The United States Department of Transportation announced a probe into the largest rewards programs of four airlines in the country. But it’s entirely pointless and will change nothing.
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DOT Announces Probe
On Thursday, the Department of Transportation announced a probe into the four largest airline loyalty programs in the United States, American Airlines, Delta Air Lines, United Airlines, and Southwest Airlines. .
“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,” said U.S. Transportation Secretary Pete Buttigieg. “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.” – DOT
Someone, not me, might want to point out to the Secretary that savings accounts aren’t exactly competing with inflation either. Prices climbed as much in the last 3.5 years as the prior 12 combined spanning both terms from President Obama and that of President Trump.
The real issue is that airlines are completely unchecked in what they choose to charge for award flights. They sometimes, but not always, correlate to available seats on the aircraft. But as Delta Air Lines has proved, the rates they choose are fugazi and the sole enforcement of whether they can charge whatever they want comes down to the market and its partners.
Industry lobbying group, Airlines for American responded:
“Airlines for America, a trade group that represents major US carriers, said in a statement that millions of people enjoy the perks that they get from their loyalty programs. “US carriers are transparent about these programs, and policymakers should ensure that consumers can continue to be offered these important benefits,” the group said.
Why It Won’t Change Anything And Doesn’t Matter
To be crystal clear: I am not happy with the mass devaluations some of these airlines have initiated and I vote with my consumer behavior to avoid the worst offender, Delta. American Delta, Southwest, and United Airlines frequent flyer programs may all be large, but they are run very differently.
That said, this feels like a jilted loyalist got behind the wheel at the DOT to try to bring some attention to the matter at best; at worst, it’s an election year puppet show.
If we pretend (why not, the DOT seems to be fine pretending) that there would be major reform from the airlines, that they would reduce the costs of their award programs as a result, at least one if not more, of the airlines would collapse. American Airlines made $800MM last year on $52 bn in revenue but received $3.2 bn just from the banks buying Loyalty Points. Delta did better, netting $6.8 bn from American Express last year, but as a company made just $4.61 bn. These are during peak travel years. If American Express bought 1/3rd fewer Delta Skymiles in 2023, the airline would have dropped its profit by 50%; American would have gone from $800MM in the black to $200MM in the red given the same drop.
Whether the intentions are good or not, this will result in nothing but wasted time and extra costs. Here’s why.
Scope Too Broad
The scope of the “probe” is to address and discover the following:
- Devaluation of earned rewards
- Hidden and dynamic pricing
- Extra fees
- Reduction in competition and choice
Our educated audience is well aware of the issue with devaluation of award charts. The language that the DOT uses suggests that points earned are more akin to certificates, “Airlines may apply changes retroactively to rewards that customers already earned in ways that reduce or eliminate accrued value.” It then lists a number of ways that airlines can adjust their programs to make it harder to receive value from the programs such as increasing the requirements for status or costs of rewards. But if we use the model of a gift certificate, $25 to Starbucks is still worth $25 no matter when it is redeemed, but if a tall black coffee is $3 when you buy the gift card, the recipient doesn’t lock in that value. Starbucks can increase their prices over time to make that cup of coffee $7 if they want, and at some point it will reach that amount.
The DOT wants an accounting of six years of changes and justification. I’d argue that the airlines owe the DOT nothing.
My favorite part from that section is this little gem: “They may take away complimentary benefits, require a higher status to receive them, or refuse to honor promotions.”
The DOT already has a rule to make airlines honor all fares they publish and sell but has chosen not to enforce it. Why not just enforce the rule and expand its scope? It seems hilariously oblivious to not see the irony in deciding to not enforce CFR 399.88 while then being mad at airlines for flouting it in the points space. Just do your job.
It’s plainly apparent that the DOT doesn’t even understand the largest rewards programs in their industry. Here are the approximate costs of a long haul saver business class award over the last six years from American, United, and Delta – again, Southwest wouldn’t be party to this as they have a fixed rate and no long haul business class:
- Delta
- 2018 = 82,000 one-way
- 2024 = 375,000 one-way
- +357%
- United
- 2018 = 60,000 one-way
- 2024 = 88,000 one-way
- +46%
- American Airlines
- 2018 = 57,500 one-way
- 2024 = 57,500 one-way
- +0%
General inflation over that period was approximately 27% so United isn’t that far off from general economics (if this is just a savings account) and American shouldn’t even be included in the probe as they haven’t raised rates.
Hidden fees and dynamic pricing would apply more to revenue fares than award flights. The fact that the DOT has chosen to include Southwest Airlines in this probe given that its Rapid Rewards points are tied to a dollar amount between 1.3-1.4¢/point demonstrates how little staffers understand of the award space.
Extra fees are explained on each of these airlines’ websites – if the DOT would bother to look, they would see them plainly. Consumers can see them too and they are disclosed any time they are incurred. Further, this is a commercial matter and not one for the DOT.
Lastly, the reduction in competition and choice is something the DOJ has successfully sued to stop in the case of Spirit and JetBlue and in the case of Alaska-Hawaiian, didn’t enter an objection during the review period. How is that American, United, Delta, or Southwest’s fault? Further, none of those airlines have had such a merger in the last six years anyway.
Should Apply To All
If the DOT truly cared about this as an industry-wide problem it intended to solve, it would include all airlines in the process. Spirit has actually added benefits and value during that span, Allegiant hasn’t materially reduced them, JetBlue’s redemption value is fixed like Southwest’s.
Wrong Department
Given the nature, and not the market of the agency’s contention, it should be the Federal Trade Commission, not the Department of Transportation, looking into consumer protection issues and whether the carriers had a right to materially change the value of their own currency. It would have a limited reach then as well because it would have to prove that those who exchanged money for miles had been harmed by the airline changing the value of the agreement. Very few flyers buy miles speculatively, and even then, the agency would have to then prove that those customers were not informed of the risk that flights may require more miles.
Expensive, Time Consuming
There’s no listed potential outcome and how could there be? Let’s just assume that one of the airlines is guilty of… whatever the meandering DOT probe is meant to reveal, how can the DOT impose anything on the airline loyalty programs? It’s possible to argue that the programs aren’t really even under the purview of the DOT specifically any more than United Airlines’ Hemisphere’s magazine. Sure, it’s owned by the airline that is under the DOT’s purview, but aside from that, neither the business structure, its contribution, nor the way its run really applies to the Department.
The only thing that will happen as a result from this is lawyers and consultants will incur a small mountain of billable hours to answer the DOT’s probe. It will be expensive, and time consuming, and frankly, will probably increase the cost of awards going forward as they find ways to recover the costs of this foolhardy goose chase.
Conclusion
The only thing that the DOT accomplished in this effort is convincing a small minority of people that they are fighting big corporate corruption. Those folks will not follow the story outside of this initial public release and nothing will be done. If the DOT held airlines accountable for the rules it already has on the books that might be a better start. If not, perhaps consider reading any one of myriad miles and points blogs first before embarrassing yourself in front of the industry. But much like this probe, nothing will happen to the DOT or the Secretary for wasting everyone’s time and money so why not, right?
What do you think?
Clickbait editorial.
Absolutely editorial, thus the “Futile, Pointless Effort” aspect of the title – which is definitely not clickbait.
You don’t get to judge your own writing.
True, but also, LOL
Butterbutt is pandering for votes.
You sound jealous….
1,2,3 necessary. #4 not so much. If all it does is make the big 4 think before they leap, it will have been worth the effort. after all, Delta (or NW) took this to court and the court found they can do what they wan’t, or don’t want, they they owe no duty of openness and honesty.
This is the perfect project for our incompetent bureaucrats in DC–a project that will allow them to spend millions, if not billions, on themselves and their connected consultants and lawyers, while at the same time being not required to come up with any kind of an actual, workable solution. The DC swamp will make bank, and their leaders will preen and self congratulate themselves to their hearts content.
In 1989, 4 (actually 3.3) economy class SFO JFK round-trips earned 2 economy class tickets to Europe .
Who knows how many needed now? 45? 60?
@Derek – We always forget about the short haul flights the airlines actually started charging less for. I used to be so annoyed with $400 roundtrips to New York from Pittsburgh on a 45-minute flight but spending 25,000 points on a domestic roundtrip was just as absurd. Now those are pretty routinely 5,000 point one-way redemptions. With Alaska joining oneworld, and Virgin Atlantic joining Skyteam, American and Delta actually added partners not reduced them. To your point, one could argue that those same trips would have earned more 35 years ago, but you can now also earn those flights without ever flying at all but just using your credit card.
Do you think its possible the DOT knows more than you? And I’d argue that given the bailouts provided to the airlines over the years by the US government the airlines owe the DOT WHATEVER they ask for.
And actually, you are wrong. According to the Wall Street Journal US savings rates are currently beating inflation. And we all know that the rapid rise in inflation was due to supply chain issues as a result of the pandemic, as well as the $8.5 trillion dollars of gross borrowing by the Trump administration (the majority of which was approved before the pandemic and provided as tax cuts to the super rich).
Personally, I am pleased to see the DOT probing the top US airline frequent flyer programs. And personally I like to wait to read what the results are of a probe, rather than attacking it before it is even performed. Just seems a bit ignorant to comment on something you don’t even know.
A futile, pointless post. Let the DOT complete its review and then maybe you can construct a cogent comment on the results.
@Dom – What is there to review? Southwest doesn’t even have half of these elements yet they were included in the mix. American hasn’t raised its saver prices over the last six years in coach or business. Partners and mergers – that’s their department not the airlines! Outside of Delta, and maybe a stretch fringe case for United, is this warranted and can you determine based on the DOT’s statements what they will do if the airlines don’t respond, or have engaged in mass devaluations?
There’s an implicit fraud: the lie that if you earn a certain number of points today, they will buy a flight at tomorrow’s burn-rate.
@harry hv – How is that different than Chuck E. Cheese changing the redemption value of tickets, or a free night certificate for a Category 1-4 Hyatt that is now a Category 5? How is it different than buying a gift card in 2020 before restaurant prices increased more than 25%, the gift card you bought then doesn’t buy the same amount it did when it was acquired. And if that’s all fraud, then isn’t the entire economy of anything pre-paid or earned fraudulent? And how does that fall into the DOT? Wouldn’t it then go to each department? Would the FDA investigate grocery prices?
And further, labor costs alone at airlines are up more than 30% due to new contracts in the last year. If it’s generally acceptable to raise prices to meet costs (if not, that’s socialism/communism) then wouldn’t the underlying award (flights) cost more and thus the price should increase?
The reality is that airlines have turned mileage programs into a gambling game. If you study Japanese Gacha you will understand the concept exactly. Put some money into the machine and you may get nothing, something lame, or rarely something good. There is no transparency though as to odds or how to get there. Just an elusive rainbow that rarely exists but you get trapped into playing more and more to find it.
This is why the DOT is studying it more. It’s exactly why they should.
Agreed. Without attention to this, for many it is a crapshoot
Puhleez. FF miles have been a losing proposition for the last ten to twenty years. All of us who travel know that.
For some politician whose agency doesn’t even have any dominion over their use to suddenly investigate them after he’s been in office for three years plus and is scheduled to leave in three to four months plus is just another example of how cruelly and ridiculously our government spends our money. If he gave an f about this he would have done something when he was appointed. He didn’t. He went on paternity leave.
This is showboating BS by a loser who should let’s be clear, should be banished to permanent paternity leave.
It’s amusing, and sad, how we turn to an institution that can barely run its own affairs, managed by people who consistently poll in single digit approval ratings from the people they are supposed to serve, for solutions to our problems. And when things don’t get fixed, we keep coming back for more.