that the value of the rewards is changed at their discretion.

Buttigieg is specifically requesting information and documents relating to:

1. Devaluation of earned rewards from airlines increasing the number of points needed for redemption or status upgrades, implementing blackout dates for flight redemptions, limiting who can use the points to travel, and more. 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.
2. Hidden and dynamic pricing from airlines masking possible disparities between a point’s purchase price and its dollar value. 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.
3. Extra fees added by airlines to maintain, redeem or transfer points customers have earned. 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.
4. Reduction in competition and choice by airlines using rewards programs as a key financial asset in mergers. DOT argues that these mergers can eliminate or reduce competition and choice for rewards consumers. 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 react to other airlines’ competing rewards programs.

In May, Buttigieg joined the Director of the Consumer Financial Protection Bureau Rohit Chopra for a public hearing on airline and credit card programs. At the hearing, smaller U.S. airlines touted their rewards programs’ consumer-friendly policies, while expressing some competition concerns as to how rewards programs are leveraged by the largest airlines.

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