Frequent Flyer Programs Under Attack by US Senators

By Robert McGarvey

U.S. Senate Majority Whip Dick Durbin, D-Ill. and Sen. Roger Marshall, R-Kan. don’t like frequent flyer programs. Indeed, they seem to think them scams and, said the senators in a joint statement, they have “requested information from the U.S. Department of Transportation (DOT) and the Consumer Financial Protection Bureau (CFPB) about the actions they are taking to protect consumers against unfair and deceptive practices in airlines’ frequent flyer and loyalty programs.”

And do note, Durbin – a longtime senator – is a powerful guy in the chamber. He is no back bencher, he is leadership.

Their statement continued: “there are troubling reports that airlines are engaged in unfair, abusive, and deceptive practices with respect to these loyalty programs.  For example, reports have suggested that airlines are changing point systems in ways that are unfair to consumers, including by devaluing points, meaning it takes more points than initially marketed to achieve the promised rewards.”

The airlines cannot with a straight face deny that they have in fact devalued points.

They also adroitly use low cost sales – such as a recent Delta sale where as few as 34,000 SkyMiles bought a roundtrip to Europe.  The sale is legit as far as that goes but it is brief and availability is limited.  And that cost has no relationship to what you are likely to in fact pay today.  

I just did a search on flights from PHX to MAD, depart January 3, return Jan. 9, and the cheapest flight was 50,000 SkyMiles, half again more than the teaser rate.

What did the Senators say about “abusive and deceptive” practices?

The Senators added in their statement, “airlines can make changes to their points programs without notice to consumers, as long as the programs’ terms of service reserve the right to do so.“

Sometimes that means we need to top up our mileage total to buy a rewards ticket and that may mean we buy miles from the airline.  The senators  note that is not smart shopping: “consumers can spend three cents to purchase a point worth roughly one cent.”

A bottomline here is that – as Brancatelli has preached for many years and I have joined his chorus – when you got miles, burn ‘em.  Miles do not gain value over time, they lose value.  They are a depreciating asset, rather like a boat or almost all cars.

The senators remind us that originally frequent flyer programs were created to reward loyalty. They did indeed. I remember a friend who was fiercely loyal to American, whereas I flew whatever flight was most convenient for me.  And then in the mid-eighties he cashed in a trove of American miles and rewarded himself with a trip to Egypt, where he had wanted to go since he’d been a kid. It cost him zip – he even had enough miles for hotel accommodations.

I have to admit I still did not change my focus on convenience but at least I had come to understand why some people became very loyal to a particular carrier.

Along the way, however, airlines changed the rules. They shifted their business model to making profits not on flights but on the sale of miles.  

Integral to that gambit is persuading us to take branded credit cards – and I personally have a Delta and Southwest credit card in my wallet – and of course we earn more miles by spending on the cards.  Observed the senators, “these programs incentivize consumers to purchase goods and services, obtain credit cards, and spend on those credit cards in exchange for promised rewards—all while retaining the power to strip consumers of those rewards at any moment.”

So what are the senators seeking to do? They have written Secretary Buttigieg of DOT and Director Chopra of the Consumer Financial Protection Bureau asking what they are “doing to protect consumers against unfair and deceptive practices in airlines’ frequent flyer and loyalty programs.”

In particular the senators want answers to these four questions:

·         Are DOT and the CFPB aware of these alleged practices by the airlines regarding frequent flyer and loyalty programs?

o   If so, please detail how DOT and the CFPB are planning to address these practices.

·         Do DOT and the CFPB have the regulatory authority needed to adequately protect consumers from these unfair and deceptive practices?

o   If not, please explain if additional authority from Congress would enable DOT and the CFPB to effectively regulate airlines’ frequent flyer and loyalty programs.

Will airlines give a hoot? Not as long as we still collect miles, use their credit cards, and otherwise behave as though we believe their Monopoly money has real value. Why should they change if we don’t?