Frequent-flier plans could face tighter regs

by Christopher Elliott
Special to The Washington Post
The federal government is on the verge of regulating airline frequent-flier programs. But how far it goes may depend on you.
 
Earlier this summer, the U.S. Department of Transportation’s Office of Inspector General released a long-awaited audit report on airline loyalty programs. The investigation, requested by Rep. Alan Grayson, D-Fla., concluded that the government has the authority to regulate frequent-flier programs and called on officials to create new disclosure rules, which the DOT’s Office of Aviation Enforcement and Proceedings said it will do.
 
The question is, will the new regulations go far enough to protect air travelers? That’s where you come in. The agency wants your frequent-flier program complaints. You can send them directly to the agency via its online form at www.Airconsumer.dot.gov.
 
Travelers and industry experts are divided on the issue of whether there should be any new regulation. For now, the DOT is charting a tentative course, which includes strengthening its enforcement and proposing new regulations that would make it easier to find out about program changes. But the agency has yet to hear from millions of passengers who are angered by the airlines’ recent program changes. If or when it does, that could dramatically change the agency’s direction.
 
Collecting points is one of the great American pastimes. An estimated 630 million members are enrolled in various airline loyalty programs worldwide, with more than 300 million members in the United States. But many of the miles never are redeemed. New research by Switchfly, a travel commerce and loyalty platform, suggests that travelers haven’t used 70 percent of their miles, or about a trillion points, over the last five years.
 
Some program members are as passionate about keeping the government out of their points as they are about collecting them. Regulating the programs is “way beyond a bad idea,” says Judy Serie Nagy, a business manager from San Francisco. Instead, she says airlines should self-regulate their rewards programs. She thinks the only people calling for tighter government controls on frequent-flier programs are the ones who haven’t taken the time to understand them.
 
“When things don’t go the way they anticipate, they get upset,” she says.
 
But others are unhappy with their programs and say that government action is long overdue. “I am all for regulation,” says Oscar Palma, an insurance consultant from Miami. He’s worried that, with recent airline mergers and program devaluations, he’ll be left with hundreds of thousands of worthless miles that will eventually expire.
 
“I’m afraid my points will be hijacked by my airline,” he says.
 
His fears are well founded. According to the program terms, to which you automatically agree when you sign up for an account, the miles are not your property. Your membership can be terminated at any time, for any reason, and the rules can change with no requirement of notification. Even the most dedicated point collectors often feel as if they’re chasing their tails.
 
Even if you could freeze the current frequent-flier programs, prohibiting any new devaluations, critics say they would still be profoundly unfair on several levels. In his letter to the DOT requesting an audit, Grayson denounced modern-day airline loyalty programs as an unregulated currency.
 
“Airlines establish the rules, the terms, the value, expiration dates and the sales pitches,” he wrote. Indeed, the major U.S. airlines earned an impressive $11 billion from the sale of frequent-flier programs in 2015.
 
But instead of investigating the perceived unfairness of the programs, the DOT focused on one question: Can you redeem your miles for an award ticket? (An award ticket is a ticket redeemed with miles. It can also be called a “free” ticket, although with all the fees, it’s not really free.)
 
Based on that criterion, airline loyalty programs passed the audit with flying colors. The DOT evaluation consisted of searching the American Airlines and Delta Air Lines websites to determine if award seats were available in 60 of their domestic markets. It found that 99 percent of flights had award seats available for the dates selected, with 63 percent available at the lowest redemption levels. This essentially prompted a collective shrug. “Airlines have wide latitude with the terms and conditions of their frequent flier programs,” the audit concluded.
 
As if to underscore the point that all is well in the frequent-flier world, the DOT also noted that during a two-year period from 2012 to 2014, it received only 76 complaints about frequent-flier terms and conditions. Of those, just one rose to the level of possibly being an unfair or deceptive practice. But because the DOT didn’t ask the airlines for their responses to the complaints — it simply forwarded them without comment — regulators didn’t know the fate of any of these loyalty program grievances.
 
To regulate reasonable notice and notification requirements would not make the programs any fairer, easier to understand or passenger-friendly, observers say. “You have this massive marketplace — trillions of points issued worldwide — in which points are being seen as an alternative currency, but they don’t actually belong to consumers,” says Daniel Farrar, Switchfly’s chief executive. “The value of points shifts. They expire. It is easy to understand why consumers would want some outside assurance.”
 
And that’s where feedback from frequent fliers could be pivotal. Until now, most air travelers have been unaware that they could complain about their loyalty programs to the DOT; even if they did, the agency wouldn’t have taken any enforcement action. Now, it promises to take complaints more seriously.
 
The regulation question is similar to tarmac delays, an issue the department dealt with about a decade ago, department insiders say. It’s a problem that affected only a fraction of air travelers, but those few passengers made a lot of noise until regulations were passed that limited how long an aircraft could wait before taking off. If there’s a similar outcry, the government is prepared to act more decisively.
It just needs to hear from you.

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