(Bloomberg) – The rewards programs of four major U.S. airlines — Delta Air Lines, American Airlines Group, United Airlines Holdings and Southwest Airlines — are being investigated by the U.S. Department of Transportation. The agency announced Thursday.
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The ministry urges airlines to better understand how consumers are being “impacted by devaluation of earned benefits, hidden or variable pricing, surcharges, and reduced competition and choice.” It requires airlines to submit a report on the program within 90 days. said in a statement.
The investigation will be the government’s first major look into a program that has grown to generate billions of dollars a year for airlines, and in some cases more revenue than operations. Although the potential impact is unclear, federal regulators have announced changes that could disrupt the profit centers of both airlines and credit card issuers and remove a travel option valued by many consumers. may be requested.
As part of the investigation, airlines will be required to provide detailed information about their rewards programs, including credit cards, consumer incentives, loyalty and frequent flyer programs. This includes changes made over the past six years, customer complaints, and their impact. A programmatic merger.
“Many Americans consider their Rewards point balances to be part of their savings,” Transportation Secretary Pete Buttigieg said in a statement. “But unlike traditional savings accounts, these benefits are controlled by companies that can unilaterally change their value.”
Airlines for America, a trade group representing major U.S. airlines, said in a statement that millions of people enjoy the benefits of loyalty programs. “U.S. carriers must be transparent about these programs, and policymakers must ensure consumers continue to receive these important benefits,” the group said.
billions in royalties
Delta Air Lines reported $6.8 billion in revenue in 2023 from its credit card partnership with American Express, a number it expects to grow 10% this year and reach $10 billion over the long term. are. American Airlines said it received $5.2 billion in cash from co-branded credit cards and other partners in 2023.
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Loyalty programs have come under fire in recent months, with the Biden administration and lawmakers on both sides of the aisle arguing that airlines are luring customers with promises of rewards by abruptly changing the way they award points, with little notice. They have expressed concern that the benefits are being taken away from flyers without the need for them to do so. And you can earn miles too. They have also raised concerns that the program would give major airlines an unfair advantage over smaller competitors.
“Providing meaningful reward experiences is a top priority for Delta’s SkyMiles program,” Delta Air Lines said in a statement, adding that it would respond to the Department of Transportation’s investigation. The company has previously cited strong growth in loyalty program membership, acquisition of co-branded credit cards and increased card spending since the pandemic.
Southwest Airlines said its rewards program includes flexible travel policies and “unparalleled availability of award seats.”
“Our commitment to providing customers with Rapid Rewards points that never expire, regardless of how they are earned, has resulted in twice the number of seats booked with points compared to the industry average,” the Dallas-based airline said in a statement. reached,” he said. Just like with other airlines, loyalty points can be used to purchase flights, hotels, car rentals, gift cards, and more.
United CEO Scott Kirby said the loyalty program is a “huge part of our business” and benefits not only the airline but its customers.
US hard line
The Department of Transportation takes a tough stance against airlines over practices and policies that it deems could harm consumers. This new investigation is the latest in a series of government actions in this area.
Buttigieg up front raised concerns about loyalty programs and co-branded cards that help passengers earn more rewards through spending during a joint hearing with the Consumer Financial Protection Bureau in May.
One of the issues Mr. Buttigieg cited was that airlines are changing their programs to make it harder for customers to earn rewards. The decision recently backfired on Delta Air Lines, which was forced to reconsider its 2023 review after a flood of complaints.
On Thursday, following the announcement of the Department of Transportation’s investigation, CFPB Director Rohit Chopra said on social media platform said. tactics. “
Airline loyalty programs are not a new concept. American Airlines was the first major airline to create such a program with AAdvantage in 1981, followed soon after by United Airlines and Delta Air Lines. They initially started as a way for airlines to differentiate themselves after the airline industry was deregulated in 1978, but they have since turned into huge profits.
Major U.S. airlines raised at least $20 billion during the coronavirus pandemic using loyalty programs as collateral, giving the public a glimpse of just how lucrative these programs can be.
Carriers make money by selling points and miles on co-branded credit cards to companies that partner with them, and reward customers with points and miles when they make purchases with their cards. You can also sell points and miles directly to consumers on your own website, or to other companies you partner with, such as hotels, retailers, or rental car companies.
Supporters say the program and its affiliated credit cards offer a wide range of popular perks for travelers, from priority boarding to access to airport lounges. And according to Airlines for America, nearly one in four U.S. households has an airline credit card.
But consumer advocacy groups and lawmakers like Democratic Sen. Dick Durbin of Illinois and Republican Sen. Roger Marshall of Kansas are calling for action to be taken to ban the potentially unfair practices. We rely on the Department of Transportation. The senators expressed many of the same concerns in letters sent to the department and the CFPB last year that Buttigieg expressed during his May hearing.
(Updates with comment from CFPB Director in 16th paragraph.)
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