Airlines face government scrutiny over devaluation of frequent flyer programs

Read the Full Transcript

• Geoff Bennett:

  Frequent flier miles are one-way airlines try to maintain customer loyalty. The promise is that accumulated miles can later be redeemed for free travel or other rewards.

  But, as William Brangham reports, there's fresh scrutiny about whether these programs use deceptive practices.

• William Brangham:

  Geoff, that scrutiny is coming from the U.S. Department of Transportation, which is examining whether airlines have been making promises about the value of these frequent flier miles, but then later tweeting the fine print and making them worth less or making them harder to use.

  David Shepardson has been covering all of this for Reuters, and he joins me now.

  Thank you so much for being here.

  What exactly is it that the Department of Transportation is looking at here?

• David Shepardson, Reuters:

  So there are four big issues, one, as you mentioned, the value of the miles.

  Over time, is it becoming harder to book the same tickets for the same number of miles? Transparency. How easy is it to actually get on the Web site and book a ticket, and how much — how easy is it to determine, is it better to use miles or cash?

  Transferability. How easy is it to transfer those miles? You have to pay to transfer those miles to somebody else. So, they want to really take a deep dive. They have brought all the major airlines in for one-on-one meetings to figure out, what's the state of the program, are consumers being harmed, and how to address the myriad complaints they have gotten about it.

• William Brangham:

  So that myriad of complaints, that came from a couple of senators raising this initially?

• David Shepardson:

  That's right.

  So there's a big fight in Congress now over the fees that credit cards charge people to use them, the retailers versus the credit card companies, and the airlines are squarely in the middle of that. So, Senator Durbin, a Democrat from Illinois, and Senator Marshall of Kansas, Republican, have introduced this bill.

  The airlines argue that, with a cap or reduction in those fees, it makes it impossible to offer the very popular — credit cards offer points, free miles…

• William Brangham:

  Right. Right.

• David Shepardson:

  … when you book a ticket or you buy something, you get the points for it. So they're in the middle of that fight.

  And, as a result, DOT is scrutinizing the state of play of the programs. Are they treating consumers properly, and are they following the letter of the law?

• William Brangham:

  I think, when people sign up for these things, they maybe assume that there might be some variants in when they can use them or how many miles it might take to earn a free flight.

• David Shepardson:

  Right.

• William Brangham:

  But where does that line cross from being vague and confusing and shifting to actually being officially unfair or illegal or deceptive?

• David Shepardson:

  That's a really good question. I don't think we know yet where that is.

  I mean, one issue is on the value of the miles, because airlines are using something called dynamic pricing, meaning — it used to be 20,000 miles get you a ticket any domestic destination.

• William Brangham:

  Here to Cincinnati.

• David Shepardson:

  Exactly.

  Now it's about the number of seats available oftentimes, the — like buying a ticket with money, right? So there's a relationship between often the price of the ticket in miles versus what it costs in money. So, as a result, you might be charged or offered far more miles to go on the same trip than it was earlier, much less.

  But the airlines would argue that would — helps guarantee you actually can book the ticket, right? If all the tickets stay at 20,000, they only limit the number of seats to X-number that you can use a frequent flier mile — miles it makes it harder to actually get that ticket.

• William Brangham:

  I see.

  What is the evidence that the airlines are doing things that could be considered unfair or deceptive?

• David Shepardson:

  Well, I think, if you listen to some of the consumer advocates, it is there are a lot of miles out there chasing a relatively few number of seats. And so the prices are going up.

  And there are different — airlines have different policies about how easy it is to get on the Web site and determine, can I book it today? How about the next day? How easy is it to find that magic flight that I can actually book the ticket?

  And so that's one of a number of different questions DOT is looking at. Remember, this is just the latest, right? They have spent the last two years really cracking down the airlines, whether it's Southwest Airlines that just had to pay this record-setting $140 million civil penalty over the snowstorm.

• William Brangham:

  Right. Right.

• David Shepardson:

  Secretary Buttigieg has said previously he's going to beat up on the airlines when necessary to ensure that consumers get what they're entitled to.

  And, also, the administration has proposed a number of new regulations, including one similar to what Europe has to require airlines to pay compensation for delays, when it's under their responsibility, more than three hours. So that's still a ways off, but it's one example of the administration trying to compel the airlines to treat consumers better.

• William Brangham:

  You were saying before how this is so many miles chasing so few flights. I mean, how big of an issue is this?

• David Shepardson:

  Right.

• William Brangham:

  How many points, reward points, miles are out there on the ether?

• David Shepardson:

  So it's a staggering amount, right?

  So, Ed Bastian, the CEO of Delta, last summer said that close to 1 percent of U.S. GDP is charged on a Delta Amex credit card.

• William Brangham:

  Wow.

• David Shepardson:

  That's upwards of $250 billion. I mean, they're generating in revenue from their Amex partnership $5 to $7 billion a year. So it's a massive business for all the airlines.

  It also helps get newer, younger people interested in flying, right? You're out of college, you're trying to save for that first ticket, right, you use that credit card. And, also, it's about loyalty, right? It's not just about the miles. It's about, you might get free bags.

  You might get a better status, so you can avoid some of the lines. So these credit cards are integral to the airlines' plan to really keep you flying the same airline, regardless of prices.

• William Brangham:

  And what do the airlines say in response to all these criticisms?

• David Shepardson:

  Right.

  So they're — in their meeting with the DOT, they argue that they're very transparent. They said 15 million tickets were booked last year using — just on the points from airline credit cards and that people do love the credit cards. They love the programs, mostly — they don't always like the changes — and that, generally speaking, people are happy with their frequent flier programs.

• William Brangham:

  Why is this something that the Department of Transportation is looking into? Like, why is this Buttigieg's issue?

• David Shepardson:

  Because Congress has taken — took the authority away from the Federal Trade Commission, the state attorney generals, and really handed all of the consumer protection responsibility to DOT.

  In fact, some states have argued they should have more authority to tackle this issue and argue that prior administrations have not been aggressive enough in tackling this issue. And outside of antitrust, really, DOT is the only one that's in charge of enforcing these consumer responsibility laws.

• William Brangham:

  David Shepardson of Reuters, thank you so much.

• David Shepardson:

  Thank you. Good to be here.

Improved audio player available on our mobile page