Critics say a newly initiated DOT probe into the rewards programs of the Big Four U.S. airlines is regulatory overreach, even as consumer groups are applauding the investigation.
"It is stunning that the federal government would waste precious time micromanaging airline rewards programs beloved by 80% of travelers at the same time they are failing the American air traveler to the tune of 3,000 air traffic controllers," U.S. Travel Association CEO Geoff Freeman said in the hours after the DOT announced the probe on Sept. 5. "The lack of focus and ability to prioritize real problems is disappointing to the travel industry and the millions of travelers we serve each day."
But Bill McGee, senior fellow for aviation and travel at the American Economic Liberties Project, said he hopes the probe will lead to strong DOT action.
"I would hope that we have a moratorium on rules changing in the middle of the game," he said, referencing the common airline practice of altering award redemption values and raising the number of points it takes to purchase tickets.
The DOT launched the investigation with letters to American, Delta, Southwest and United, demanding that each respond to a lengthy list of questions by Dec. 4. Among many items, the DOT told the airlines to provide documents relating to devaluations of earned reward points, including how each change made by the airlines over the last six years has impacted existing points and loyalty status accruals.
The department is also looking into the ways airlines deploy dynamic pricing for reward redemption. As part of that portion of the probe, the DOT instructed airlines to provide the average dollar value of one reward point and the price to purchase a point directly from the airline. The DOT is also asking for documentation on any fees airlines charge customers to redeem, transfer or maintain points they have earned.
Airlines must also provide documents related to how they monitor and respond to competing airline loyalty programs.
In explaining why his department is focusing on the four largest U.S. airlines, DOT secretary Pete Buttigieg said their rewards programs play an outsize role in shaping U.S. airline industry rewards practices due to their sheer scale.
"Airline rewards programs have become a meaningful part of the U.S. economy and a major part of the airline business model, by some measures developing a financial significance that rivals or even outweighs the operation of flights," Buttigieg wrote in the letters. "These programs can shape how customers interact with airlines, and many Americans reportedly have point balances substantial enough that they amount to part of their savings."
The probe will be conducted under the DOT's authority to protect airline consumers from unfair, deceptive or anticompetitive practices, the agency said.
But airlines are pushing back.
"Because there is fierce competition among airlines for customers, loyalty programs are a way carriers can say thank you to travelers," the Airlines for America (A4A) trade group said in response to the investigation. "Millions of people enjoy being a part of various loyalty programs, which allow them to accumulate rewards to apply toward travel or other benefits. U.S. carriers are transparent about these programs, and policymakers should ensure that consumers can continue to be offered these important benefits."
The investigation coincides with record memberships in airline loyalty programs and record uptakes of co-branded airline credit cards. A4A estimates that there are nearly 30 million U.S. airline industry credit card holders — nearly one out of every four U.S. households. Delta, the U.S. leader in credit card revenue, made $6.8 billion from its partnership with American Express in 2023.
The airline points economy
In the past five years, the cost of reward redemption has generally increased faster than both inflation and airline ticket prices, according to a report published in April by the consulting firm IdeaWorks. But there has been wide variance among the Big Four carriers. While average economy reward prices nearly doubled on Southwest during that time frame, they dropped 25% on American.
Kyle Stewart, a contributor to the frequent flyer-focused "Live and Let's Fly" blog and owner of the Pittsburgh-based Scott and Thomas travel agency, said the DOT's targeting of the Big Four simply because of their size ignores the substantially different approaches taken by those airlines and is evidence of how uninformed it is about how those programs work.
Southwest, for example, pegs reward prices to the cash prices of tickets, while other airlines deploy less-consistent redemption costs.
Further, Stewart argued, it's a misnomer for the DOT to compare airline rewards programs to savings accounts. More precise, he said, would be to compare them to other rewards programs, including the tickets one can win playing arcade games at Chuck E. Cheese: Eventually, a child wins enough of those tickets for a stuffed bear, but Chuck E. Cheese has the right to increase the redemption cost of the bear as it pleases. Airlines, too, can change redemption prices at their discretion.
Stewart said it would be an even bigger overreach for the DOT to tell airlines how to manage loyalty status accrual.
"I don't see any enforcement possibility here," Stewart said. "All this is an accrual of hours for attorneys, consultants or both."
McGee, though, sees plenty of authority for the DOT to take on airline reward programs under the unfair and deceptive practices provision. Over time, he noted, the programs have become less transparent as airlines have jettisoned published reward price charts, while redemption costs have soared.
"People enter programs with the best of faith," he said. "They spend decades playing by the rules. Then the goal posts keep getting pushed further and further back. … "Everything they do is opaque, it's unfair and deceptive."