The Department of Transportation’s Office of Inspector General completed a report (.pdf) on government oversight of airline frequent flyer programs.
DOT’s audit was launched in September 2014 at the behest of Florida Congressman Alan Grayson. Here’s what Grayson was after. 21 months later we have the agency’s findings.
The Department of Transportation believes that airlines make available enough frequent flyer award seats and are transparent in the way they operate the programs. However the DOT does not pay enough attention to concerns about changes to programs without notice.
How Many Program Members Are There?
According to the Department of Transportation:
- 630 million airline frequent flyer program members are enrolled worldwide
- 300 million members are enrolled in US airline programs
Order-of-magnitude we know that there are about 100 million American AAdvantage members, 90 million United MileagePlus members and 80 million Delta SkyMiles members.
American Airlines Has the World’s Largest Frequent Flyer Program
Since they’re talking about member signups, and not unique individual people, 300 million is a little bit low (since you have to add in Southwest, Alaska Airlines, and others) but it’s not low by much.
What the Department Was Looking For in Its Investigation
The Department of Transportation proceeded to review three things about these programs.
- Whether airlines properly disclosed frequent flyer program rules
- How the Department of Transportation reviewed consumer complaints
- How airlines make award seats available and value their miles
Disclosure of Program Terms is a Non-Issue
DOT concluded that airlines appear to fully meet disclosure requirements. (In other words, they “disclose frequent flyer rules in their customer service plans.”)
This is based on having reviewed disclosure for Virgin America, Delta Air
Lines, and American Airlines in July 2011, March 2012, and April 2012, respectively.
DOT Has Been Improperly Dismissing Consumer Complaints, and Program Changes Without Sufficient Notice Are Unfair and Deceptive
There were only 76 DOT complaints filed regarding airline frequent flyer programs between 2012 and 2014. I imagine most of those were regarding United’s 4 mile mistake award tickets. Not a single one of the 76 complaints were sent to department attorneys for further review.
DOT sent the complaints to the air carriers to resolve without any additional research to determine whether the air carriers were involved in unfair or deceptive practices. In addition, the analysts sent letters to the complainants which that stated that the complaint did not fall under Department rules.
As a general matter, DOT hasn’t regulated airline frequent flyer programs, even though under Northwest v. Ginsberg a consumer’s only avenue of redress in most cases is the Department of Transportation rather than the courts.
The DOT Inspector General reviewed about half of the complaints and found that four of them should have gotten an additional review rather than being dismissed outright.
The important takeaway from this report is as follows:
- DOT considers a change to terms and conditions without reasonable notice to be an example of an unfair or deceptive practice
Although it appears that the complaint which prompted this statement derived from American’s April 8, 2014 changes it seems as though Delta, which has claimed its illegal for them to give notice of award chart changes should probably be on notice most of all.
Los Angeles – Johannesburg Business Class Roundtrip Award Calendar
DOT does not specifically address the extent to which changes to an award chart without notice would be unfair and deceptive, but their criteria for this is certainly suggestive.
The DOT standard for changes without notice constituting an illegal unfair or deceptive practice is:
- “how significant the change is”
- “whether notice was given far enough in advance to allow the consumer to benefit from the program prior to the change.”
Currently though the DOT has been ignoring these issues. (“DOT analysts use their judgment to determine whether to initiate an investigation or leave it to the airline to resolve. DOT officials acknowledged the need for analysts to receive additional training to ensure they track and pursue complaints that are potentially unfair or deceptive.”)
DOT “can take enforcement action under the unfair or deceptive practice statute” against changes to a frequent flyer program without sufficient notice even though program terms and conditions state that no such notice is required.
Airlines Make Award Seats Available… But at What Price?
The DOT conducted its own award availability study.
[W]e examined the availability of seats for two airlines using frequent flyer miles for 660 roundtrip flights on 11 dates. Of those, 99 percent of the flights had award seats available for the dates selected, with 63 percent available at the
carriers’ lowest award levels.
Of course the programs are designed to allow last seat availability using miles at some price. Domestically, United’s pricing is the most reasonable but last seat on an aircraft is offered only to elite members and co-brand credit card holders but not to other general members.
Saying that ‘awards are available’ isn’t meaningful. For instance, during peak holiday travel American will charge as much as 75,000 miles one-way for a domestic economy award.
Looking in March 2015 for awards across a variety of dates on the American and Delta websites, they found saver awards available more often than not but rarely available during peak holiday travel.
DOT also found that historically (2010 to 2013) Delta was increasing the cost of an average award while American was reducing the cost. I’m not sure that’s meaningful, though, three years later.
Using available information for calendar years 2010 through 2013, such as airlines’ annual reports and other data,9 we were able to determine that the average number of frequent flyer miles used to redeem an award increased for Delta Air Lines and decreased slightly for American Airlines. The average miles used to redeem an award on Delta increased from 22,000 to 24,636, while on American the average miles used decreased slightly from 22,987 to 22,782
The DOT felt that airlines “do not fully inform consumers that limitations are decided using complex computer modeling to forecast demand for each flight.” Although I’m not sure how consumers would benefit from a more nuanced understanding of revenue management.
And the DOT concluded “since there are no specific requirements in these areas, airlines are free to use their own discretion and business principles to decide how to disclose information regarding their award-travel algorithms and redemption history to consumers.”
What This Means for Consumers
As I wrote two years ago, “Under existing law, frequent flyer programs can do anything they want to you. They just have to tell you they’re doing it.” The DOT now says they have to tell you they’re doing it in advance, but has never actually enforced such a requirement.
The DOT historically hasn’t regulated frequent flyer programs, and they have little authority to do so – although any other venue of redress has more or less been taken off the table.
There are voices within the DOT that believe that needs to change, and the Inspector General believes even current authority is going unused.
The only strong takeaway from this report is that the DOT believes material changes to frequent flyer programs need to be disclosed to consumers sufficiently “far enough in advance to allow the consumer to benefit from the program prior to the change.”
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