The Department of Transportation has launched an investigation into the loyalty programs of the four largest U.S. airlines to determine if they have engaged in unfair practices. The inquiry will focus on issues such as the devaluation of miles, hidden and dynamic pricing, extra fees, reduced competition, and choice. Transportation Secretary Pete Buttigieg has requested records and reports from American Airlines, Delta Air Lines, United Airlines, and Southwest Airlines regarding their loyalty programs, practices, and policies. Concerns have been raised that mergers within the industry could lead to less competition and choice among loyalty programs.
The airlines involved have responded to the inquiry from the DOT. Southwest has highlighted the success of its Rapid Rewards program, which has led to double the average number of seats booked with points. Delta stated that providing a meaningful rewards experience for its members is a top priority within its SkyMiles Program. American Airlines claimed it has increased the value of AAdvantage miles and maintains transparent award redemption policies. United Airlines declined to comment on the matter. Loyalty programs are a lucrative asset for airlines, with Delta earning $1.9 billion from its deal with American Express in the second quarter and United’s MileagePlus program being valued at $22 billion.
The DOT’s investigation into loyalty programs was first announced in November, and a panel with the Consumer Financial Protection Bureau in May shed light on concerns about the value of points sold to consumers. Despite airlines not being present at the panel, concerns were raised about the fairness of loyalty programs. Loyalty programs are crucial for airlines, as they generate significant revenues. For example, Delta saw an 8% increase in revenues from its Delta SkyMiles program in the second quarter. The trade group Airlines for America estimates that 30 million Americans hold an airline credit card, with 63% of frequent flyer miles issued through credit card spending.
The performance of airline sector stocks within the ST200 index, which includes companies publicly traded across global markets, has been under scrutiny. The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth over a trillion dollars into a single number. Airlines are a key component of this index. The investigation by the DOT into loyalty programs is significant for the industry, as it aims to ensure fairness, transparency, and consumer protection within these programs. Airlines will need to provide detailed information about their loyalty programs and practices to address concerns about the value of miles, hidden fees, and the impact of industry consolidation.
