Editor's Note: Ganesh Sitharaman is Vanderbilt University Law New York Alumni President's Chair, director of the Vanderbilt Policy Accelerator, and author of Why Flying is Miserable: And How to Fix It (2023). Also an author. William J. McGee is a senior fellow for aviation and travel at the American Economic Liberties Project and the author of Attending Allpassengers and Half the Child. The opinions expressed in this commentary are their own. Read more opinion on CNN.
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Over the past few months, America's largest domestic airline has made a number of changes to its rewards program, allowing members to reach different tiers of “status” with increasing levels of benefits.
Delta Air Lines recently made it harder to obtain status and eliminated perks for those with the status, such as easier lounge access. Alaska Airlines has issued an all-new point accrual table, increasing the number of points required to fly to some regions.
American Airlines went further by changing its policy to only allow customers to earn points when they book through American Airlines, partner airlines, or certain preferred travel agents, steering customers away from competitors' booking platforms. Ta.
To many flyers, the points system looks great, but the logic is simple. The point system is like a cafe punch card where you get your 11th cup of coffee free. And for many, these are the core benefits of a credit card. But behind the scenes, airline points systems are rife with exploitative and abusive policies that often allow airlines to scam consumers without actually “rewarding” them. It allows you to extort cash.
First, let's consider the most basic question: “How much are your points?” Despite online points estimating tools like The Points Guy, you never know for sure. The largest airlines used to publicly post redemption tables, but some have stopped doing so.
This lack of transparency means airlines can change the value of points at any time. And when airlines reduce the value of points, passengers are effectively paying more points for their flights. In fact, a recent study found that airline award prices have increased faster than inflation since 2019, even as award benefits have declined.
What about “mileage multiplier” offers? Often, after you book a flight, airlines may offer you the opportunity to purchase additional points. However, it turns out that airlines sometimes charge more for these “multipliers” than they estimate the points themselves to be worth.
This is like an airline offering you a deal where you pay $20 and get $10 back. No sensible person would accept such a deal. But conversion rates aren't transparent, so people may not realize it's a bad deal.
Alternatively, if you've ever tried to transfer points, you'll know that the deal is unfair here too. Let's say you want to transfer 10,000 Delta Points to your spouse. According to some online estimates, these points are worth her $120.00. However, it turns out that Delta Airlines charges him a $30 fee to transfer points, plus 1 cent for each point he transfers. That means you would pay Delta $130 to transfer $120 worth of points. Other airlines charge similar fees. By the way, this all just changes the account's ledger entries, so it doesn't cost anything to transfer more points.
If these policies seem shocking and unfair, that's because they are. “Perks” programs often allow airlines to extract extra cash from unsuspecting consumers. Some analysts estimate that the value of airline points programs far exceeds the value of airline transportation operations.
Not only does this encourage airlines to engage in all kinds of deceptive practices to continue relying on points programs to generate revenue, but it also takes them away from their core business of getting passengers safely to their destinations. And you can't underestimate how important these programs have become financially for airlines. In 2023, major U.S. carriers generated $27 billion in revenue from loyalty programs and fees, accounting for 68% of the global industry total.
So what can be done about this? Congress could legislate against such practices. Importantly, there is already bipartisan concern on this issue. Both Sens. Richard Durbin (D-Ill.) and Roger Marshall (R-Kansas) say this type of practice is problematic. In a letter to the Department of Transportation and the Consumer Financial Protection Bureau, the senators said there are “alarming reports that airlines are engaging in unfair, fraudulent, and deceptive practices” and that each airline It asked the company to explain its plans to address these issues. problem.
To address these harms, the Department of Transport can use its powers to define and prohibit “unfair and deceptive practices” in the transport sector. In fact, the department has already indicated that it is considering a points system and will work with the Consumer Financial Protection Bureau to hold a public hearing next week to determine what steps need to be taken. We will consider the complaint carefully.”
If Congress and these agencies take action, they could eliminate unfair and deceptive practices in airline points systems. This does not mean the end of the rewards program. That would be a huge shock to consumers.
