The rewards programs of the four largest US air carriers — Delta Air Lines Inc., American Airlines Group Inc., United Airlines Holdings Inc. And Southwest Airlines Co. — are being probed by the US Department of Transportation, the agency announced Thursday.
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 “are impacted by the devaluation of earned rewards, hidden or dynamic pricing, extra fees, and reduced competition and choice,” it said in a statement.
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.
As part of the probe, the carriers will have to provide detailed information on their rewards programs — which encompasses credit card, consumer incentive, loyalty and frequent flier programs — including any changes made over the last six years, complaints received from customers and the impact of mergers on the programs.
“Many Americans view their rewards points balances as part of their savings,” Transportation Secretary Pete Buttigieg said in the statement. “But unlike a traditional savings account, these rewards are controlled by a company that can unilaterally change their value.”
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. “US carriers are transparent about these programs, and policymakers should ensure that consumers can continue to be offered these important benefits,” the group said.
Loyalty Billions
Delta reported that it made $6.8 billion in 2023 from its credit card partnership with American Express 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.
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’ve also raised concerns about whether the programs give larger airlines an unfair advantage over smaller competitors.
Delta said in a statement that “providing a meaningful rewards experience is the top priority within Delta’s SkyMiles program,” adding that it would respond to the Department of Transportation’s inquiry. It has previously cited strong growth in loyalty program memberships, co-branded credit card acquisition and increased card spending since the pandemic.
Southwest said its rewards program includes flexible travel policies and “unmatched availability of reward seats.”
“Our commitment to providing customers with Rapid Rewards points that never expire, regardless of how they’re earned, has led us to have double the industry average of seats booked with points,” 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.
United Chief Executive Officer Scott Kirby has called its loyalty program “a huge part of what we do” and something that’s good for customers as well as the airline.
US’s Hard Line
The Transportation Department has taken a hard line with airlines on practices or policies that it’s determined could be harming consumers. The new probe is the latest in a slew of government actions on that front.
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.
One issue Buttigieg cited was that airlines were changing their programs to make it more difficult for customers to earn perks — a decision that recently backfired on Delta, which was forced to rethink a 2023 overhaul following a deluge of complaints.
On Thursday, following the announcement of the Transportation Department’s probe, CFPB Director Rohit Chopra said on the social media platform X that his agency is “also closely scrutinizing credit card companies for their role in any sudden devaluation of points and any bait-and-switch tactics.”
Airline loyalty programs aren’t 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.
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 collateral.
Carriers generate revenue by selling points or miles to the companies they’ve 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’ve teamed up with, such as hotels, retailers or car rental companies.
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 nearly one out of every four US households has an airline credit card.
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 letter sent to the department and the CFPB last year.
(Updates with comment from CFPB director in 16th paragraph.)
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