The Supreme Court ruled this week that complaints against frequent flyer programs, that seek to impose an implied covenant of good faith and fair dealing when pursued in state courts, are pre-empted by the Airline Deregulation Act. You can’t just sue a frequent flyer program and say that terms like an airline’s ability to deliver – or not deliver – benefits at its discretion isn’t reasonable.
I won’t express an opinion on whether a state’s implied covenant of good faith and fair dealing is an additional requirement imposed on contracts, or a frame with which to understand what contracts say. Nor will I express an opinion on what it would mean to pursue in state courts remedies only permitted under federal law rather than state law. I am not an attorney, let alone a specialist in this area.
But I do think I’m qualified to express an opinion on whether the Airline Deregulation Act preempts state avenues for consumer remedies with respect to frequent flyer programs.
The Deregulation Act (which, contrary to popular belief, leaves airlines as one of our most regulated and taxed industries) wanted to prevent states from stepping in with their own regulatory regimes as the federal government stepped out of its control over pricing and routes. So it specifically said that states couldn’t regulate the airlines in those areas.
The relevant question, then, is whether imposing conditions on frequent flyer programs constitutes the regulation of prices and routes.
When the Supreme Court decided American Airlines v. Wolens in 1995, it probably did. Frequent flyer programs were effectively rebates on the price of tickets (in one form or another). Even when the rebate was taken in the form of a hotel or car rental discount, it was still – for the most part – value back for air travel.
That is no longer the case. Miles earned from butt-in-seat air travel are no longer the majority of miles earned. Miles are no longer the loyalty programs exclusively of airlines. They’re all-purpose loyalty vehicles which support the business of rental car companies, online flower delivery companies, real estate agents, and stock brokers.
What’s more, they aren’t even necessarily a part of the airline. Delta’s ownership of an oil refinery doesn’t take it outside the realm of regulation. And that United wholly owns its entirely separate and distinct UAL Loyalty Services, Inc. it isn’t the airline per se. Aeroplan – and now many other international frequent flyer programs – have been spun off as separate entities with ownership more broadly held.
The Justices clearly didn’t understand this at oral argument.
In the end, though, it didn’t matter and Justice Alito’s majority opinion recognized this. The issue in the case at hand, and as developed in the record, was one of miles for flying and elite status.
The key here is that a future case, focused on miles earned from non-flight activity and especially also redeemed for non-flights should be clearly distinguishable and that’s why this case doesn’t matter. It’s a throwback to an earlier era.
But the Justices didn’t just show how little they understood about miles at oral argument. Delta revealed what it thinks of its customers as well. Delta’s position was that if they didn’t honor a contract, the consumer remedy was to fly another airline in the future. And that if a contract gives the airline the unilateral right not to honor its terms, that’s the end of the story. Delta suggests though that if it didn’t honor its contracts, you should sue American Express instead.
Eric M. Fraser, who authored yesterday’s analysis of the case, points out a weakness in the majority opinion’s discussion of consumer alternatives to state court contract construction remedies.
I looked into this a bit more. This is interesting. Alito’s opinion says the following:
Federal law also provides protection for frequent flyer program participants. Congress has given the Department of Transportation (DOT) the general authority to prohibit and punish unfair and deceptive practices in air transportation and in the sale of air transportation, 49 U.S.C. §41712(a) , and Congress has specifically authorized the DOT to investigate complaints relating to frequent flyer programs. See FAA Modernization and Reform Act of 2012, §408(6), 126 Stat. 87 . Pursuant to these provisions, the DOT regularly entertains and acts on such complaints.
For the last sentence (which I highlighted), the opinion has a footnote to page 44 of this document.
I don’t think the citation supports the assertion. Page 44 lists the number of complaints made by consumers. There’s a subcategory for frequent flyer complaints (254 in 2013 and 289 in 2012). The SCOTUS opinion says “the DOT regularly entertains AND ACTS ON such complaints,” but the cited document doesn’t show any action – just complaints.
The point is that Alito’s majority opinion says that the Airline Deregulation Act still allows consumers to go to the Department of Transportation for relief with respect to their frequent flyer program memberships. But while consumers may occasionally complain to DOT, and as I’ve observed in the past, DOT doesn’t regulate frequent flyer programs in practice. This isn’t a real remedy.