Frequent-flier programs could face tighter regulation — if customers speak up


The federal government is on the verge of regulating airline frequent-flier programs. But how far it goes may depend on you.

Earlier this summer, the U.S. Department of Transportation’s Office of Inspector General released a long-awaited audit report on airline loyalty programs. The investigation, requested by Rep. Alan Grayson (D.-Fla.), concluded that the government has the authority to regulate frequent-flier programs and called on officials to create new disclosure rules, which the DOT’s Office of Aviation Enforcement and Proceedings said it will do.

The question is, will the new regulations go far enough to protect air travelers? That’s where you come in. The agency wants your frequent-flier program complaints. You can send them directly to the agency via its online form.

Travelers and industry experts are divided on the issue of whether there should be any new regulation. For now, the DOT is charting a tentative course, which includes strengthening its enforcement and proposing new regulations that would make it easier to find out about program changes. But the agency has yet to hear from millions of passengers who are angered by the airlines’ recent program changes. If or when it does, that could dramatically change the agency’s direction.

Collecting points is one of the great American pastimes. An estimated 630 million members are enrolled in various airline loyalty programs worldwide, with more than 300 million members in the United States. But many of the miles never are redeemed. New research by Switchfly, a travel commerce and loyalty platform, suggests that travelers haven’t used 70 percent of their miles — or about a trillion points — over the last five years.

Some program members are as passionate about keeping the government out of their points as they are about collecting them. Regulating the programs is “way beyond a bad idea,” says Judy Serie Nagy, a business manager from San Francisco. Instead, she says airlines should self-regulate their rewards programs. She thinks the only people calling for tighter government controls on frequent-flier programs are the ones who haven’t taken the time to understand them.

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“When things don’t go the way they anticipate, they get upset,” she says.

But others are unhappy with their programs and say that government action is long overdue. “I am all for regulation,” says Oscar Palma, an insurance consultant from Miami. He’s worried that, with recent airline mergers and program devaluations, he’ll be left with hundreds of thousands of worthless miles that will eventually expire.

“I’m afraid my points will be hijacked by my airline,” he says.

His fears are well founded. According to the program terms, to which you automatically agree when you sign up for an account, the miles are not your property. Your membership can be terminated at any time, for any reason, and the rules can change with no requirement of notification. Even the most dedicated point collectors often feel as if they’re chasing their tails.

Even if you could freeze the current frequent-flier programs, prohibiting any new devaluations, critics say they would still be profoundly unfair on several levels. In his letter to the DOT requesting an audit, Grayson denounced modern-day airline loyalty programs as an unregulated currency.

“Airlines establish the rules, the terms, the value, expiration dates and the sales pitches,” he wrote. Indeed, the major U.S. airlines earned an impressive $11 billion from the sale of frequent-flier programs in 2015.

But instead of investigating the perceived unfairness of the programs, the DOT focused on one question: Can you redeem your miles for an award ticket? (An award ticket is a ticket redeemed with miles. It can also be called a “free” ticket, although with all the fees, it’s not really free.)

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Based on that criterion, airline loyalty programs passed the audit with flying colors. The DOT evaluation consisted of searching the American Airlines and Delta Air Lines websites to determine if award seats were available in 60 of their domestic markets. It found that 99 percent of flights had award seats available for the dates selected, with 63 percent available at the lowest redemption levels. This essentially prompted a collective shrug. “Airlines have wide latitude with the terms and conditions of their frequent flier programs,” the audit concluded.

As if to underscore the point that all is well in the frequent-flier world, the DOT also noted that during a two-year period from 2012 to 2014, it received only 76 complaints about frequent-flier terms and conditions. Of those, just one rose to the level of possibly being an unfair or deceptive practice. But because the DOT didn’t ask the airlines for their responses to the complaints — it simply forwarded them without comment — regulators didn’t know the fate of any of these loyalty program grievances.

“What’s interesting is that the DOT audit doesn’t find that airlines were deceptive in any way,” says Jim Hooven, vice president of operations at Clutch, a marketing technology provider. “For consumers, part of the problem with airline rewards programs is that they are confusing – the multiple tiers and layers add to the problem. These programs are not straightforward and unless you read the fine print, it is easy to become confused.”

Passengers like Palma didn’t walk away empty-handed. The Office of Inspector General issued two recommendations that the agency intends to follow. First, to train DOT enforcement agents on what constitutes an “unfair or deceptive” practice. The department has already done that by creating a five-person frequent-flier review team within its Aviation Enforcement Division. The DOT will also change how it processes customer complaints. Before, the agency just forwarded them to airlines. Now, it will send them to the airline and ask for the airline’s response. It’s a small but significant move.

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The second recommendation: Create a new rule by the end of 2018 defining reasonable notice for consumers regarding changes to frequent-flier programs’ terms and conditions, and require airlines to provide such notice. Currently, there’s no guidance from the department on proper notification.

To regulate reasonable notice and notification requirements would not make the programs any fairer, easier to understand or passenger-friendly, observers say. “You have this massive marketplace — trillions of points issued worldwide — in which points are being seen as an alternative currency, but they don’t actually belong to consumers,” says Daniel Farrar, Switchfly’s chief executive. “The value of points shifts. They expire. It is easy to understand why consumers would want some outside assurance.”

And that’s where feedback from frequent fliers could be pivotal. Until now, most air travelers have been unaware that they could complain about their loyalty programs to the DOT; even if they did, the agency wouldn’t have taken any enforcement action. Now, it promises to take complaints more seriously.

The regulation question is similar to tarmac delays, an issue the department dealt with about a decade ago, department insiders say. It’s a problem that affected only a fraction of air travelers, but those few passengers made a lot of noise until regulations were passed that limited how long an aircraft could wait before taking off. If there’s a similar outcry, the government is prepared to act more decisively.

It just needs to hear from you.

Should airline loyalty programs be regulated?

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Christopher Elliott

Christopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or check out his adventures on his family adventure travel site. Contact him at chris@elliott.org. Read more of Christopher's articles here.

  • The only regulation I would support is basic honesty, making sure that terms are explained up front. It’s hard to even imagine what other regulation would be applicable to programs that are so different from one company to another.

    The leading user complaint about loyalty programs seems to be that the terms can change at any time. You sign up and start using the product in a pattern that is based on the loyalty rules on that date. By the time you try trading in points, it’s all changed. One possible regulation might be a freeze on the terms that apply to points earned by each newly signing customer, for at least X years or until that account goes inactive. Thank it would be too complex for your company to keep track of rules applicable to each set of customers after a rule change? Then stop changing the rules so often!

  • Jeff W.

    I think the real problem is that these programs are not really frequent-flier programs anymore. They are frequent-purchaser programs.

    The airlines have become addicted to selling these miles to credit card companies and whomever (think yogurt cups) and you now have a very large class of people who have earned their miles via methods other than flying.

    Combine that with the airline consolidation, real frequent fliers are being squeezed out. A low- or mid-tier elite not only has to compete with all of the other fliers sharing their status, but also the credit card holders that purchased their way into that group. And that includes redeeming miles for award travel.

    This is a problem of the airline’s making, no doubt. And the “solutions” provided by the airlines to ease the situation have not made the masses happy. If I had a CC that earned miles (and I most likely had to pay for that card), I would certainly be upset if I could not utilize the reward I paid for. If I am real frequent flier, I would certainly be upset that the perks allowed by my status are never available if I have to compete with people who purchased that perk.

    So certainly something needs to be done, as self-regulation is not working.

  • Michael__K

    The crucial point of context missing from the article is that air carriers enjoy a unique exemption from state and local consumer protection laws under the Airline Deregulation Act.

    When customers won contract claims under the Convenant of Good Faith and Fair Dealing, airlines successfully appealed, arguing that they are immune to such state law contract principles, and that their customers’ proper remedy in these situations is to complain to the US Department of Transportation instead (see Northwest v. Ginsberg).

    So it’s about time that the US DOT take the regulatory action that the airlines and their trade association and lobby organization has been arguing all along is the only protection consumers have against bad faith dealing…

  • Rebecca

    I would argue that airline miles simply aren’t the product being purchased. The ticket is the product. So this amounts to regulating something that is not an actual product or service, being paid for with US currency. And yes I know you can buy miles if you don’t have quite enough for an award seat. I would argue that you’re simply receiving a discount on the purchase of the ticket.

    Personally, I find it patently ridiculous that tax dollars would be used to regulate what amounts to a discount program.

  • Michael__K

    The airlines have successfully argued otherwise all the way to the Supreme Court. That’s why their frequent flyer programs are immune from FTC regulations and immune from state & local consumer protection laws.

  • John Grier

    most people earn frequent flyer points/miles through credit cards NOT actually flying. So unless someone is stupid enough to pay more than cash to use a credit card, they are effectively free (at least that’s what many dumb airline employees tell us, when we complain).
    Regulation, will make any fees now, even higher.
    Be VERY careful what you wish for.

  • jsn55

    What does this mean: “He’s worried that, with recent airline mergers and program devaluations,
    he’ll be left with hundreds of thousands of worthless miles that will
    eventually expire.”? I can’t figure out this remark.

    He shouldn’t worry, his miles will expire if he doesn’t use them. No worry, just fact. He should use his energy to figure out how to use all those miles. If you have lots of points on an airline that merges or is bought out, your miles will magically reappear with the “new” airline. But if you don’t use them …. they’ll expire. What’s to worry about?

    Regulation should happen to nonsense fees, such as changing a ticket, correcting a name, redepositing your miles, costly bag fees, talking to a rep on the phone … THAT’S the kind of regulation we need, not some “make work” oversight of frequent flyer programs.

  • jmj

    Regulation is not the answer. Echoing what other commenters have already said:
    -mileage programs are discount programs
    -other than frequent business travelers (who are well educated on rewards), most of the rest of us collect and cash in miles through credit card rewards and bonuses.

    Then there’s the issue of making a mountain out of a molehill. What is there to regulate? Even the DOT as quoted in the article says:

    the DOT also noted that during a two-year period from 2012 to 2014, it received only 76 complaints about frequent-flier terms and conditions. Of those, just one rose to the level of possibly being an unfair or deceptive practice.

    The use of the word “only” implies (to me) that this is a relatively small amount.

    Meh…other more important things to which we should devote our attention.

  • Mel65

    I buy a ticket, or make a purchase of something I want. Period. Miles go into an account that I may or may not use, but if I’m buying something I WOULD HAVE PURCHASED REGARDLESS, who cares? Now I just happen to have sent my husband and son to Hawaii for 2 weeks (they’re there now without me:( ) using miles for the tickets and paying a whopping $140 for taxes and seat upgrades. For me, it works; I don’t wrap myself around any axles trying to earn more miles, I just do what I normally do and if I have ’em, I use ’em. If I don’t earn ’em, no harm no foul. Much ado about nothing!

  • Michael__K

    It’s essentially a glorified rebate program.

    Other businesses are bound by FTC advertising rules and by state and local consumer protection laws and principles of contract law — including for any rebate programs. Should we repeal all of that?

    Otherwise, why should air carriers be exempt from the rules that apply to every other business operating in the US? Which they currently are by virtue of the Airline Deregulation Act, which gives the US DOT exclusive authority to regulate them.

  • Michael__K

    One example: Air carriers can legally confiscate your miles in bad faith…

  • marathon man

    If something happens when you used points or miles and you are due a refund of those points or miles, it should take maybe a few days at most. Never “6-8” weeks! Especially if the error was on the conpany side

  • Lindabator

    They really don’t – and when Delta changed the rules, they sent out notification over 6 months prior — usually those complaining are the NOT so frequent fliers, who wait 10 years to collect enough miles to fly, then are shocked there’s been a change to the program. Or those who want to book the week pror to Christmas on the nonstop flight for their family of 4 and are shocked there is no space.

  • Michael__K

    You’ve read and agreed to the T&C’s? Most programs assert the carrier’s right to, at their sole discretion, decline to honor your husband’s and son’s award tickets at any point in time. And your only recourse under the law is to complain to the US DOT, because air carriers are generally exempt from state & local laws and from the jurisdiction of other federal agencies . And if that happened you wouldn’t mind if the DOT ripped up your complaint. Much ado about nothing!

  • marathon man

    How about this one:

    So you have a builder doing work on your home. You need at least $10,000 up front and it’s in your budget but saving money is always good. So you take a credit card that earns say 5% cash back at grocery stores (well, they used to exist but now there are lower offers. Doesn’t matter here) and you go and buy $10,000 worth of Visa gift cards. You give these to the builder because they tell you they take Visa and they can go and buy whatever they need for your home with their gift cards, and so on. You can even repeat this as you go. Why not. This yields $500 cash back less the $100 in gift card activation fees so $400 net. A smart move eh?

    Well, if the terms and conditions allow it, then yes it very much is. But if the terms are vague then it can be an issue. Terms should not be vague. if they do not want you to earn points or cash back from gift card purchases, then they should say exactly that in the terms. If they cap it they should say that too. If you can still buy gift cards with the CC but just cannot earn anything from it, fine. Just say that too. If you do in fact earn something from it but weren’t supposed to, well, they should have done a far better job at tracking and setting up their own IT before hand… and not just blasting or blaming the buyer. There will be cases of people who had no idea they were not supposed to, and cases of those who knew but also knew it would still work for them to get points or cash back. But in either case, I think what needs to happen is that marketers should be held VERY ACCOUNTABLE for what they market and what the terms of their deals are. If not, why shut down or blame the customer all the time?

    Terms on deals or offers should be well thought out BEFORE they are offered to the public. If not, why are these marketers even employed but to pull back and do a bait and switch later on? Seems worse to me than anything else.

  • MarkKelling

    If you are sitting on hundreds of thousands of miles and not using them, it is your fault if they disappear because you didn’t use them! Miles/points are meant to be used, not hoarded.

  • MarkKelling

    Explain please

  • MarkKelling

    There are two programs — the one everyone sees and the secret one airlines use to reward their actual frequent flyers. So, yes there are still frequent flyer programs.

    Everyone can get a “free” ticket for 25,000 miles. But the one who earned all of his points through credit card purchases will probably find very few of those available while the frequent flyer who has actually flown 100,000 miles last year will find them to practically every destination. Why? The airlines are not stupid and they know that those who actually flew on their planes will probably continue to do so if they reward them with low mile reward flights to preferred destinations. So yes, the last minute mileage redemption flight to Hawaii at Christmas is possible, but only if you have actually spent some real money with the airline!

    I don’t know of any credit cards that actually award you status with an airline (there probably are some out there somewhere). And status is what you need. The airline couldn’t care less about you if you got a million or 10 miles from credit card offers. You have no status when you accumulate miles that way, only if you actually fly the many thousands of miles (or spend a certain amount now on flights you actually take) required yearly. And status gives you the perks like free upgrades, the low mileage reward flights, access to the better seats on the planes without paying extra, and so on. Sure the credit card gives you a “free” checked bag, but they have to offer something everyone might use to make the card more attractive.

    If the airlines allow certain perks to be purchased by passengers instead of giving them away to their frequent flyers, what is wrong with that? A 1st class upgrade sold for $200 makes a few dollars for the airline that they would not get if they gave all the 1st class seats to mid level frequent flyers. I have no problem with that. Many of the airlines are also pricing their 1st class seats as non-refundable and many times I see them on the airlines I fly for less than the price of an economy ticket. While this reduces the number of empty seats the airline has to fill in turn reduces the number of frequent flyer upgrades, it is what it is. The last flight I was on had 12 1st class seats in total and 49 frequent flyers on the upgrade list. There were a lot of disappointed frequent flyers.

  • MarkKelling

    In every case for the airlines I fly any cancelled frequent flyer flights had the miles/points back in my account ready to use again within 48 hours. Yes really — every one.

  • MarkKelling

    I don’t really have any complaints.

    In the 20 years I have been flying both for business and leisure, the frequent flyer programs for every airline I have ever flown have always provided exactly what was spelled out in their terms and conditions in effect at the time. I have also had the benefit of flying where I wanted when I wanted on award tickets on the airlines I flew enough to accumulate enough miles/points and status to have access to those flights. I have never depended on credit card points to get anything from an airline.

    Am I completely happy with the changing rules? No. I was really pissed when Continental broke up with Qantas just as I had finally accumulated enough Continental miles to fly 1st class to Australia. I went to Hawaii instead and had enough miles left over for 3 more trips to Hawaii. Things change. I can’t buy a tank of gas for my car for $8 like I used to in 1978, so why should a frequent flyer ticket cost the same in miles today as it did back then? Inflation happens.

  • MarkKelling

    As long as the “free” mileage redemption ticket holder is given the same rights as a cash ticket purchaser, then all is good. But we have seen articles here that show that a “free” ticket is not given the same consideration as a cash ticket when irregular operations occur. Some of those on “free” tickets are left stranded days waiting for a flight that has an open frequent flyer seat while those who have paid cash (no matter how little) are placed into any available seat on the earliest available flights regardless of the class to get them where they want to go.

  • Michael__K

    See Northwest Inc. v. Ginsberg.

    Air carriers assert the right in their T&C’s to confiscate miles at their sole discretion and per the SCOTUS the customer is pre-empted by the Airline Deregulation’s Act from contesting such actions under state or local laws or federal regulations other than the DOT’s.

    Quoting straight from the unanimous opinion:

    Federal law also provides protection for frequent flyer program participants. Congress has given the Department of Transportation (DOT) the general authority to
    prohibit and punish unfair and deceptive practices in air
    transportation and in the sale of air transportation, 49
    U. S. C. §41712(a), and Congress has specifically authorized
    the DOT to investigate complaints relating to frequent
    flyer programs. See FAA Modernization and
    Reform Act of 2012, §408(6), 126 Stat. 87. Pursuant to
    these provisions, the DOT regularly entertains and acts on
    such complaints.3

    https://www.supremecourt.gov/opinions/13pdf/12-462_p8k0.pdf

    Note that the footnote cited by the SCOTUS does not support the contention in the opinion. It refers to Table 2 in the DOT’s monthly consumer report which merely reports complaint totals by category. As Chris states in the article, award program complaints were not “entertained” or even “acted upon” by the DOT as of when this case was decided. Air carriers were not even obligated to respond to award program complaints until very recently.

  • marathon man

    A clarification to my earlier post on awards being returned if something is cancelled:

    Yes, with flights or hotels, if you cxl they do return the miles or points within days.

    I am talking about afinity credit card promos, other airline promos, marketing deals such as those aweful airline shopping portals, all of which may not be the actual airlines some want to regulate, but all involve them and had points or miles sold to their related companies. The airlines sell to many entities so in my opinion they should bear some responsibility and accountability for how their products and who sells them.

    Could be a reach, but some here will understand what I speak of

  • Mel65

    But, they didn’t. And they never have, and we’ve used them in the past. I’d rather keep occasionally getting something, than continuing my buying habits/travel habits and for sure getting nothing. *Shrug* But that’s just me. I choose to participate. You can choose not to.

  • Michael__K

    They have done this to plenty of other people. But you got yours (so far) so [*#$?!&] everyone else?

  • Mel65

    No, and in my comment I said nothing of the sort, so please don’t ascribe your thoughts to me. Although, ironically it appears that you feel they screwed you so !#$%^&* those of us happy with the programs? Ah yes, much more fair and balanced. You’re free to use or not use the programs along with everyone else. Period. Unhappy with the terms? Don’t sign up and travel without membership. Unhappy with the fees and black out dates? Don’t sign up. Unhappy with having to jump through hoops? Don’t sign up Bitter and angry? Don’t sign up. I have ZERO expectations or feelings of entitlement with regard to loyalty programs. I belong to ALL of them in hopes that MAYBE I’ll get awards and *knock wood* so far I’ve gotten several, but if I NEVER get another one, so what? It matters not to me because they’re an “add on” for me. I don’t DO ANYTHING or BUY ANYTHING I wouldn’t anyway. I believe “if I get something great; if I don’t no harm no foul.” I’m willing to bet (not that they’d dare to admit it) that the vast majority of those having issues haven’t fully read, understood AND followed the terms of what they signed up for. The ones I’ve seen on this site are almost always those who let them lapse, didn’t travel, didn’t “get the email” or engaged in shenanigans, etc… And, I’m done.

  • Michael__K

    So without ascribing any thoughts to you, what does “much ado about nothing” mean if not that you wish to preserve the status quo? A status quo where airlines and their award programs are immune from the laws that all other businesses (and all other award programs) operating in the US are bound by?

    If your family is stranded on an award itinerary (you fully read the terms and you understand this is a possibility, right?) , it will easily cost many more times what the travel would have cost up front in dollars to buy last minute tickets to return home. If you really would call that “no harm no foul” and you wouldn’t complain, then hurray for you.

    Some of us have higher expectations. Just because it didn’t personally happen to me (funny that you assumed otherwise), doesn’t mean I think we should ignore the passengers who it did happen to, or the passengers who proved in court that their air carrier acted in bad faith.
    And I don’t dismiss their complaints as “much ado about nothing.”

  • KanExplore

    You make an interesting point. I would say that sometimes the notification is adequate and sometimes it’s not. This is the one area where I think regulation could be considered.

    That’s tricky though. What changes require notification? Most changes are negative for most people, but some are positive and some are a mixed bag or affect some people positively and others negatively.

    DOT has some work ahead of it to try to get it right and I’m skeptical. I will express appreciation that this time Elliott wrote a straightforward, informative piece on a topic he has trouble treating in such a manner.

  • AAGK

    That’s not the holding of Ginsberg.

  • AAGK

    When people hear the word “points” they lose all common sense and seemingly normal people suddenly start jumping on airplanes for connecting flights to nowhere just to come right back and collect points and preserve their “status” or spending thousands they don’t have on a credit card, etc etc. It is an epidemic, just like consumer debt and smoking. To this extent, it does make sense that Gov should take a more activist role in protecting people from themselves. However, that would just create more obligations that must be enforced.

    Points programs are simple. They state they are not to benefit consumers, do not have value, should not be relied upon, can be taken away/changed whenever for good or evil reasons or no reason at all. The points programs say take us or leave us but don’t rely on us. Then, someone as a joke probably, said- lets call this a “loyalty” program. This actually worked. It is difficult to see how more regulation will benefit folks.

  • Michael__K

    We must decide in this case whether the Airline Deregulation Act pre-empts a state-law claim for breach of the implied covenant of good faith and fair dealing. Following our interpretation of the Act in American Airlines, Inc. v. Wolens, 513 U. S. 219 (1995), we hold that such a claim is pre-empted if it seeks to enlarge the contractual obligations that the parties voluntarily adopt.

    https://www.supremecourt.gov/opinions/13pdf/12-462_p8k0.pdf

    [The voluntarily adopted contract gave Northwest total discretion to confiscate miles].

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