Source: US DOT

  • Secretary Buttigieg orders airlines to provide reports, records as part of DOT inquiry aimed at protecting the value of rewards and benefits earned by travelers
  • Inquiry follows joint CFPB-DOT public hearing on airline rewards programs earlier this year

The U.S. Department of Transportation (DOT) launched an inquiry into the four largest U.S. airlines’ rewards programs that is aimed at protecting rewards customers from potential unfair, deceptive, or anticompetitive practices. As part of the probe, U.S. Secretary of Transportation Pete Buttigieg sent letters to American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines ordering them to provide records and submit reports with detailed information about their rewards programs, practices, and policies. DOT’s probe is focused on the ways consumers participating in airline rewards programs are impacted by the devaluation of earned rewards, hidden or dynamic pricing, extra fees, and reduced competition and choice.

“Points systems like frequent flyer miles and credit card rewards have become such a meaningful part of our economy that many Americans view their rewards points balances as part of their savings,” said U.S. Transportation Secretary Pete Buttigieg. “These programs bring real value to consumers, with families often counting on airline rewards to fund a vacation or to pay for a trip to visit loved ones. But unlike a traditional savings account, these rewards are controlled by a company that can unilaterally change their value. Our goal is to ensure consumers are getting the value that was promised to them, which means validating that these programs are transparent and fair.”

Airline rewards points are typically earned by making purchases with the airline’s co-branded credit card, by flying on the airline or its partners, or by other activities specified by the airline or its credit card partner. Rewards points can be redeemed for flights, upgrades, ancillary services, or third-party products and services. In many rewards programs, customers can also earn status by reaching certain benchmarks by accruing rewards points, taking qualifying flights, and/or hitting spending targets. Rewards customers receive complimentary perks like bonus miles, service upgrades, or lounge access that increase in number and value with each status level.

The value of rewards is set by the terms and conditions that govern their use and benefit. Terms lay out the rules and requirements regarding how rewards points are earned and what they can be redeemed for, how many points are required for rewards redemption, how status is achieved and what benefits come with it, and what, if any, restrictions limit the flexibility, redemption, or duration of rewards. These rules determine how rewards points stack up against the price to purchase the rewards in cash. Many airlines reserve the right to change the terms, and therefore the value, of rewards at their discretion.

Given the proliferation of rewards programs in air travel, DOT has initiated a review to examine the fairness, transparency, predictability, and competitiveness of airlines’ rewards programs. DOT has the authority to investigate and take action against airlines for unfair or deceptive practices and unfair methods of competition in air transportation or the sale of air transportation.

As part of the Department’s review, Secretary Buttigieg is ordering the four largest airlines to submit information that will allow DOT to better understand and identify potential competition or consumer protection issues or risks. The Secretary has the authority to require airlines to provide special reports, information, documents, and answer questions as necessary. Secretary Buttigieg is specifically requesting information and documents relating to:

  1. Devaluation of earned rewards: Airlines may apply changes retroactively to rewards that customers already earned in ways that reduce or eliminate accrued value. They may move the goal post by increasing the number of points needed for redemption or status upgrades. Airlines may impose new restrictions, such as increasing the blackout dates for flight redemptions, limiting who can use the points to travel, adding or changing an expiration date, requiring an active account for points to remain valid, or adding new hurdles to qualify for status. They may take away complimentary benefits, require a higher status to receive them, or refuse to honor promotions. When earned value disappears before it can be redeemed, customers have little recourse to reclaim it from the airline. As part of DOT’s probe, airlines must describe each change made to their rewards program over the last six years, how it impacted existing points and status, and what options were provided to members to avoid losing any value or benefits they had already earned.
  2. Hidden and dynamic pricing: When the true dollar value of rewards is hidden or unpredictable, it can be easier for airlines to devalue rewards without detection. Hiding the dollar value makes it harder to compare the redemption price against the cash price across different rewards. It can mask disparities between a point’s purchase price and its dollar value. Problems created by opaque pricing are compounded by dynamic pricing where the number of points needed for redemption change frequently and unpredictably. As part of DOT’s inquiry, airlines must provide the average dollar value of one reward point, the value of a point when it is redeemed for various services, and the price to purchase a point directly from the airline. They must also identify practices related to dynamic pricing and the financial impact of those practices on consumers.
  3. Extra fees: Airlines often add extra fees for passengers to maintain, redeem, or transfer points they have earned. These fees may add little benefit but can reduce the value of rewards by making them more expensive to accrue or use. Airlines must identify and describe to DOT each fee associated with their rewards program that is charged to consumers related to the use or administration of their rewards points, the actual cost to the airline for a consumer to take the action for which they are charged a fee, and the rationale for charging the fee.
  4. Reduction in competition and choice: Rewards programs are a critical financial asset and can be a key part of airline mergers. These mergers can eliminate or reduce competition and choice for rewards consumers, particularly as an airline’s dominance increases in a particular region. Moreover, the integration of two rewards programs can present problems if customers in one or both programs lose value, rewards, or status in the transition. Some rewards practices may create opportunities to collude or price signal. As part of DOT’s inquiry, airlines must describe and provide documents related to their mergers involving rewards programs, the integration process of merging programs, their rewards program partnerships, and how they monitor, analyze, and/or react to other airlines’ competing rewards program.

See a model version of the letter here.

In May 2024, Secretary Buttigieg joined the Director of the Consumer Financial Protection Bureau Rohit Chopra for a public hearing on airline and credit card programs. At the hearing, smaller U.S. airlines touted their rewards programs’ consumer-friendly policies, while expressing some competition concerns as to how rewards programs are leveraged by the largest airlines. DOT officials have also met with 11 U.S. airlines to discuss their rewards programs as part of a larger industry review.

Since the beginning of the Biden-Harris Administration, DOT has taken historic action to improve airline passenger rights and oversight of the airline industry:

  • Created a new rule to require airlines to provide automatic cash refunds to passengers when owed.
    • The rule makes clear that airline passengers are entitled to a refund when their flight is canceled or significantly changed and they no longer wish to take that flight or be rebooked, when their checked baggage is significantly delayed, or when extra services they paid for – like Wi-Fi – are not provided. The rule also requires refunds to be automatic, prompt, in the original form of payment, and in the full amount paid.
    • Provisions of the final rule on airline refunds were fortified through the FAA Reauthorization Act of 2024 that President Biden signed into law on May 16, 2024.
  • Created a new rule to protect consumers from costly surprise airline junk fees.  
    • The rule fosters a more competitive airline market by requiring airlines to disclose critical extra fees upfront – like change fees and baggage fees – to ensure consumers can better understand the true cost of their travel. The rule also bans “bait-and-switch” advertising tactics and requires airlines to clearly tell passengers upfront that a seat is included with the cost of their ticket, and they don’t need to pay extra. American Airlines, United Airlines, Delta Air Lines, Alaska Airlines, Hawaiian Airlines, JetBlue, and Airlines for America have challenged this rule in court, and the court has put a temporary hold on implementation of the rule. The Department will continue to defend this rule and notes that nothing in the Court’s decision prevents airlines from voluntarily complying with this common-sense rule. If the rule were to go into effect, it would save consumers over half a billion dollars every year.
  • Expanded the Department’s capacity to review air travel service complaints by partnering with a bipartisan group of state attorneys general, which will help hold airlines accountable and protect the rights of the traveling public. Attorneys general who have signed a memorandum of understanding with DOT will be able to access the new complaint system this fall.
  • Secured enforceable guarantees from airlines to provide food, lodging, and other support when they strand passengers. After DOT launched flightrights.gov, all 10 large U.S. airlines committed to providing passengers with free rebooking, meals, hotel accommodations, and other amenities when they are responsible for causing a significant delay or cancellation. These are new commitments the airlines added to their customer service plans that DOT can legally ensure they adhere to through enforcement action.
  • Ensured airline passengers received nearly $4 billion in refunds and reimbursements owed to them – including over $600 million owed to passengers affected by the Southwest Airlines holiday meltdown in 2022.
  • Issued nearly $170 million in penalties against airlines for consumer protection violations since President Biden took office. In comparison, between 1996 and 2020, DOT collectively issued just over $70 million in penalties against airlines for consumer protection violations.