There’s a tremendous amount of wrangling over what will be in the FAA’s 5-year reauthorization currently being developed in Congress.
The Biden administration wants consumer protections and union representation on advisory boards. Delta wants new slots that would allow them to fly more than 1,250 miles from Washington’s National airport. And there’s a broad race to include direction for the airline industry going forward.
One lesser-noticed item that’s been posted by the Senate Commerce Committee includes protections for members of frequent flyer programs stating that frequent flyer programs wouldn’t be able to devalue their miles without first giving members 90 days’ advance notice:
§42309. Frequent flyer programs
(a) REDUCTION IN BENEFITS.—An air carrier may not reduce or devalue the benefits, rewards, points, or other accrued value of an existing account holder of a frequent flyer program unless the air carrier provides such account holder not less than 90 days notice of such reduction or devaluation.(b) EXPIRATION OF BENEFITS.—
(1) INITIAL NOTIFICATION.—Upon the issuance of any flight voucher or flight credit, an air carrier or ticket agent, where applicable, shall notify the recipient of such voucher or credit of the expiration date of the voucher or credit.(2) SUBSEQUENT NOTIFICATION.—Not less than 30 days before the expiration date of any flight voucher or flight credit issued by an air carrier or ticket agent, the air carrier or ticket agent shall make a reasonable attempt to notify the recipient of such voucher or credit of the expiration date of the voucher or credit.
(c) DEFINITION OF FREQUENT FLYER PROGRAM.— In this section, the term ‘frequent flyer program’ means a program in which an air carrier promises or offers benefits, rewards, points, or other accrued value for tickets 9 purchased from the air carrier.
Award charts meant that an airline has to notify members when they made a change, whether they notified members in advance or note. They literally had to change the chart that they published.
Airlines don’t have to eliminate award charts to do revenue-based redemptions. Those that eliminated award charts did so in order to be less transparent and make it easier to change pricing at will. The elimination of award charts has always and everywhere been followed by devaluation of miles.
When programs no longer have to post their changes, because the price is whatever it is on a given search, there’s no need to tell members when the underlying value of the currency devalues. When it’s opaque, devaluations happen more frequently.
- This language would still need to make it into a final Senate bill
- And then make it into a final conference report on the bill (the Senate and House ultimately need to vote on the same language)
- And then, if adopted, be given meaning by the agency. There will still need to be a regulatory interpretation of what the rule means. And airlines will extensively lobby that process.
We know devaluation when we see it, and can demonstrate it when an airline’s lowest award price has risen dramatically – they no longer offer an award for 60,000 miles at all and the cheapest that same award prices ever is 80,000 miles for instance. And perhaps we can do an analysis of average pricing on a route, but maybe that would rise in a revenue-based redemption scheme, with the price of airfares anyway and that would be allowed without notice?
If awards are priced dynamically, airlines will deny the existence of devaluation, even though United has literally just done it not just with their own awards but with partner awards which have still been priced based on an award chart, just an unpublished one.
The irony of course is that without even pledging a clear value proposition, and sticking to it, every airline except Delta has undermined their own program’s profitability (by depressing transaction volume on their co-brand credit cards, at a minimum).
- A frequent flyer program asks members to engage in an activity first – show their loyalty, earn a currency – and trust that those points will be valuable in the future.
- In order to generate trust the program has to commit up front to what that value is going to look like. That’s especially true for airlines which have a history of abusing consumer trust.
- Without a specific promise of value, and a credible commitment to deliver on the promise, there’s little reason to accumulate the currency.
Indeed, this is a big part of the reason that bank proprietary card programs like American Express Membership Rewards, Chase Ultimate Rewards, and Capital One’s rewards have become so attractive to consumers – as an alternative to collecting a single airline’s miles.
Ultimately airlines have behaved very badly, and abused their consumers’ trust. Has that been fraudulent? Should it be banned? Under the Supreme Court’s interpretation of the Airline Deregulation Act in Northwest vs. Ginsberg frequent flyer programs are rebates on price and states cannot regulate airline pricing.
The Court viewed common law contract claims like duty of good faith and fair dealing to be state-level regulation, and therefore pre-empted by federal law. That means you basically can’t sue, and our only avenue of redress is Congress and the Department of Transportation. It’s a second best, I think, but a natural consequence of eliminating any semblance of market-based regulation. I’m just not sure this gets us there.
(HT: Thrifty Traveler)
Good. Customers need protection from program devaluations.
I appreciate the commentary. How might this look? Without transparent award charts, whst is defined as a devaluation?
Yes, it won’t get us there! How about adding the elimination of the anti-trust immunity that was granted to the airlines that they no longer need, and only ends up screwing the flying public?
Ridiculous that the government needs to regulate private marketing and rebate schemes. My Starbucks point value was recently cut in half so I am no longer a patron there and a shareholder. Government need to prevent stop approving near monopolies and the problem will take care of itself. But at this point, something is needed cause they’ll all act lock step in concert.
Gary, any data on customer using cobrand cards less after devaluation?
And Chase doesn’t have anything to say re: united devaluation
@beachfan – information on cobrand charge volumes has been shared privately by executives familiar with the matter. Chase definitely exerted pressure to limit past United devaluations.
I now view frequent flyer programs as on the same level as North Korea. I just burned all my United miles except for 800 miles. I will try to burn my AA and DL miles. Delta should be easy. Maybe 250,000 miles for a short one way to Cleveland. After that, If I earn 100 miles on a transcon, ok.
@ Gary — The government needs to do way more that this in regard to consumer protections. Ending the practice of blaming everything on the weather when the airlines allow zero cushion (no extra aircraft, gates, employees or time) to catch up when even a single lightning bolt hits the field and causes a 10-minute ground stop.
Good article, Gary.
As you point out, this would be a nightmare to try and enforce unless they create a rule to re-impliment award charts (as a mechanism for defining the value of points). Regarding the recent UA devaluation, I’ve since canceled all three of my Chase UA credit cards and cited the devaluation as the reason all three times. If enough customers follow suit, Chase will apply pressure and they are the only customer UA actually cares about.
This would be amazing. They advertise you can get X with your points and then pull the rug out from under you, it’s ridiculous. (I speak from anger since I got whacked in the nasty UA deval.)
And let’s hope it’s implemented across internationally based suppliers. I’m Elite with Marriott, Hilton, IHG. BA and Lufthansa mostly with ‘lifetime’ status. It’s so galling that I’ll take a year or more of weekly travel across multiple platforms only to have the rug pulled out from under me when I want ti make a redemption. The value of points should be fixed like a hard currency and pegged to this value the date of accrual.
Feel good political BS that will likely have broad bipartisan support. However, neither AA, DL, UA nor SW have an awards chart so there is no way to enforce it. Airlines can periodically have specials to show they have lower priced awards and price 90% in line with cash prices at 1 cent a point. There is absolutely no way to hold that against a carrier under any reasonable language.
@Moresun – they NEVER advertise you can get X with your points. Sure the flight attendants say the 50,000 points is enough for 2 trips to the Caribbean but it is dynamic pricing. Again, all an airline has to do is periodically price a few tickets at that rate and they can claim the are in compliance.
Been traveling 40 years and my AA number was assigned in 1986. Anyone that doesn’t understand there will ALWAYS be devaluations and it will cost more to fly, as it should given inflation and increased in overall fares, is really out of touch and naive.
Without award charts, it’s hard to define devaluation for mileage redemptions, but maybe there are other types of devaluations that this could prevent. Elite benefit changes would seem to fall within the language.
Or we could just…break up the big four and have some real competition again.
Does anyone else see the irony of our government passing a law preventing the devaluation of airline points? Maybe they should first focus on stopping their devaluation of the dollar..
Yo man, I love your blog but for someone that leans right, it’s kinda funny seeing you argue for more regulation when it suits your agenda. I agree with you though. 😀 You really should be giving a bit more credit to the Biden administration for this, than a mere acknowledgement. Let’s see if this comment gets approved or conveniently disappears. 😀
@Ray – For the last 9 years I’ve consistently argued that since the Supreme Court took away the courts as an avenue of redress, we’re stuck with DOT regulation as a second-best. For 30 years I’ve argued in favor of tort liability as part and parcel of a market system.