Don’t Start Counting Those Extra Frequent Flyer Perks Just Yet: DOT v the Carriers

By Robert McGarvey

Last Thursday the US Department of Transportation dropped a bomb.  The headline on the news release read: “USDOT Seeks to Protect Consumers’ Airline Rewards in Probe of Four Largest U.S. Airlines’ Rewards Practices.”

The release stated: “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. DOT’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.”

Pardon me as I yawn.

OF COURSE we are impacted by continuing devaluation of the points and miles we have accumulated.  But this has been an ongoing drip – drip – drip, probably dating back to 1981 when American Air debuted its AAdvantage program.

For more years than I can remember Joe Brancatelli has been kvetching about the shrinking value in frequent flyer programs and urging readers to spend the miles you have because, like the Weimar Papiermark, a rewards mile loses value seemingly day by day.  

Brancatelli has also urged – and I’ve joined his chorus – that the only way to win in this game is to pursue credit cards with lavish welcome bonuses.

Even then, winning isn’t assured – but at least you have a chance to not be a loser.

The reality is that winning the frequent flyer game is about as likely as winning at 3 card monte in 1970s Times Square.  

Yes, I have gotten a pair of tickets for European travel in three of the last four years but I had long untapped reservoirs of points and miles and in buying the tix last year I transformed into a mendicant.  Maybe I have enough for a free round trip from PHX to LAX but not much more than that.

And I applaud my points poverty. It means I am doing something right. 

Fast fact: Most airline miles are never redeemed. According to CBS News, “The airlines like to boast to Wall Street the real value of their reward programs. And they often celebrate the financial success of these programs by how low the redemption rate is for miles — in some cases 8%.”

Another fast fact: Per McKinsey, 58% of all rewards miles are earned via ground purchases. Not by people flying. 

Quick question: what are the odds of winning at a Las Vegas Strip slot machine? The question has no answer. That’s because every machine can have a different payout rate and, in fact, often in the same casino identical machines will have varying payout rates.  The house gets to decide what payout rate it wants.  

The airline programs are no different.

And they have the protection of the US Supreme Court and lower courts:  “In April 2014, the U.S. Supreme Court held that the Airline Deregulation Act (ADA) preempted a frequent flyer program member’s common law claim for breach of the implied covenant of good faith and fair dealing because the claim constituted a state-imposed obligation outside the agreed-upon terms of the program.

“Since the high court’s decision, several federal courts have ruled favorably for the airlines on contractual and extra-contractual claims arising from interpretation of similar rewards programs. These rulings are a positive development for air carriers that rely on the terms and conditions set forth in the program agreement, particularly those provisions giving the airlines the sole discretion to act or interpret the agreement.”

DOT Secretary Pete Buttigieg will get some headlines out of this gambit, maybe an airline or two will throw us a small bone but we aren’t going back to static rewards charts or anything like fixed values for points and miles.  The carriers changed all the rules, most of us went along with it, and here we are.

Look, I am not saying frequent flyer programs are fair or kind or even reasonable.  They are vastly beneficial to the carriers and the passengers get a few crumbs.  But as long as you understand the rules – and accept that the carriers make them – playing the miles and rewards game can be fun. I have the flights to Europe to prove it.

Just don’t ever think you are winning.