The Airline Industry’s Lobbyist Says Mileage Programs Should Be Able to Change Their Terms on a Whim. He’s Wrong.

The general counsel of airline industry lobbying group Airlines for America says frequent flyer programs should be able to make changes any time with no notice.

But David Berg, a member of the panel who is also general counsel for the trade group Airlines for America, which represents the largest carriers, said loyalty programs are essentially discounts that could change as frequently as fares.

“I would beg to differ that changes in miles and changes in fares are different,” Berg said. “I think they’re the same.”

This is the Delta argument, and it’s been adopted by the industry. But with due respect to the major US airlines and their hired gun in Washington, miles – and loyalty programs – are not at all like airfare..

Miles are Not Merely Money

Loyalty programs aren’t sandwich shop punch cards, get the 10th sandwich free. They’re precisely sold to members on the basis of the dream of travel, obtaining something special you couldn’t otherwise afford, not on receiving 5% – 15% of your spend back.

And remember:

  1. There is a ‘published’ value of cash. Loyalty programs don’t tell you how much money your miles are worth.
  2. You can use cash equally with any airline or with any vendor to purchase any goods or service. You can only use a program’s proprietary currency in whatever manner the program proscribes.

Members accept this precisely because frequent flyer miles are not like cash, there are some shortcomings but they also can deliver superior value too.

If you try to turn them into cash, you create a poor substitute. And you undermine the very thing that makes them special to members.

Miles aren’t mere rebates. They hold the promise of going places, of experiencing things, in a way that you wouldn’t if you were spending cash. They capture our imagination.

If they’re just going to be airline funny money, then the alternative of federal reserve notes is clearly superior. There’s no reason to accrue points through a co-brand credit card. There’s no reason to chase the points at all. Airlines can’t have it both ways.

Program Changes Need to Be Disclosed to Members Long in Advance

Mileage programs represent a promise of future reward on the basis of current action. That’s true for award redemptions — buy these flowers, eat at these restaurants, choose to fly our planes, and do that for enough time and you’ll earn points for your honeymoon, anniversary, or family reunion.

The intertemporal nature of the program — it inherently involves saving for the future, versus cash which you can combine with other funds and spend in whatever proportion you wish right away — represents a commitment.

If a loyalty program is going to unilaterally change the terms – renege on its commitments – at the absolute very least they have to give members who have detrimentally relied on their previous promises the opportunity to take action to get their bookings made, to top off their accounts before it’s too late.

And an elite program works in much the same way. Fly all of 2015 and there’s a slate of benefits you’ll receive for your 2017 travel. If you’re going to change those 2016 benefits, you needed to announce that before people started buying tickets on the basis of your promises.

That’s How it Used to Work, Before Programs Became So Brazen

There were exceptions, like Amtrak changing redemption pricing and shutting down mileage transfer options overnight a decade ago, and LatinPass becoming an online shopping portal instead of a coalition airline loyalty program.

But on the whole programs did give advance notice of changes. In fact, United always has when changing their award chart. When they announced changes in November 2013 it was three months’ notice, which is a far cry from the six months they used to give a decade ago. But it’s still notice.

Indeed, even American has given advance notice of its minor changes since April 8 of last year when they eliminated distance-based oneworld awards and free stopovers at a North American international gateway city.

Of course, no one is as brazen – not just in deed but also in word – as Delta.

Airlines think they owe no duty of good faith or fairness to members. And legally speaking – under current rules – they are right. But under any reasonable moral principle, and in my view any long-term theory of profitability, they’re terribly mistaken.

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. Well said. U.S. based airlines are getting a bit high and mighty. That may come back to bite them.

  2. @Gary — I might be missing the point of this post because my sense is that you’re the one who is wrong here. Programs can give heads up about upcoming programmatic changes, but they do not have to. You mentioned United as one of the “good guys.” Here’s what their program rules state but you will find something like it in the program rules of pretty much every loyalty program:

    “Membership and benefits in the MileagePlus Program, including the Premier Program, (the “Program”) are offered at the discretion of United Airlines and its affiliates, and United has the right to terminate the Program and/or the Premier Program or to change the terms and conditions, rules, regulations, policies and procedures (“Program Rules”), benefits, conditions of participation or mileage levels, in whole or in part, at any time, WITH OR WITHOUT NOTICE, even though changes may affect the value of the mileage or certificates already accumulated.”

  3. @DCS the terms didn’t really matter until Northwest v Ginsberg, the DOT held meetings to discuss whether there should be rules around programs given that the Court said members effectively couldn’t sue, and the airline lobbyist made the case that there is nothing whatsoever wrong with making these changes. So yes you are missing the point.

  4. @Gary — All you said is that the rules did not exist or matter before. But now they DO exist with the full knowledge of the DOT, which is precisely the point. They are the rules on the books and anyone who voluntarily joins any of these programs automatically agrees to abide by them, including any version of the one I quoted above. So I missing the point because of your contention that the rules did not use to matter until they began to matter? Not much of a “point”…

  5. Anyone who doesn’t see that we are rolling quickly towards regulation of miles/points is walking around with blinders on. When enough voters get angry about loosing their ‘savings’, and not being able to redeem for what they were promised, we will see regulation of the market, and no one will be happy. This is just corporate greed at its worst, and its unfortunate things had to get to this point…I don’t see anything changing before regulation.

  6. Gary, I have a somewhat different reading of Mr. Berg’s comment, as applying specifically to award pricing rather than rules in general. The problem with fixed redemption prices, especially when they represent an outstanding value, is matching supply with demand, and the only tool the airlines have to control this is award availability. This favors a certain group of customers, specifically those who are very flexible. Dynamic award pricing gives the airlines another tool for matching supply and demand, which favors a different group — those with large balances.

  7. If we are playing Jeopardy (and it seems in a way we are) I’ll take “FLEXIBILITY” for $2000, Alex.

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