Would Regulation Make Airlines’ Mileage Programs Less Maddening?

Courtesy Capital One via Alex Wright/YouTube
Anyone who collects airline miles has probably been perturbed by the programs’ primary frustrations: the small number of seats available and the high number of miles needed to secure them. After all, Capital One and comedian David Spade rode mileage-redemption woes to a series of memorable commercials for the company’s “no hassle” credit card.

Frequent-flyer programs need more federal oversight, contends a Florida congressman. Representative Alan Grayson, an Orlando-area Democrat who himself has amassed about 10 million miles, says the airlines have turned their loyalty programs into dishonest profit centers that cheat air travelers by devaluing their miles and changing program rules without proper notice. Historically, the programs have not been regulated.

“We’ve crossed the line from a series of programs throughout the industry that are honest and constrained by competition to programs that are no longer constrained by competition,” Grayson says. He accuses airlines of being “greedy and deceptive” in how they administer the programs.

In July, Grayson asked the U.S. Department of Transportation to investigate the airlines’ policies regarding their frequent-flyer programs. In response, the department’s Office of Inspector General last week began auditing (PDF) the programs—which have more than 300 million U.S. members. The watchdog is looking into whether airlines properly disclose rule changes in the programs and the various taxes and fees associated with mileage awards.

In the 33 years since American Airlines launched the mileage craze with its AAdvantage program, frequent-flyer miles have become a critical revenue source for U.S. carriers. The airlines sell billions of dollars worth of miles each year to banks, retailers, and other marketers that use them to entice customers. Today, more miles are earned from credit cards and other loyalty programs than from actual flying. Millions of people who rarely fly are keenly attuned to boosting their mileage balances.

The top frustration of frequent-flyer program members is needing more miles than they expected for an award, followed by sudden rule changes, according to a survey of 1,600 miles collectors earlier this year by MileCards.com, a credit card comparison site.

Vaughn Jennings, a spokesman for U.S. airlines’ trade group Airlines for America, says the programs exist to thank customers for their business and loyalty. “Carriers are completely transparent regarding loyalty programs both on their websites and in direct communication with their customers,” he wrote in an e-mail.

Grayson maintains that airline competition kept the programs relatively unchanged for mileage collectors throughout the 1980s and ’90s, with most award travel seats offered at starting rates of 25,000 miles. In recent years, especially as airlines have gone bankrupt and restructured, the carriers’ push for profitability has made the programs far less generous to consumers than they once were.

Irate members of Delta Air Lines’ SkyMiles program began calling those miles “SkyPesos” several years ago, owing to difficult redemptions and their perceived lack of value. Delta has announced several changes for 2015, including offering more seats at lower mileage levels, to try to make SkyMiles more competitive with the programs at United Airlines and American.

Next year, Delta and United will begin considering annual spending in their rewards calculation, not just the distances that travelers cover, so customers who spend more money will get more miles. Awards for most international business- and first-class seats on partners of the Big Three U.S. carriers have also soared within the past year. Those changes and others in recent years have caused many miles collectors to rethink the value of trying to amass miles for free airline travel.

Regardless of how much consumer irritation airline miles generate, the Transportation Department probably lacks a “leverage point” to delve too deeply into new regulations for the programs, says Tim Winship, editor of FrequentFlier.com. But he says the department will be able to push airlines to offer more advance notice of program changes that are negative for consumers.

Grayson says many of the recent program changes have been made with little or no warning, which often requires travelers to spend more miles for an award trip. American made such a change on June 1. “Announcing a program change today that takes effect today sticks in the craw of most consumers, and rightfully so,” Winship says. Eric Fraser, a miles collector and Phoenix attorney who specializes in federal regulatory issues, says the department is likely to be most interested in whether airlines properly notify program members of pending changes. “This is an area where the DOT sniffing around could just have an immediate benefit, even if they don’t start to write rules,” Fraser says.

Ideally, Grayson says, the airlines should be forced to give at least one year’s notice of major program changes and to offer at least one seat on every flight available at the lowest mileage level. “If you’re going to have a program like this at all, it’s got to be an honest program,” he says. “Every human being comes with a built-in cheat detector. They know when they’re being cheated; they know when they’re being deceived.”

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