The U.S. begins investigation of airline loyalty programs

The United States Transportation Department has begun an inquiry into the loyalty programs of American, Delta, Southwest and United. 

The goal of the probe, the DOT said, is to protect customers from potential unfair, deceptive or anticompetitive practices.

“Airline rewards programs have become a meaningful part of the U.S. economy and a major part of the airline business model, by some measures developing a financial significance that rivals or even outweighs the operation of flights,” DOT secretary Pete Buttigieg wrote in letters to the four airlines on Thursday. “These programs can shape how customers interact with airlines, and many Americans reportedly have point balances substantial enough that they amount to part of their savings.”

He added that the rewards programs of Big 4 U.S. carriers “play an outsized role in shaping the policies, practices, and participation in the airline rewards market due to their size, scale, scope, and membership.”

The review comes as airline credit card and loyalty programs have seen record uptake in the post-pandemic period.

The trade group Airlines for America (A4A) estimates that there are nearly 30 million U.S. airline industry credit card holders — nearly one out of every four U.S. households. Delta, the U.S. leader in credit card revenue, made $6.8 billion from its partnership with American Express in 2023 and targets $10 billion by 2028.

The probe also follows behind a hearing convened jointly in May by the DOT and the Consumer Financial Protection Bureau (CFPB), in which Buttigieg and other participants discussed questions of transparency and fairness in airline rewards and credit card programs, including the practice of periodically devaluing loyalty points. 

Panelists representing smaller U.S. airlines said large carriers use loyalty programs to stifle competition by creating captive customers, especially in markets that they already dominate. 

A4A pushed back against the DOT probe in a statement Thursday.

“Because there is fierce competition among airlines for customers, loyalty programs are a way carriers can say thank you to travelers,” the trade group said. “Millions of people enjoy being a part of various loyalty programs, which allow them to accumulate rewards to apply toward travel or other benefits. U.S. carriers are transparent about these programs, and policymakers should ensure that consumers can continue to be offered these important benefits.”

Southwest and Delta also issued statements. 

“We take great pride in our award-winning Rapid Rewards program, which includes flexible travel policies and unmatched availability of reward seats,” Southwest said. “Our commitment to providing customers with Rapid Rewards points that never expire, regardless of how they’re earned, has led us to have double the industry average of seats booked with points. Millions of customers rely on our Rapid Rewards program for their vacations or personal travel needs by using points that can be redeemed for Southwest flights, hotels, car rentals, gift cards, and more.” 

Delta acknowledged receipt of the DOT inquiry and said it will respond accordingly. 

“Our members’ loyalty means everything to us, and providing a meaningful rewards experience is the top priority within Delta’s SkyMiles Program,” the airline said.

American and United declined to comment, deferring to the A4A statement. 

A report published in April by the consulting firm IdeaWorks found that the lowest daily average price of U.S airline tickets purchased with points or miles was up 28% in March 2024 compared to March 2019, a figure that exceeded inflation by 7 percentage points. The jump in reward prices was also outpacing the inflation rate for domestic airfares purchased with currency. 

Practices, however, varied by the airline, with American having actually lowered reward prices by 25% over that time period. 

A more general analysis published in May by the CFPB of major U.S. credit card reward programs, including programs not affiliated with airlines, stated that the average value of rewards earned per dollar of spend actually grew from 1.4 cents in 2019 to 1.6 cents in 2022. 

As part of its investigation, the DOT is requiring American, Delta, Southwest and United to provide documents relating to devaluations of earned reward points, including how each change made by the airlines over the last six years has impacted existing points and status. 

The department is also looking into the manner in which airlines deploy dynamic pricing for reward redemption. As part of that portion of the probe, the DOT has instructed airlines to provide the average dollar value of one reward point and the price to purchase a point directly from the airline. 

The DOT is also asking for documentation on fees airlines charge to redeem, transfer or maintain points they’ve earned. 

Finally, airlines must provide documents related to any rewards program mergers they’ve done, as well as how they monitor and respond to competing airline loyalty programs.

*This story originally appeared in Travel Weekly, a fellow Northstar Travel Group publication.