Survey Request A Champion of the People? Congressman takes on FF programs for favoring airlines over fliers

Link to WaPo piece...

Frequent-flier programs are rigged to favor airlines, deceive passengers and cost consumers billions of dollars. At least that’s the contention of one Florida frequent traveler named Alan Grayson.

But it just so happens that Grayson is a member of Congress. And as such, he can ask the U.S. Department of Transportation’s Office of Inspector General to investigate airline loyalty programs.

That’s exactly what Grayson, a Democrat, did this summer, and now an audit is underway. It will take about a year for the inspector general to determine whether airline loyalty program practices are unfair and deceptive. But when the dust settles, the DOT might be closer to cracking down on one of America’s favorite addictions: collecting points and miles.

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Waste of time

 

Quite likely. It seems that what happened here is that someone, a congressman, who is into the mile/point game and has the ability to do something, got irked by some of the sweeping consumer-unfriendly changes that have already kicked in or are about to take place. That the whole FF industry is going to be scrutinized may already be a positive development...

 

The Law of unintended consequences will apply here. I think the threat of governmental involvement serves us better than real public servants digging into these programs and weighing their consonance with laws, regulations and the desire of politicians to ingratiate themselves with millions of voters.

 

1) Waste of time, like most government programs.

2) I simply don't understand this entire attitude that FF programs are anything more than free rewards. I fly because I have to for work, and sometimes because I want to for leisure or family. I can drive, I can take the train, I can take a boat. But I choose to fly because it's easiest and fastest. Tickets cost what they cost -- in economy, with a little window of time before the flight, the flights are generally affordable. Where else in life other than travel do you get REWARDED for spending money that you would already spend? The benefits are excellent: upgrades, fee waivers, and free trips sometimes equating to tens of thousands of dollars (international first, for example, which i just booked for MrsGarp for February). We should be thankful that competition fosters ANY FF program benefits.

 

I doubt that anything will be found. The rules of most programs are pretty straight forward.

 

Just hope that things do not get worse instead. In reality, corporations may on the surface hate legislation but that is only when it is ambiguous. Once a law is made and the corporations had time to adjust, clear and well defined legislation usually benefit the rich and powerful (including big corporations) as they can now work around the law and yet claim compliance. A lot of times, corporations made decisions and then blame it on the law despite them having options.

 

I really don't think anything major will come from this audit. Not that something shouldn't be done, but rather because the Frequent Flyer programs are so important to the airlines as profit centers that the airlines (though their lobbyists and political contributions) will fight tooth and nail to prevent Congress from doing anything meaningful.

But even if Congress is persuaded to remain quiescent (which seems to be their natural state, when they're not busy making things worse),* there may be another solution.

The rules of the programs are a major part of the problem. The airlines have written them to say that they (the airlines) can unilaterally change them, reduce or eliminate the value of awards you have already earned, and even kick you out of their program and take miles you've legitimately earned, any time they want to. This violates every state's Consumer Protection laws (and even the laws of common sense) because the rules are one-sided contracts of adhesion (i.e., not subject to negotiation) and are abused by the airlines.

The critical part of the problem is that the Airline Deregulation Act of 1978 (ADA) has been interpreted to immunize the frequent flyer programs from the enforcement of those state Consumer Protection laws. The stated logic was rather complex and involves concepts of Federal law preempting the authority of the States, but in a nutshell it was that since the miles were earned as an adjunct to using airline tickets and were redeemed to "purchase" airline tickets, this was simply a part of the routes, prices, and services intended to be deregulated in the ADA and thus the States could not apply their Consumer Protection laws to regulate those miles or their earning and use.

While that logic may have made sense at the outset, when miles were indeed earned solely through airline fights (or later, also a small percentage being earned through activity ancillary to air travel, e.g., hotel stays or car rentals tied to an airline trip) and were redeemable almost exclusively for free or reduced-fare tickets or upgrades to airline tickets, and the frequent flyer program was administered as part of airline operations, one has to question whether it remains valid today, where the majority of miles are earned through activity unrelated to airline travel (e.g., use of credit cards, bonuses for opening bank and brokerage accounts, making charitable donations, selling or buying real estate, etc.), miles can be redeemed for unrelated goods and services (magazine subscriptions, etc.), and Frequent Flyer programs have now been spun off by most airlines into separate corporations having a legal identity (juridical personality) other than an airline.

If Congress were to pass legislation that simply allowed the States to enforce their Consumer Protection laws on frequent flyer programs, I would think that would solve the problem. Even if Congress refuses to act, perhaps the courts could be persuaded to revisit the old rulings based on the changed factual circumstances since the 1980s.

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* I think it was Will Rogers who observed, "They say the only sure things in life are death and taxes. The main difference between the two is that death doesn't get worse every time Congress is in session."

 

The difference between then and now is that there is now a bona fide Consumer Protection Bureau that has real teeth in the sense that they can take direct action. For an example of what can happen, just take a look at the banks and credit cards...There is a lot more disclosed to the CC holders...

 

You haven't stated any specifics that reveal what your beef is with FF programs. The first three FF programs in your signature are United MileagePlus, Hilton HHonors, and Hyatt Gold Passport. For those of us trying to understand the specific nature of your beef(s), could you please tell us what part of any or all of these three programs you are dissatisfied with, such that you want your taxpayer money to pay for an audit/investigation and active regulation?

 

I think one unintended consequence of more formal protection of miles could be taxation of said miles.

 

I was fine until the announcement of the airline (DL, UA) revenue-based system (r-b.s. for short, but "real bullshit" comes to mind), which is all about benefiting the airlines and guys like you who can afford to spend $100K a year on premium cabin tkts. I do not begrudge you. I just feel that a model of FF that was fairer (distance traveled for money paid, with those who pay more getting appropriately rewarded [COS]) was being sacrificed at the altar of human greed.

So, the nature of my beef is well known because every thread on the topic of r-b.s has registered my view loud and clear. As I have said many times, there is no system under which someone who spends the kind of money that you spend would do badly, therefore, I always take your statements with that truism in mind and I think that you should too...

 

But ... There's active competition in the FF market. You benefit more under the traditional system, so if you want to maximize your self gain, you can. Simply switch to AA or one of the other non-rbs carriers. Or recognize that when you attend that academic conference in SFO, you're gonna spend the $400-500 for the airfare no matter what, and be thankful you're being given free money (for you next year as 1K, 4400-5500 RDMs) for spending money you were going to spend no matter what.

I just don't understand how government is going to find unfairness or deception here that warrants regulation.

 

I did the math and I know for sure that I was doing much better under the legacy FF system. The effect of the purported "competition of the FF market" is for most of the consumers, except for a very small minority that could not care that much about how much they spend, to be soaked. So, I have decided what I would do. One of the options is to join AA (I already have a dAArkside account with 2000 miles earned just flying between LGA and DCA), but who is to say that they won't jump in with the rest of them? My long-term play is to make 1MM and then to start flying with any *A carrier that still respects the legacy system of awarding miles for money paid. I would then continue to have the miles that I need for my year-end escapades...

The government may well find nothing to suggest that the consumer is being soaked, especially since participation is open to all and free. The only potential hitch is that the game has made those who do not play it or cannot afford to play it (as we can) into second class citizens... I would not want to become a second class citizen, so I will just exit the game, armed with the tools to be able to play well as an outsider who's been on the inside for a long time.

 

Exactly what I was thinking, and I hope it doesn't get that far. Mentioned frequently in the past but never implemented, taxing of FF miles will really put a crimp in all the programs.

Hotel's frequent-guest plans might also feel the taxation pain, if that happens, but if they're investigating the airlines, will they also look at the hotel groups devaluation of their plans in recent years?

 

Absolutely! As a major function of our government appears to be to continuously increase taxes, it may only be a matter of time before all frequent flyer programs and miles are taxed!

 

Not to worry, you can be assured that your tax dollars will be well spent! See:

http://www.washingtonpost.com/blogs...-coburns-2014-wastebook/?wpisrc=nl_fed&wpmm=1

 

All very well said, Counsellor! FF programs are the "cash cow" for the airline industry, and the airlines likely don't want too many changes made to these programs by Congress or anyone else. Imagine airlines without FF programs - there would be even less reason for airline passengers to be loyal to a particular airline, other than pricing. The airlines will likely fight such changes tooth-and-nail; rather than to be caught in a cycle of competitive price lowering - just the opposite of the current situation.

And as Mark Twain famously said: "Politicians and diapers must be changed often, and for the same reason."

 

Don't know, but I can't imagine shining a brighter light on miles by congress will ultimately be helpful, given their current excellent track record at screwing up wet dreams.

 

It's likely a waste of time; however, it would be nice if it did result in some positive changes to the FF programs. I feel like my marriage (airline marriage) has turned into an abusive situation and I've stuck it out too long to leave. lWhile it used to be easy to pick an airline and be loyal, now it is very costly and tedious. With the recent changes where you have to fly a certain class of service to actually accrue miles on a partner airline, it takes a lot of time and effort to actually find flights that earn miles and the dreadful PQD's. The partnerships/alliances are a joke. While it is often less expensive to book directly with the parnter and reserve advance seat assignments, I find myself booking through my primary carrier to get the PQDs and then fume the entire flight because the fact that I booked on my primary carrier meant I couldn't get an advance seating assignment. Next year, with the change in how US-based flyers earn miles the situation will truly be miserable. The programs are now designed to reward those who fly on business and where cost is no object.

 

I voted for "Backfire", but would have also punched "Waste" if I could.

 

Of course FF programs favor the airlines. First was the shift from cumulative miles to miles flown in a year, and starting next year, from miles flown in a year to price paid for the ticket. Delta tried to hype it up by saying it would be easier to use mile for tickets. The PR campaign went over like a lead balloon when several people, including myself, showed them using their own comparison tool that flyers would be receiving half the miles under the new program therefore having to fly twice as much to receive the same amount of miles as the year prior. The new change greatly benefits Delta by making their Sky Miles member to spend twice as much to get the same amount miles from the year before.

 

For an airline to bank its financial health on the proposition that flyers would "spend twice as much to get the same amount miles from the year before" suggests a complete lack of respect for the flyers, who they believe to be stupid. Unless they adjust the redemption side of the equation to match the greatly decreased mile earnings (i.e., making the whole move to the revenue system a wash or pointless), most loyalists will be soaked. To keep playing the game under the new conditions would support the airline's view that the flyer is stupid, and since I do not resemble the flyer they have in mind, I will quit the game...

 

exactly......... most things washington touches turns to crap.

 

This is code to tax the miles.....

“Frequent flyer programs are prone to manipulation by the airlines that control them,” he wrote, likening the estimated $700 billion worth of miles to an unregulated currency. “Airlines establish the rules, the terms, the value, expiration dates, and the sales pitches.” To earn more money, airlines are constantly devaluing this de facto currency, which is “profitable for the airlines, and costly for the consumer,” wrote Grayson.