The U.S. Department of Transportation (DOT) has launched an investigation into the rewards programs of the four largest U.S. airlines, aiming to protect loyalty customers from potentially unfair, deceptive, or anti-competitive practices. As part of the investigation, Transportation Secretary Pete Buttigieg sent letters to American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines, requiring them to provide records and reports with detailed information about their rewards programs, practices, and policies. DOT’s investigation focuses on how airline loyalty program participants may be affected by reward devaluations, hidden or dynamic pricing, extra fees, and reduced competition and choice.

"Points systems like miles and credit card rewards have become an important part of our economy, and many Americans view their reward point balances as part of their savings," said U.S. Transportation Secretary Pete Buttigieg. "These programs provide real value to consumers, and families often rely on airline rewards to pay for vacations or trips to visit loved ones. But unlike traditional savings accounts, these rewards are controlled by companies that can unilaterally change their value. Our goal is to make sure consumers receive the value they were promised, which means verifying whether these programs are transparent and fair."

Airline reward points are typically earned by using an airline partner co-branded credit card, flying on the airline or its partners, or through other activities specified by the airline or its credit card partners. Reward points can be redeemed for airfare, upgrades, ancillary services, or third-party products and services. In many loyalty programs, customers can also earn elite status by accumulating reward points, taking qualifying flights, and/or meeting spending targets. Loyalty members at different status tiers receive complimentary benefits that increase in value as status rises, such as bonus miles, service upgrades, or lounge access.

The value of rewards is determined by the terms and conditions governing their use and benefits. Those terms set the rules and requirements for earning reward points, what they can be redeemed for, how many points are required, how elite status is achieved, what benefits come with it, and any restrictions on flexibility, redemption, or expiration. These rules determine how reward points compare in value with purchasing the same rewards in cash. Many airlines reserve the right to change their reward terms and values.

Given how widespread airline travel rewards programs have become, DOT has begun a review to examine the fairness, transparency, predictability, and competitiveness of airline loyalty programs. DOT has the authority to investigate and take action against unfair or deceptive practices and unfair methods of competition in air transportation or the sale of air transportation.

As part of the department’s review, Secretary Buttigieg ordered the four airlines to submit information so DOT can better understand and identify potential competition or consumer protection concerns or risks. The Secretary has the authority to require airlines to provide special reports, information, documents, and answers to questions when necessary. Secretary Buttigieg specifically requested information and documents related to the following:

Reward devaluation: Airlines may make retroactive changes to rewards customers have already earned, reducing or eliminating accumulated value. They may change the rules by increasing the number of points needed for redemptions or upgrades. They may impose new restrictions, such as adding more blackout dates for award tickets, limiting who can travel using points, adding or changing expiration dates, requiring accounts to remain active to keep points valid, or adding new qualification requirements. They may eliminate complimentary benefits, require higher status to receive them, or refuse to honor promotions. When earned value disappears before redemption, customers often have little ability to recover it from the airline. As part of DOT’s investigation, airlines must describe every change made to their rewards programs over the past six years, how each change affected existing points and elite status, and what measures were provided to members to avoid losing already-earned value or benefits.

Hidden and dynamic pricing: When the true dollar value of rewards is hidden or unpredictable, airlines can more easily reduce the value of rewards without being noticed. Hidden dollar values make it harder to compare redemption prices across different rewards and against cash prices. This can obscure the gap between the price of buying points and their dollar value. Because of dynamic pricing, the number of points needed for a redemption can change frequently and unpredictably. As part of DOT’s inquiry, airlines must provide the average dollar value of reward points, their value when used to redeem different services, and the price of purchasing points directly from the airline. They must also identify practices related to dynamic pricing and the financial impact of those practices on consumers.

Extra fees: Airlines often impose extra fees on passengers to maintain, redeem, or transfer points they have already earned. These fees may provide little benefit while making it more expensive to accumulate or use rewards, thereby reducing their value. Airlines must identify and describe each fee associated with their rewards programs, the costs consumers pay to participate in the programs, and the justification for those fees.

Reduced competition and choice: Loyalty programs are an important financial asset and can also be a key part of airline mergers. These mergers may eliminate or reduce competition and consumer choice for rewards customers, especially when one airline strengthens its position in a particular region. In addition, combining two loyalty programs can create problems if customers in one or both programs lose value, rewards, or elite status during the transition. Some loyalty program practices may also lead to collusion or price signaling. As part of DOT’s investigation, airlines must describe and provide documents related to loyalty program mergers they have been involved in, the integration process for merged programs, their loyalty program partnerships, and how they monitor, analyze, and/or respond to competing loyalty programs at other airlines.

Secretary Buttigieg and Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra co-hosted a public hearing in May 2024 on airline and credit card rewards programs. At the hearing, smaller U.S. airlines highlighted the consumer-friendly policies of their loyalty programs while also raising competitive concerns about how the largest airlines use their rewards programs. DOT officials also met with 11 U.S. airlines to discuss their rewards programs as part of a broader industry review.

Since the Biden-Harris Administration took office, DOT has taken historic actions to improve airline passenger rights and strengthen oversight of the airline industry:

Created a new rule requiring airlines to automatically provide cash refunds to passengers when refunds are owed.
The rule makes clear that passengers are entitled to refunds when their flights are canceled or significantly changed and they no longer wish to take the flight or accept rebooking; when their checked baggage is significantly delayed; or when paid ancillary services, such as Wi-Fi, are not provided. The rule also requires refunds to be automatic, prompt, in the original form of payment, and for the full amount.

The FAA Reauthorization Act, signed by President Biden on May 16, 2024, further strengthened provisions related to the final airline refund rule.

Created a new rule to protect consumers from costly airline junk fees.

The rule requires airlines to disclose key extra fees upfront, such as change fees and baggage fees, so consumers can better understand the true cost of travel. The rule also prohibits bait-and-switch advertising tactics and requires airlines to clearly inform passengers that seating is included in the fare and does not require an additional payment. Seven parties—American Airlines, United Airlines, Delta Air Lines, Alaska Airlines, Hawaiian Airlines, JetBlue Airways, and Airlines for America—have challenged the rule, and the court has temporarily paused its implementation. DOT will continue to defend the rule and noted that the court’s decision does not prevent airlines from voluntarily complying with this common-sense requirement. If the rule takes effect, it will save consumers more than $500 million per year.

Worked with bipartisan state attorneys general to expand the department’s capacity to review complaints about air travel service, helping hold airlines accountable and protect travelers’ rights. Attorneys general who signed memoranda of understanding with DOT will be able to access the new complaint system this fall.
Ensured airline passengers receive enforceable guarantees for food, lodging, and other support owed to them when airlines strand travelers. After DOT launched flightrights.gov, all 10 major U.S. airlines committed to providing free rebooking, meals, lodging, and other amenities when they are responsible for significant flight delays or cancellations. These are new commitments added by airlines to their customer service plans, and DOT can legally enforce compliance with those commitments through enforcement actions.
Ensured airline travelers received nearly $4 billion in refunds and reimbursements, including more than $600 million owed to passengers affected by Southwest Airlines’ holiday meltdown in 2022.

Under President Biden, nearly $170 million in penalties has been assessed against airlines for consumer protection violations. By comparison, from 1996 to 2020, DOT assessed a total of more than $70 million in penalties against airlines for consumer protection violations.

Original link:

  • https://www.transportation.gov/briefing-room/usdot-seeks-protect-consumers-airline-rewards-probe-four-largest-us-airlines-rewards