Delta, Other Airline Loyalty Programs Are Being Probed by US

(Bloomberg) -- The rewards programs of the four largest US air carriers — Delta Air Lines Inc., American Airlines Group Inc., United Airlines Holdings Inc. and Southwest Airlines Co. — are being probed by the US Department of Transportation, the agency announced Thursday. 

The department has asked the airlines to submit reports and turn over detailed information on their programs to learn how consumers “are impacted by the devaluation of earned rewards, hidden or dynamic pricing, extra fees, and reduced competition and choice,” it said in a statement. 

“Many Americans view their rewards points balances as part of their savings,” Secretary Pete Buttigieg said in the statement. “But unlike a traditional savings account, these rewards are controlled by a company that can unilaterally change their value.”

The loyalty programs have come under fire in recent months, with the Biden administration and lawmakers from both sides of the aisle raising concerns that carriers lure customers with promises of rewards only to strip flyers of those perks with little notice by making sudden changes to how points and miles accrue. They’ve also raised concerns about whether the programs give larger airlines an unfair advantage over smaller competitors. 

The Transportation Department has taken a hard line with airlines on practices or policies that it’s determined could be harming consumers. The loyalty program probe is the latest in a slew of government actions on that front.

The probe targets a substantial source of revenue for carriers that are currently raking in billions of dollars from their loyalty programs and co-branded credit cards.  

Delta reported that it made $6.8 billion in 2023 from its credit card partnership with American Express Co., a number that it expects to grow by 10% this year and to reach $10 billion over the long term. American Airlines disclosed it received $5.2 billion in cash payments in 2023 from its co-branded credit card and other partners.

The public also got a glimpse at how lucrative these programs are when major US carriers raised at least $20 billion in financing during the Covid-19 pandemic using their loyalty programs as collateral. 

Buttigieg previewed his concerns with the loyalty programs and co-branded cards, which help passengers boost rewards through spending, at a joint hearing with the Consumer Financial Protection Bureau in May. At the time, he raised two primary worries: that airlines were changing their programs to make it more difficult for customers to earn perks — a decision that recently backfired on Delta, which was forced to rethink a 2023 overhaul following a deluge of complaints — and that the programs were potentially being operated in a way “to block the entry or growth of smaller airline competitors.” 

Airline loyalty programs aren’t a new concept. American was the first major carrier to create such a program with AAdvantage in 1981, followed shortly thereafter by United and Delta. They initially started as a way for the airlines to differentiate themselves after the industry was deregulated in 1978 but have since morphed into the massive money-makers they are today. 

Carriers generate revenue by selling points or miles to the companies they’ve partnered with on their co-branded credit cards, which in turn offer them as rewards to customers when they make purchases on the card. They can also sell points or miles directly to consumers on their websites or to other businesses they’ve teamed up with, such as hotels, retailers or car rental companies. 

Proponents say the programs and the co-branded credit cards, give travelers access to a range of popular benefits, from priority boarding to airport lounge access. And according to Airlines for America, a trade group that represents the large airlines, nearly one out of every four US households has an airline credit card. 

But consumer advocacy groups and lawmakers like Senators Dick Durbin, a Democrat from Illinois, and Roger Marshall, a Republican from Kansas, have leaned on the Transportation Department to take action to prohibit potentially unfair practices. The senators raised many of the concerns that Buttigieg echoed in the May hearing in a letter sent to the department and the CFPB last year. 

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