DOT Launches Formal Investigation into Frequent Flyer Loyalty Programs

The U.S. Department of Transportation on Thursday launched a formal investigation into the loyalty programs of the four largest domestic airlines, targeting what the department describes as “the fairness, transparency, predictability and competitiveness of the airlines’ rewards programs.”

In a letter to airlines, seen by TPG, Transportation Secretary Pete Buttigieg asked the carriers to provide substantial documents and information about the programs.

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“These programs can influence how customers interact with airlines,” Buttigieg said in the letter, “and many Americans would have points balances large enough to represent a portion of their savings.”

The four airlines involved in the investigation are American Airlines, Delta Air Lines, United Airlines and Southwest Airlines.

The formal investigation comes nearly nine months after the DOT launched an initial preliminary investigation into possible unfair or deceptive practices within the programs and follows a hearing on the rewards programs in Washington, D.C., that was jointly held by the DOT and the Consumer Financial Protection Bureau this spring.

In an order attached to Thursday’s letter, the DOT made a wide range of requests for information and details, offering a glimpse into where the investigation will go. A sample of the full letter and attached order can be found at the bottom of this article.

The order required airlines to share full details of how rewards are earned and redeemed, how ratings are determined, fees paid by passengers and details of agreements with co-branded credit card partners. Airlines were also asked to detail and explain any changes made to their rewards programs between July 31, 2018, and this summer.

Rewards programs have become increasingly important parts of U.S. airlines’ business models in recent years, adding billions of dollars a year to carriers’ bottom lines in some cases.

Most of that revenue comes from selling miles in bulk to their banking partners that issue co-branded credit cards. The banks pay the airlines for the miles, which they then distribute to cardholders as a reward for their spending.

Value Check: Are Airline Credit Cards Still Worth It?

Airline loyalty programs have increasingly attracted the attention of federal regulators and lawmakers in recent years.

Last October, Senate Judiciary Committee Chairman Dick Durbin, an Illinois Democrat, and Sen. Roger Marshall, a Kansas Republican, asked the DOT and CFPB to detail their enforcement efforts amid “troubling reports that airlines are engaging in unfair, abusive and deceptive practices with respect to these loyalty programs.”

The request comes six weeks after Delta announced changes to elite status in its SkyMiles loyalty program. The changes, some of which the airline partially reversed while leaving others in place, sparked anger among customers and served to highlight the unilateral control airlines have over the programs, as well as the few restrictions or regulatory statutes surrounding them.

Durbin and Marshall, along with other lawmakers, have separately sponsored legislation that would affect the payment networks used by some credit card issuers. Airlines and issuers have lobbied against the legislation (as has The Points Guy, citing the potential for rewards programs to be negatively affected by the proposed law).

In a statement, Airlines for America, the trade organization and lobbying group for U.S. carriers, said frequent flyer loyalty programs allow airlines to reward their customers and better compete.

“Millions of people enjoy being part of various loyalty programs, which allow them to earn rewards to use toward travel or other benefits,” Airlines for America said in the statement. “U.S. carriers are transparent about these programs, and policymakers should ensure that consumers can continue to enjoy these important benefits.”

A Southwest spokesperson said in a statement that the airline’s Rapid Rewards program offers flexibility and benefits to customers, and noted that the airline recently doubled the average number of seats booked with points in the industry.

Spokespeople for American and United declined to comment to Airlines for America, while Delta did not immediately respond to TPG’s request for comment.

DOT Sample Letter on Request for Airline Awards by David Slotnick on Scribd

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