Frequent Miler on the Air - Pete Buttigieg's war on airline loyalty devaluations | Coffee Break Ep25 | 9-10-24

Episode Date: September 10, 2024

It seems like we report a new loyalty program devaluation each week. Awards cost more, fees go up, etc.. But the U.S. Transportation Secretary Pete Buttigieg wants that to stop, sending letters to America's 4 largest airlines demanding information about loyalty program devaluations. In this Coffee Break episode, we'll discuss what this might all mean! (00:26) - U.S. Transportation Secretary Pete Buttigieg wants that to stop. Read more about this airline rewards probe here. (01:11) - Let's hear the press release... (03:15) - AA, Delta, Southwest, and United were ordered to submit information by Dec 4. Here are the categories of information requested... (09:17) - Details indicate a fairly deep understanding of loyalty program issues. (10:28) - What good might come out of this? (14:08) - What bad might come of this? (17:13) - Will anything happen at all? Visit frequentmiler.com/subscribe to get updated on in-depth points and miles content like this, and don’t forget to like and follow us on social media. Music Credit – Beach Walk by Unicorn Heads

Here we go. This is not your typical Frequent Miler on the Air episode. This is a standalone segment we're calling Coffee Break. Each Coffee Break segment will cover a single topic related to miles and points. And each Coffee Break is limited to 20 minutes or your money back. Enjoy. Pete Buttigieg's war on airline loyalty devaluations. All right. It seems like we report a new loyalty program devaluation every week on the show. We don't like to report them, but we have to. Awards cost more or fees go up. All

kinds of bad things happen all the time. But U.S. Transportation Secretary Pete Buttigieg wants to put a stop to that. He sent letters to America's four largest airlines demanding information about loyalty program devaluations. Specifically, the goal is to ensure that customer rewards are protected from any practices that would diminish their value, benefit, or availability. Wow. Yeah. So the U.S. Department of Transportation released a press statement on September 5th, 2024 with the headline, U.S. DOT seeks to protect consumers' airline rewards in probe of four largest U.S. airline rewards practices. Subheading there was Secretary Buttigieg orders airlines to provide reports and records as part of the DOT inquiry aimed

at protecting the value of rewards and benefits earned by travelers. So this was pretty interesting, this press release, again, presumably trying to find out more about the rewards practices of the major U.S. airlines. There were a couple of interesting quotes from U.S. Transportation Secretary Pete Buttigieg. First up, quote, point systems like frequent flyer miles and credit card rewards have become such a meaningful part of our economy that many Americans view their rewards points balances as part of their savings. I know we've heard from readers before in that kind of a situation. Another quote from that one, these programs bring real value to consumers with families often counting on airline rewards to fund a vacation or pay for a trip to

visit loved ones. But unlike a traditional savings account, these rewards are controlled by a company that can unilaterally change their value. Our goal is to ensure consumers are getting the value that was promised to them, which means validating that these programs are transparent and fair. So interesting because it shows that they are pretty attuned to what's going on. We'll talk more about that in a few minutes. But it's true. A lot of people do look at their accumulated rewards points as sort of a vacation savings fund. And presumably trying to make sure that those rewards are protected and that their value

remains intact sounds like a good thing, right? So let's talk. It does sound good. I mean, right, right. I mean, like, you know, airlines will say, sign up for this card and get two free round trips or, you know, whatever the advertisement is. And maybe it's true at that point in time, you could do that. But what if you're not ready to take that trip for a year and there's a devaluation in the meantime then suddenly you can't take those two round trips um so that's i think what the type of thing they're they're trying to get at here um so yeah so so they went on to ask for information from the airlines uh specifically american airlines delta southwest and united were ordered to submit information by december 4th from the airlines, specifically American Airlines, Delta, Southwest, and United, were ordered to submit information by December 4th. Here are the categories of information they

requested. Devaluation of earned rewards. Airlines must describe each change made to the rewards program over the last six years, how it impacted existing points and status, and what options were provided to members to avoid losing any value or benefits they had already earned. Significantly over the last six years. And if you go back to six years ago, everybody had award charts, maybe not Delta. Everybody else had award charts and very predictable value by some measure. But nowadays, that's not the case at all. So I'll be particularly curious to hear how they explain those changes and how they impacted people and what options they provided. Because, I mean, did they provide any options they could do? So I'm pretty sure I know the answer to that, which is other than Southwest. Southwest has got a really difficult situation because they've always, you know, priced their awards based on the cash fare.

And that has gone down. The value has gone down over time. With these others, because they're all currently dynamically pricing, I think they're all going to argue that the value went up. You know, because they can pull out, you can massage the data any way, which way you want. And I'm sure they could pull out information that shows six years ago, the value was like way down here. And now let's look at this example where it's way up here. So that's what I'd expect to come out of that. And interesting. We'll see. We'll see. But that wasn't all. That was just one of four things they asked for, or four sort of buckets of things.

The other thing, hidden and dynamic pricing. I find it really interesting, this category. It says airlines must provide the average dollar value of one reward point, the value of a point when it is redeemed for various services, and the price to purchase a point directly from the airline. They must also identify practices related to dynamic pricing and the financial impact of those practices on consumers. Yeah. So this will be interesting. I think actually it'll be interesting for us if we're able to get a window into what the actual value per point is,, we have our reasonable redemption values. And we've always said it's very difficult to determine those for the domestic US airline programs. Hard to, I mean, there's just a massive amount of data you'd have to collect.

And even then it gets really murky in terms of figuring out which data points correspond and what matters and what doesn't. Anyway, I'll be very curious to see if we find out what the airlines say their points and miles are worth. And obviously that's going to be less than what they sell the points for. So I'm also curious to see how that gets justified. Right, right, right, right.

Let me just interject there that I don't think there's any promise that any of this information will become public. So I wouldn't hold your breath on that one, but maybe we'll see. Next bucket of information is extra fees. Airlines must identify and describe to DOT each fee associated with the rewards program that is charged to consumers related to the use or

administration of their rewards points, the actual cost to the airline for a consumer to take the action for which they are charged a fee and the rationale for charging the fee? This one, I think the airlines got out ahead of it. The four airlines anyway in question, they've been ahead of this in the sense that they've all kind of eliminated most of the junk fees. So I don't think there's going to be a whole lot for them to have to justify here. What I'm hopeful for is that maybe that'll impact other airlines that have junk fees down the road if this becomes a sticking point. But as we thought about it, there just weren't very many fees that this will probably, that will probably be influenced here. Right. I mean, one thing that I

could see it affecting for sure is the ability to move points to someone else and the fees that they charge for that. So we'll see, because I mean, that would be huge if they had to implement some free way to share your points. But as we've talked about in past shows, it could also lead to negative consequences with brokers and stuff. Anyway, the next bullet is reduction in competition and choice. Airlines must describe and provide documents related to their mergers involving rewards programs, the integration process of merging programs, the rewards program partnerships, and how they monitor, analyze, and or react to other airlines competing rewards program. You know, this is interesting, obviously, from the Alaska

Hawaiian perspective, because I'm curious as to how they would answer this, but neither one of them have to. So I don't know. I mean, there was the AA and JetBlue. It wasn't really a merger, but that partnership with their loyalty program that they were forced to get rid of. But they all do have partnerships like within alliances and other partnerships where they have program, I was going to say reciprocity, but that's not exactly right. They have ways of using your

points to book awards on other airlines and for those other airlines to book awards on these airlines with maybe the exception of southwest i don't think southwest has any of those anyway um that's i think maybe what's this is getting at it's a little it's a little unclear to me yeah all right okay so let's talk about this stuff um first up it's interesting to me that the details as you go into this press release, as you go into the actual letter sent out to the airlines, whoever wrote this stuff, I mean, it's signed by Pete Buttigieg, and he's known to be into frequent flyer miles, but it shows a pretty deep understanding of these loyalty programs and the issues people have with them. Yeah, I was really impressed, actually. As I read it, I was like, wow, whoever put this together, obviously, I'm sure it's a team of people, not even just writing it, but understanding it to make it be written well. Like you said, it showed a very deep understanding of how these things work and the issues that consumers face. Surprisingly well done. I guess I wouldn't have expected the average government employee to have as insightful a handle on frequent flyer miles, although I don't know why that is since they do travel a lot.

So probably a lot of them are taking advantage of frequent flyer miles, and it's good that they seem to have amassed a team of people who get it. So that's cool because it's great to see that they recognize the issues that consumers face here and want to hold the airlines to task in terms of protecting some value from your points. That's the nice part. So what good things might come out of this? What do you imagine might happen thanks to this? Yeah, yeah. You know, obviously there could be some really good things that come out of it, but there might be bad things. So we'll talk first about some good things that might come out of it. Award price transparency, like more information about how

they price awards being like really clear, that could be a really good thing because then, you know, even if the airlines don't have award charts, if there's some way for us to know how to find awards where we'll get good value for our points, that would be very useful. Another thing I think is maybe even more likely to happen and would be a really good thing is to get advanced notice when there's devaluations coming instead of them happening overnight. So we have a chance to do something about it before it happens. Maybe there will be an effort to keep customers whole when there's a devaluation. So for example, if the value of points are expected to drop by a certain percentage, maybe the DOT will require that the airline increases your point balance,

so that you're kept whole afterwards. That seems like a stretch to me. Well, it does, because like you said, you can kind of massage the data any way you'd like. And so it seems to me like airlines would find a way to explain that they're increasing the number of points you have to use, which is increasing their value somehow. I'm sure they'll find a way to try to justify that. What's interesting, though, going back to the advance notice required for devaluations, I think that would be fantastic. I think that that's something that should be mandated

because it's just not fair for airlines to overnight devalue things after consumers have been choosing to accumulate these rewards points that they can't trade for cash. They can only trade for awards and then all of a sudden the goalpost gets moved. And again, when I said that the letter impressed me, it impressed me that they understand that type of

problem. In fact, they used exactly the terminology about moving the goalpost. And it just showed a good understanding of that. Now, what I'm curious about here is if some new rules come out of this, if the Department of Transportation somehow implements some new rules about frequent flyer programs, will this have any influence on foreign programs with US members? Do you think that anything to come of this could influence, like for instance, Virgin Atlantic's next no announcement, no notice devaluation? I mean, obviously not the next one because it'll take time, but do you think this could expand to affecting other programs? It sure seems possible to me. And that would be really exciting. So what seems possible to me is when flights depart from the US, like could they stop them from imposing, you know, giant fuel surcharges or whatever junk fees that they tack on? That would be kind of amazing. Do I think it's likely? No. But hey, that might be possible. I have, as far as these four U.S. airlines go,

at least the three besides Southwest, I guess I have very little faith that they would ever admit to a devaluation because of their dynamic pricing. Like, how could you even prove that they've devalued? So that seems to me like a stretch, but maybe, maybe. The last thing we already talked about briefly, a good thing that might come out of it is that fees like the cost to move points might go away or be reduced or whatever. So that's a potential good thing. But what bad things?

It's not all roses. It's not all rainbows and sunshine. Yeah, yeah. No, I don't think so. Because if they institute strict rules about pricing transparency, then I imagine they would all move to sort of a 100% cash price, sort of revenue-based program where it shows, okay, this is the cash price and this is the number of miles,

something more like a one cent per mile type of a situation where you're not going to have any opportunities for outsized value. And that'd be a huge bummer for those of us who've been collecting points for years and years expecting to get outsized value, to cherry pick those great awards on foreign partners and premium cabins, et cetera. If they get forced to show the cash value of your rewards, I think, A, it's likely that the value is going to go down across the board. They're going to have to make it more uniform. And B, if there were any remaining outsized value situations, those would be so obvious then to consumers that probably the competition to get those awards will make them nearly impossible to get if that was even going to stay the same. But I imagine it's much more likely they'll just have a single standard,

like one cent per point type of a situation, right? I agree. And that's really sad because, you know, as we've talked about a lot of times, the game we play with points and miles is like finding ways to get lots of points and miles cheaply or free, and then to find ways to use them for greatly outsized value. And that second part would go away with these airlines that are impacted by those kind of rules. And that would be a very, very sad day indeed. What else? Anything else bad that might come out of that? Well, I mean, it's possible that airlines could make less money because we know, for instance, that American Airlines makes more money selling their miles to the banks than they do selling airline tickets. So obviously, their business model is totally propped up by the sale of miles. And if those miles

decrease in value substantially for consumers, and or if they just have to be so transparent as to not have opportunities for them to win, because like, you know, when you look at it, you say, we can redeem miles at 10 cents per mile for a great premium cabin international award. I mean, the reason that type of thing is possible to do, or at least part of that reason is because there are other folks out there redeeming points for a magazine subscription or for other very poor value things, those kind of balance out. So you got all the poor value redemptions out there that make some of the really great value redemptions possible. And so I think that, I mean, that could really impact the bottom line for an airline like American Airlines. Yeah, it really could.

And it takes away the incentive to earn those points. Because when you could see that they're basically just cash back, then you'll be like, well, why should I spend on this American Airlines credit card when I could just spend on a 2% cash back card and get more back? And so, yeah, it's going to be, it's going to be tough for them to, uh, stay profitable. I, I, I think that's exactly true. So, so we can hope that it doesn't lead to that. So what do you think? I mean, realistically, what do you think is going to come out of this? And do you think it's going to be net positive or net negative if you have to

guess? Uh, well, all right. So my, my overall guess is that nothing will come of this, like pretty much at all. That the airlines will sort of make promises and a show of being more transparent and enough so that they can lobby to have nothing happen and they'll be successful at that. It's both my pessimistic and optimistic view at once, because as we said, while I do think that some good things can come out of it, I'm more worried about the negative of the ability to book outsized awards going away. And so I kind of don't want it to happen. That's interesting. So that's interesting coming from Greg, the frequent miler, the serial optimist, because I feel like you usually are able to look at the bright side of everything. So if you're seeing the dark side, so to speak that prominently, then maybe we should all be

worried. But, you know, I'm going to take a different stance on this. You're right. I think the airlines are going to provide data that backs up the fact that they're doing right by consumers. However, I think the level of detail in the letter shows a level of understanding that whoever is making this a priority point, whether it's people to judge or whoever it is that has determined that this is going to be a priority to go after. I don't know that they're going to take it at face value and just say, oh, okay, yeah, yeah, everything is good. You know, they obviously had enough insight to understand how these programs work and what the potential pitfalls are. I think they might hold them to task and actually argue back and try to change things for the better, quote unquote, though. I share your fear as to what that's going to look like. I think for the average person, the one cent per point thing is actually

probably good. It's bad for us, but it's probably good for the average customer of the airlines, because right now, most people are probably redeeming their points at very poor value. So I don't like it. But I bet you this is going to lead to something because I think they took a lot of initiative and time. They must put a lot of time and understanding this stuff to put this together in the first place. So I'm going to go on record saying I think there probably will be new rules. And I think the value of airline miles are going to become one cent per mile. I don't know when, though. I mean, this could be years from now.

All right. Well, I sure hope you're wrong about that. I do, too. I do, too, for the record. All right. OK. That sure hope you're wrong about that. I do too. I do too, for the record. That's the end. Don't forget, if you've enjoyed this and you'd like to get on our email list, you want to go to frequentmiler.com slash subscribe to join our email list, follow us on all the various social media and check out our Frequent Miler on the Air episodes dropping every Friday.