Airline rewards programs are under the federal microscope

The Department of Transportation thinks airline frequent flyer programs aren't very fly. Last week, the DOT launched a probe into the rewards programs of American, Delta, Southwest, and United, America's four largest carriers.

Background: Frequent flyer programs used to be primarily based on the number of flights taken or miles flown with a particular airline. However, in recent years, rewards have been fueled by airlines selling frequent flyer miles to credit card companies and other travel partners, who in turn offer them as rewards to customers.

This practice currently accounts for ~40% of airline revenue. And nearly one out of every four US households has an airline credit card, per Airlines for America.

The case: The DOT is investigating how flyers are impacted by the devaluation of earned rewards, hidden and dynamic pricing, extra fees, and reduction in competition and choice.

• The DOT alleges airlines unfairly manipulate their rewards systems by adding blackout dates, points expiration, and refusals to honor certain rewards, along with continuously increasing the number of points needed for elite status or award redemptions.
• The lowest daily average price of US airline tickets purchased with points or miles was up 28% in March 2024 compared to March 2019 – outpacing inflation by 7%.

👀 Looking ahead… The DOT is giving airlines 90 days to submit all documents related to the probe, and hasn’t yet announced any potential penalties or actions.