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The rewards programs of the four major U.S. airlines—Delta Air Lines Inc., American Airlines Group Inc., United Airlines Holdings Inc., and Southwest Airlines Co.—are currently under investigation by the U.S. Department of Transportation (DOT), as announced recently.
The DOT has requested these airlines to provide reports concerning their rewards programs within the next 90 days. The aim is to investigate how various factors, such as the depreciation of earned rewards, dynamic pricing, additional fees, and diminished competition, affect consumers. This inquiry marks the first comprehensive government examination into these lucrative reward systems, which have grown to generate billions for airlines, sometimes surpassing profits from flight operations.
While the potential implications of this probe remain uncertain, there is a possibility that federal regulators may require adjustments that could disrupt these significant income streams for both airlines and associated credit card companies, potentially altering a popular travel option for numerous consumers.
As part of the investigation, airlines will need to present extensive documentation regarding their rewards initiatives. This encompasses details about credit card partnerships, consumer incentives, loyalty programs, and frequent flyer schemes, along with records of modifications made in the past six years, customer complaints, and the impact of mergers on these programs.
Transportation Secretary Pete Buttigieg emphasized the importance of these rewards, stating that many Americans view them as part of their savings. He noted that, unlike traditional savings accounts, airlines control these rewards and can make changes that could affect their value at any time.
In response, Airlines for America, a trade association for major U.S. carriers, asserted that millions benefit from the loyalty programs and that transparency is maintained within these systems. They urged policymakers to ensure that such benefits continue to be available to consumers.
Financially, Delta Air Lines disclosed earning $6.8 billion in 2023 from its partnership with American Express, with projections indicating a further 10% increase this year and potential growth to $10 billion in the future. American Airlines also reported $5.2 billion in revenue from similar partnerships in 2023.
Despite their popularity, loyalty programs have come under scrutiny lately. There are concerns that airlines attract customers with enticing rewards only to later alter the terms of earning those rewards without sufficient notice, leading to customer dissatisfaction. Additionally, questions have emerged about whether larger airlines are gaining an unfair competitive edge over smaller ones through these programs.
Delta reaffirmed its commitment to providing a valuable rewards experience through its SkyMiles program and expressed intentions to address the DOT’s inquiries. The airline indicated a rise in loyalty program memberships and cardholder spending since the onset of the pandemic.
Southwest Airlines highlighted the flexibility of its rewards and the appeal of its Rapid Rewards points, which do not expire, touting that they offer double the average number of reward seats compared to industry standards. These loyalty points can be redeemed not just for flights but also for other purchases such as hotel stays and car rentals.
United Airlines’ CEO, Scott Kirby, has remarked that the loyalty program plays a crucial role in the airline’s operations, benefiting both the customers and the business itself.
The DOT has been assertive regarding airline practices that it believes might damage consumer interests. This latest investigation adds to a series of regulatory actions aimed at increasing accountability among airlines.
Buttigieg had previously voiced concerns during a joint hearing with the Consumer Financial Protection Bureau, focusing on two primary issues: the Airlines’ potential trend of making it harder for customers to earn rewards and whether these loyalty programs might hinder competition by limiting the growth of smaller airlines.
Airline loyalty programs have been around for decades, with American Airlines launching the first major initiative, AAdvantage, in 1981. Initially created to help airlines distinguish themselves post-deregulation, these programs have evolved into substantial revenue-generating sectors.
Major U.S. airlines leveraged these programs during the COVID-19 pandemic, raising over $20 billion by using their loyalty programs as collateral. They monetize their rewards by selling points or miles to partners involved with co-branded credit cards, while also providing options for consumers to purchase additional rewards directly.
Supporters of loyalty programs argue that they offer numerous attractive benefits, including priority boarding and access to airport lounges. According to Airlines for America, nearly 25% of U.S. households possess at least one airline credit card.
Conversely, consumer advocates, including lawmakers from both parties, have urged the DOT to mitigate unjust practices linked to these programs. Concerns raised in a letter sent to the department and the CFPB resonated with statements from Buttigieg during the May hearing, emphasizing the need for regulatory action.
Overall, the unfolding investigation into airline rewards programs highlights growing scrutiny over consumer rights and competitive practices within the aviation sector.
Source
finance.yahoo.com