Quiver Quantitative - The U.S. Department of Transportation (USDOT) is intensifying its scrutiny of frequent flyer programs offered by major U.S. airlines, investigating potential deceptive or unfair practices. This heightened oversight reflects a growing concern over the transparency and fairness of these popular loyalty schemes. The department's probe focuses on several key aspects, including the clarity of award ticket booking procedures, the transferability of miles, and the adequacy of notice provided to consumers before program changes. One significant area under review is the gradual devaluation of frequent flyer miles, making it increasingly challenging for members to redeem their accumulated miles for flights.
Delta Air Lines (NYSE:DAL) and United Airlines (UAL), among other carriers, have been approached by the USDOT for discussions on these matters. Delta, which reported over 100 million frequent flyer members in 2020 and added a record 8.5 million members last year, declined to comment on the ongoing review. The scrutiny by USDOT aligns with recent congressional concerns. Senators Dick Durbin and Roger Marshall, in October, sought information from USDOT and the Consumer Financial Protection Bureau about possible unfair practices in airline loyalty programs, such as changing point systems to the detriment of consumers.
Market Overview: -US Transportation Department launches probe into major airlines' frequent flyer programs. -Concerns over transparency, miles devaluation, and lack of award ticket availability under review. -Congressional pressure adds heat to scrutiny, citing unfair practices and hidden fees. -Airlines defend programs, highlighting member benefits and credit card partnerships. Key Points: -Recent meetings between USDOT and major airlines shed light on potential program shortcomings. -Lack of transparency, particularly around award booking restrictions and sudden program changes, raises concerns. -Devaluation of miles over time and limited availability of desirable reward flights add to passenger frustration. -Senatorial inquiry echoes consumer complaints, prompting closer regulatory scrutiny.
Looking Ahead: -USDOT investigation could lead to reforms in program transparency, award booking accessibility, and mileage value stability. -Congressional action on credit card fees and network competition holds implications for airline-branded cards and rewards accrual. -Airlines face heightened pressure to address program issues and enhance member value propositions. -Travelers should expect increased diligence during award booking and a potential shift in program landscapes.
At the heart of the issue are reports of airlines altering their point systems in ways that devalue points, requiring consumers to spend more than initially marketed to attain promised rewards. This concern has triggered legislative efforts to address what is perceived as unjust practices within the industry. The proposed legislation, co-sponsored by Durbin and Marshall, aims to regulate the fees charged by Visa (NYSE:V) and Mastercard (NYSE:MA), promote competition, and ensure consumer choice in credit card transactions. However, major airlines have strongly lobbied against this bill, arguing that it jeopardizes their ability to offer reward credit cards linked to frequent flyer programs.
Delta recently made revisions to its frequent flyer program following member feedback, showcasing the influence of consumer opinion on airline policies. As the investigation continues, the outcome could have significant implications for both airlines and the millions of consumers participating in these loyalty programs. The airlines' response to these regulatory and legislative pressures will be a key factor in shaping the future of frequent flyer programs in the U.S.
This article was originally published on Quiver Quantitative