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The department has asked the airlines to submit reports on their programs within 90 days to give the government a better understanding of how consumers \u201care impacted by the devaluation of earned rewards, hidden or dynamic pricing, extra fees, and reduced competition and choice,\u201d it said in a statement.\u00a0<\/p>\n
The probe would be the first extensive government look at the programs that have expanded to produce billions of dollars for airlines annually, in some cases adding more revenue than flight operations. While the potential consequences are unclear, federal regulators could demand changes that might disrupt these profit centers for both carriers and credit-card issuers, and remove a travel option valued by many consumers.<\/p>\n
As part of the probe, the carriers will have to provide detailed information on their rewards programs \u2014 which encompasses credit card, consumer incentive, loyalty and frequent flier programs \u2014 including any changes made over the last six years, complaints received from customers and the impact of mergers on the programs.\u00a0<\/p>\n
\u201cMany Americans view their rewards points balances as part of their savings,\u201d Transportation Secretary Pete Buttigieg said in the statement. \u201cBut unlike a traditional savings account, these rewards are controlled by a company that can unilaterally change their value.\u201d<\/p>\n
Airlines for America, a trade group that represents major US carriers, said in a statement that millions of people enjoy the perks that they get from their loyalty programs. \u201cUS carriers are transparent about these programs, and policymakers should ensure that consumers can continue to be offered these important benefits,\u201d the group said.\u00a0<\/p>\n
Delta reported that it made $6.8 billion in 2023 from its credit card partnership with American Express<\/a> Co., a number that it expects to grow by 10% this year and to reach $10 billion over the long term. American Airlines disclosed it received $5.2 billion in cash payments in 2023 from its co-branded credit card and other partners.<\/p>\n The loyalty programs have come under fire in recent months, with the Biden administration and lawmakers from both sides of the aisle raising concerns that carriers lure customers with promises of rewards only to strip flyers of those perks with little notice by making sudden changes to how points and miles accrue. They\u2019ve also raised concerns about whether the programs give larger airlines an unfair advantage over smaller competitors.<\/p>\n Delta said in a statement that \u201cproviding a meaningful rewards experience is the top priority within Delta\u2019s SkyMiles program,\u201d adding that it would respond to the Department of Transportation\u2019s inquiry. It has previously cited strong growth in loyalty program memberships, co-branded credit card acquisition and increased card spending since the pandemic.\u00a0<\/p>\n Southwest said its rewards program includes flexible travel policies and \u201cunmatched availability of reward seats.\u201d<\/p>\n \u201cOur commitment to providing customers with Rapid Rewards points that never expire, regardless of how they\u2019re earned, has led us to have double the industry average of seats booked with points,\u201d the Dallas-based carrier said in a statement. As with other carriers, loyalty points can be used for purchases including flights, hotels, car rentals and gift cards.<\/p>\n United Chief Executive Officer Scott Kirby<\/a> has called its loyalty program \u201ca huge part of what we do\u201d and something that\u2019s good for customers as well as the airline.<\/p>\n The Transportation Department has taken a hard line with airlines on practices or policies that it\u2019s determined could be harming consumers. The new probe is the latest in a slew of government actions on that front.\u00a0<\/p>\n Buttigieg previewed his concerns with the loyalty programs and co-branded cards, which help passengers boost rewards through spending, at a joint hearing with the Consumer Financial Protection Bureau in May.\u00a0<\/p>\n One issue Buttigieg cited was that airlines were changing their programs to make it more difficult for customers to earn perks \u2014 a decision that recently backfired on Delta, which was\u00a0forced to rethink<\/a>\u00a0a 2023 overhaul following a deluge of complaints.\u00a0<\/p>\n On Thursday, following the announcement of the Transportation Department\u2019s probe, CFPB Director Rohit Chopra said\u00a0on the social media platform X<\/a>\u00a0that his agency is \u201calso closely scrutinizing credit card companies for their role in any sudden devaluation of points and any bait-and-switch tactics.\u201d<\/p>\n Airline loyalty programs aren\u2019t a new concept. American was the first major carrier to create such a program with AAdvantage in 1981, followed shortly thereafter by United and Delta. They initially started as a way for the airlines to differentiate themselves after the industry was deregulated in 1978 but have since become massive moneymakers.\u00a0<\/p>\n The public got a glimpse at how lucrative these programs are when major US carriers raised at least $20 billion in financing during the Covid-19 pandemic using their loyalty programs as\u00a0collateral<\/a>.\u00a0<\/p>\n Carriers generate revenue by selling points or miles to the companies they\u2019ve partnered with on their co-branded credit cards, which in turn offer them as rewards to customers when they make purchases on the card. They can also sell points or miles directly to consumers on their websites or to other businesses they\u2019ve teamed up with, such as hotels, retailers or car rental companies.\u00a0<\/p>\n Proponents say the programs and the co-branded credit cards, provide travelers with a range of popular benefits, from priority boarding to airport lounge access. And according to Airlines for America\u00a0nearly one out of every four<\/a>\u00a0US households has an airline credit card.\u00a0<\/p>\n But consumer advocacy groups and lawmakers like Senators Dick Durbin, a Democrat from Illinois, and Roger Marshall, a Republican from Kansas, have leaned on the Transportation Department to take action to prohibit potentially unfair practices. The senators raised many of the concerns that Buttigieg echoed in the May hearing in a\u00a0letter sent<\/a>\u00a0to the department and the CFPB last year.\u00a0<\/p>\n (Updates with comment from CFPB director in 16th paragraph.)<\/p>\n \u00a9<\/p>\n<\/div>\nUS\u2019s Hard Line<\/h3>\n
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