Loyalty Programs Under Scrutiny: Airlines Face Potential Repercussions

It's the most wonderful time of the year—unless you're getting on an airplane. Passengers who feel they aren't being rewarded for their loyalty and patience may be getting a powerful ally.

Increased Government Oversight on the Horizon

Christmas is one of the busiest travel periods of the year, and airports expect to see record-breaking crowds this weekend ahead of Monday's holiday. Many airlines court customers with frequent flier programs that promise to ease some of the pain. After all, it's easier to be jolly when you paid for your ticket with points rather than dollars and you're in line for an upgrade.

However, with huge numbers of people taking to the skies post-pandemic, many have complained that airlines are devaluing their loyalty programs, making it hard to rack up perks and reach elite status.

Now it appears those grumbles could lead to repercussions for the airlines. The U.S. Transportation Department is reportedly scrutinizing the frequent flier programs of major U.S. airlines, which could potentially result in an increase in government oversight of the industry.

Addressing Customer Complaints

Airlines aren't likely to welcome a probe into one of the most profitable segments of their business.

Investigation into Potentially Unfair Practices

The Transportation Department is looking into potential deceptive or unfair practices, including the devaluation of frequent flier miles and transparency about booking award tickets, among other popular features.

American Airlines, Southwest Airlines, and United Airlines declined to comment, while Delta Air Lines referred inquiries to the industry trade group Airlines for America, which also didn't immediately comment.

Potential Probe into Frequent Flier Programs Raises Concerns for Airlines

The Transportation Department recently ordered Southwest Airlines to pay a substantial $140 million fine related to the holiday 2022 incident, where numerous passengers were stranded due to flight cancellations caused by a snowstorm. This news comes in the wake of the Senate Judiciary Committee raising concerns about potential unfair and deceptive practices in frequent flier programs, addressing the DOT and Consumer Financial Protection Bureau.

Although frequent flier programs are popular among consumers, airlines themselves derive even greater benefits from these programs. Analysts have demonstrated their profitability, with Delta successfully utilizing its frequent flier program as collateral to raise much-needed cash during the pandemic.

However, this possible probe may not sit well with the industry, which already faces consumer complaints regarding loyalty. Earlier this year, proposed changes to Delta's SkyMiles medallion qualifications sparked outrage among fliers, leading to management revising some of their proposals, earning it the title 'Skypocalypse.'

The airline industry has experienced a mixed year, with airfares decreasing alongside challenges such as fluctuating fuel costs, staff shortages, and corporate layoffs. Among the major airlines, American, Delta, and United are the only ones experiencing positive financial results. Delta has managed to keep pace with the broader market's rally.

On a positive note, increased transparency resulting from governmental scrutiny could assist analysts and investors in accurately assessing the value and profitability of frequent flier programs. However, if these programs undergo significant changes as a result of this scrutiny, it could deal yet another blow to an industry that historically struggles to generate consistent profits despite providing an in-demand service.