Over the years, airlines have resisted any sort of regulation of their frequent flyer programs. These are sales programs, they say, and shouldn’t be subject to regulation at all. Actually, a reasonable position.
The Department of Transportation (DoT), on the other hand, receives lots of consumer complaints about frequent flyer programs in its inbox. We don’t do anything because it’s outside our purview, the Department says. Also a reasonable position.
Recently the DoT and other agencies decided to take a closer look. I have no idea whether anything will come of it, or what form any future regulation might take, but I can list the issues and my take on them.
Anti-competitive Behavior. Ask any economist to give a detailed definition of “anticompetitive behavior” and you’re likely to get a different answer from each. It’s the same with frequent flyer programs. Yes, a good program gives an airline an advantage over other lines, and their programs give giant airlines an advantage over their smaller competitors, but is that anti-competitive, or just good competition? I don’t know, and I’m not sure who, if anybody does. We‘ll hear from the several agencies in due time, but I have no inkling about what they’ll say.
Even if a consensus emerges that the big-line programs are anti-competitive, the next question is what to do about it. Again, I see no obvious remedies. Murky waters are ahead on this one.
Deceptive. DoT has a mandate to ban deceptive practices, and at least one such ongoing practice is clear and evident. As with hotel “resort fees” and other deceptions, it’s the practice of cutting out a portion of the full actual fare, labeling it as a fee, and saying the “fare” is only the remainder of the actual figure after removal of the fee. A while back, I looked at a few routes and found one where the airline quoted $350 as the fare and added a “carrier-imposed fee” of $300. Clearly, the true fare was $650.
- The question arises in many situations other than frequent flyer. Flyers get hurt because their miles typically cover just the low-ball carve-out and they have to pay the fee part. But lots of other interactions are involved.
- The worst offenders are foreign lines. The big U.S. lines don’t do this much, if at all, at least as far as I can tell. And I’m not clear how far the U.S. agencies want to go in issuing regulations that primarily affect foreign lines and their business practices.
Consumer Pain Points. DoT’s consumer mandate also includes rectifying any practices deemed as “unfair.” Here again, defining “unfair” can be slippery.
- Continuous increases in the mile or point “prices” for award trips.
- Scarcity of award seats on reasonable itineraries.
- Unannounced sudden devaluations.
The problem here is that something consumers don’t like is not necessarily unfair. Overall, I find it hard to believe anything substantial will happen. But that’s the way the system works.
