Should Frequent Flyer Programs Be Regulated by the Federal Government?

The Department of Transportation is conducting an audit of frequent flyer programs, focused on disclosure of program rules and costs associated with redemptions.

The audits are being conducted at the behest of Representative Alan Grayson (D-FL), who wants to protect his 10 million miles.

Frequent-flyer programs need more federal oversight, contends a Florida congressman. Representative Alan Grayson, an Orlando-area Democrat who himself has amassed about 10 million miles, says the airlines have turned their loyalty programs into dishonest profit centers that cheat air travelers by devaluing their miles and changing program rules without proper notice.

…“We’ve crossed the line from a series of programs throughout the industry that are honest and constrained by competition to programs that are no longer constrained by competition,” Grayson says. He accuses airlines of being “greedy and deceptive” in how they administer the programs.


The piece suggests that Grayson believes airline competition kept the programs generous, and presumably now the Department of Transportation needs to do that. Although the timing of many of the changes to programs that members haven’t liked occurred prior to the recent round of industry consolidation. (The piece cites for instance members referring to Delta miles as SkyPesos, something that predated recent mergers.)

Here’s what Grayson specifically would like to see:

Ideally, Grayson says, the airlines should be forced to give at least one year’s notice of major program changes and to offer at least one seat on every flight available at the lowest mileage level. “If you’re going to have a program like this at all, it’s got to be an honest program,” he says. “Every human being comes with a built-in cheat detector. They know when they’re being cheated; they know when they’re being deceived.”

Giving a year’s notice for major changes is something I’ve argued for a long time that we, as consumers, should expect and demand.

The specific standard notwithstanding, the idea of some standard for change notification is something that could well develop under the threat of regulation. Eric M. Fraser, a blog reader who has provided commentary here on legal issues (such as here), suggests:

Eric Fraser, a miles collector and Phoenix attorney who specializes in federal regulatory issues, says the department is likely to be most interested in whether airlines properly notify program members of pending changes. “This is an area where the DOT sniffing around could just have an immediate benefit, even if they don’t start to write rules,” Fraser says.

Grayson’s suggestion for airlines offering one award seat per flight is something that United actually promised back in April 2006, as a sweetener to make their October 2006 award chart devaluation go down smoother.

We don’t know if United still does this, or if they really ever did. And I’m not sure how much it would matter anyway.

People tend to think that award seats are opened when schedules are loaded (be that 331 days, 338 days, 355 days out from travel or otherwise). When they call an airline at midnight on that magic day, if award seats aren’t available “someone must’ve beaten them to it.”

That’s not how it works, airlines may load some award inventory when schedules first become available. They also might not, at all for peak travel times or an airline’s practice may be to load that later, say after a month or two. The point though is that airlines want to make those seats available as ‘saver’ awards that would otherwise go unsold. Eleven months out their guesses about what seats those are is informed by the past, but still a guess. As travel gets closer they should have a better idea of it.

As a result, close to departure is – with many but not all airlines – about the best time to be booking awards, as unsold seats become available as awards.

A requirement that airlines make at least one seat available per flight says nothing about when they do this (331 days out, or 7?) or in what class of service. One isn’t really that helpful, either. And the problem, if there is one, is that airlines haven’t grown capacity as demand for air travel has grown so there are fewer seats going unsold. I’m not sure, current law which probably wouldn’t allow this notwithstanding, if DOT ought to be dictacting changes to the economics of the programs — or requiring more flights so that there are seats (although programs have in the past run special award flights, such as to Hawaii).


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Tough question. I do think the programs are fundamentally misleading, in the sense that award availability is so dramatically restricted at the lower levels. I guess the airlines have been trying to solve that problem by labelling the traditional award inventory as special “saver” inventory, and calling the 2x level (the level nobody really wants to use) as the “standard” reward level to expect. Personally, I’d wish the airlines did whatever they had to do (raise mileage levels a little?) to make the “saver” level more available, as this would make the programs more transparent and less in need of gov’t regulation.

  2. As a libertarian at heart, I hate to see any regulation. But given that air travel is one of the most heavily regulated industries in the world, there really is no option but for the feds to regulate EVERY aspect of the airlines. And that means FF programs.

    The airlines have simply gone too far in how they view their programs. The view that that they can literally do anything at any time for any reason is just preposterous.

    I agree with Grayson: 1 year notice is the standard that should be enacted.

    The 1 seat idea is silly, though, as you note Gary, it won’t have much impact at all.

    However, a requirement for complete transparency would be excellent. Airlines should have to publish a thorough explanation of how their programs work. Why should only a handful of people on Flyertalk be the only ones who can actually know how AAdvantage works? For the average consumer, these programs are so opaque as to be virtually impossible to adequately use.

  3. I think the first hurdle to overcome in this debate is whether a regulation or enforcement gap exists as to loyalty programs in the first place. There is no debate that loyalty programs continue to grow and evolve along with technology, commonly leading to relatively inexpensive means by which an organization can develop and implement a program. But we have federal and state laws and regulations in place ranging from consumer protection to data privacy to even anti-trust controls.

    Can the FTC (and state consumer protection agencies and laws) sufficiently continue to regulate travel loyalty programs? More is not necessarily better.

  4. It would have been much better if the government had blocked some of the recent airline mergers. The fundamental problem is that there’s no longer enough competition.

    If there were enough competition, then government regulation of frequent flier programs would be a bad idea. But now that it’s too late to preserve adequate competition, more government regulation is going to be necessary.

  5. FF and Cash-Back programs both. There’s significant monetary value. If I deposited in guaranteed 5% funds and it changed to 4% I’d scream and it’s the same with 1% cash back and FF programs.

  6. If the gov gets involved will they be taking their “cut” of our miles in one way or another to finance the program ?

  7. Will this extend to alliances and partner airlines? Regulation and bureaucracy will add additional cost to the programs which will be passed down the line to the customers. Who knows, perhaps in a effort to make it “fair” for everyone the feds force all programs to be identical. I think Rep Grayson is looking for a solution to a problem that doesn’t exist.

  8. Although I tend towards the “laissez-faire” side of the house, that philosophy only works when there are private causes of action to enforce breaches of contract and the like.

    What we have now is a structure in which Congress has spoken, but only just, and as a result courts find that any sort of private remedies that might otherwise be available are preempted by federal regulatory authority.

    Which such federal regulatory is, so sorry, unexercised by any regulatory body.

    Thus, there is a complete vacuum of either federal or state regulatory authority, and no ability of individuals to protect themselves.

    This has to change one way or another. Nature abhors a vacuum (although the airlines certainly don’t).

    Greg

  9. We should be careful what we wish for. Part of the “game” is the challenge of getting value out of the programs when others cannot. If it’s too easy to redeem for everyone the trade off will likely be fewer miles generated b/c they are more costly for the banks and airlines and fewer sweet spots where you can get outsized value for your redemptions. JetBlue has great award availability but you don’t see many people blogging about the program.

  10. It is the proverbial slippery slope. I fear what I don’t know, like many. To expect that government involvement will simply, carefully and wisely solve the problems that are inherent in the FF programs is sheer folly.

  11. Write this down, and remember it every minute of every day of every month of every year of your life … the government is NOT here to help you! It exists to take from those of you who have and give it to the have-nots, and to those in government who abuse their offices by trodding on the backs of folks like me and you.

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