In our last column, we mentioned that a rabbi who had sued Northwest claiming their forfeiture of his mileage account and elite status was illegal, lost his case due to the decision of the supreme court that since airlines were protected by federal law from being sued, his lawsuit claiming the airlines were in violation of good faith business practices could not go forward. We mentioned at the time, the court hadn’t decided whether the rabbi’s claim was valid or not, and that it wouldn’t take long for someone else to raise this same issue, perhaps instead focusing on the point programs offered by the credit card companies who weren’t governed by the airline regulation law. What we couldn’t foresee was that an elected official with increased authority and power would be the one who decided to further pursue this matter.
Originally from the Bronx, Congressman Alan Grayson, a Democrat hailing from Florida’s 9th congressional district, which includes Orlando, contacted the Office of the Inspector General of the Department of Transportation to launch an investigation into the airlines practice of constantly changing the value of mileage programs and making free tickets tougher to come by and award seats harder to reserve. He claims these practices are deceptive and unfair and has demanded an inquiry.
What makes this inquiry by Congressman Grayson very interesting is that he has exorcised his authority as a lawmaker to bypass the courts and contacted the federal authority which regulates the airline industry and was the governing body that initially created the airline deregulation law that protects the airlines from being sued.
In an interview with CreditCards.com, Congressman Grayson focuses on the fact that the inspector general has the authority to regulate functions of the airline industry, not just the actual flying of passengers and that overall based on his observations the mileage practices in question are “deceptive” and thus under the purview of the inspector general to review and regulate.
In his claim that these practices are deceptive, he cites a number of practices that he has experienced (as many of us have experienced as well) including:
The ever-changing and constant devaluation of the miles and points including changes without appropriate notice.
The lack of availability at the various award levels.
The fact is that in some instances you can search for almost a year in advance and not find mileage seats available for seats the airlines claim is available when they advertise their mileage programs.
Although our idea for solving this issue was to put the banks/credit card companies under increased scrutiny and not the airlines, Congressman Grayson has rightly focused his inquiry on the airlines themselves as he correctly states the banks have paid literally billions of dollars to partner with airlines to promote their frequent flier programs to credit card holders to they can gain additional consumers, and the airline’s policies are the reason why the point programs and of course, the airline miles, are constantly being devalued beyond the customer’s control.
The actual text of the letter of inquiry sent by the inspector general on September 11th of last year is short, but fascinating:
From: Matthew Hampton
Assistant Inspector General for Aviation Audits
To: General Counsel
For more than 30 years, major airlines have offered frequent flyer programs to encourage travel on their respective airlines and secure customer loyalty. In addition to earning awards by flying, participants can earn awards for free travel by using certain credit cards and purchasing services from non-airline partners such as hotels and rental car agencies. Currently, there are an estimated 647 million members enrolled in various frequent flyer programs worldwide, with 306 million members enrolled in U.S. airline programs.
The Department of Transportation (DOT) does not have regulations directly related to the terms of airline frequent flyer program contracts. These are matters of individual airline policy. However, DOT does require that airlines disclose their frequent flyer program rules. DOT also provides guidance to airlines for disclosing costs they may assess related to bookings of frequent-flyer award travel.*
Failure to adhere to DOT’s guidance could constitute an unfair and deceptive practice in which enforcement actions can be pursued against the airlines.
In July 2014, Representative Alan Grayson requested that we examine airlines’ frequent flyer program practices. In particular, Representative Grayson expressed concerns about the lack of transparency for consumers when airlines change their frequent flyer program terms and conditions. Accordingly, our audit objective will be to assess DOT oversight of airlines’ compliance with frequent flyer program disclosure requirements. We plan to begin our audit later this month and will contact your audit liaison to schedule an entrance conference. We will conduct our work at DOT Headquarters and selected airlines (to be determined).
*Under DOT guidance, any government fees or taxes or mandatory carrier charges, such as processing fees the consumer must pay in frequent-flyer award programs, must be shown on the airlines’ Web sites is clear evidence at this point that there is misleading and deceptive activity on the part of the airlines.
We remind our readers that Congressman Grayson’s focus is on the mileage programs themselves; the lack of advance notice and devaluation specifically, and not on the issues we raised in our last column where the airlines restrict the usage of miles and points to the cardholder, and frown upon the sale and usage of these programs by an individuals who haven’t earned the miles and points directly.
However, as we stated last week, we believe quite strongly that the frequent flier and point programs are unfair, in violation of good faith business practices and ultimately need to be reformed. And now, a federal official feels the same, and this inquiry has the ability to completely change the landscape of the rewards programs offered by the airlines and open them to additional scrutiny. We look forward to seeing the results of the inquiry and would love to hear your comments, thoughts and opinions.
Elliot Schreiber is a partner and chief marketing officer of Get PEYD and PEYD Travel LLC.