DOT Launches Investigation Into Airline Reward Programs

Last week, the U.S. Department of Transportation launched an inquiry into the four largest U.S. airlines' reward programs.  The investigation is focused on “the ways consumers participating in airline rewards programs are impacted by the devaluation of earned rewards, hidden or dynamic pricing, extra fees, and reduced competition and choice.”  

As part of the announcement of the inquiry, U.S. Transportation Secretary Pete Buttigieg said, “Our goal is it to ensure consumers are getting the value that was promised to them, which means validating that these programs are transparent and fair.” 

The DOT's investigation is primarily focused on four areas.

Devaluation of earned rewards

The DOT noted that airlines may make a variety of changes to reward programs that may impact consumers negatively.  For example, airlines may make changes to program terms that “reduce or eliminate accrued value.”  They may also increase the number of points needed for redemption or status upgrade, impose new restrictions on the use of points, and may change or take away complimentary benefits.  

The DOT said that, as part of the investigation, “airlines must describe each change made to their rewards program over the last six years, how it impacted existing points and status, and what options were provided to members to avoid losing any value or benefits they had already earned.” 

Hidden and dynamic pricing

The DOT also expressed the concern that, “When the true dollar value of rewards is hidden or unpredictable, it can be easier for airlines to devalue rewards without detection."  The DOT said that this problem is compounded by “dynamic pricing where the number of points needed for redemption change frequently and unpredictably.” 

The DOT said that, as part of the investigation, airlines must “provide the average dollar value of one reward point, the value of a point when it is redeemed for various services, and the price to purchase a point directly from the airline” and must “identify practices related to dynamic pricing and the financial impact of those practices on consumers.” 

Extra fees

The DOT also noted that airlines may add extra fees for passengers to maintain, redeem, or transfer points that they have earned, and that these fees may “add little benefit but can reduce the value of rewards by making them more expensive to accrue or use.”  

The DOT said that, as part of the investigation, airlines must “identify and describe to DOT each fee associated with their rewards program that is charged to consumers related to the use or administration of their rewards points, the actual cost to the airline for a consumer to take the action for which they are charged a fee, and the rationale for charging the fee.” 

Reduction in competition and choice

The DOT also said that it wants airlines to provide information about how airline mergers have impacted reward programs.  The DOT explained that, “the integration of two rewards programs can present problems if customers in one or both programs lose value, rewards, or status in the transition.” 

The full letter to the airlines is here. 

The DOT's investigation is, of course, of greatest concern to the airline industry – since it may suggest that new rules (and enforcement) may be coming related to airline reward programs.  The concerned raised here, though, are ones that all companies that have reward programs should consider as they develop, implement, and potentially make changes to those programs.