The Florida Congressman says airline practices are deceptive and his complaints have sparked an investigation by the Department of Transportation
Although he loves travel, he is not satisfied with airline frequent flier programs. Now, because of objections he has raised, the government could be taking a first step toward increased regulation of frequent flier programs that have more than 300 million members.
Grayson and other travelers say recent changes to the programs by the airlines make free tickets tougher to come by and award seats harder to find. He says some of the practices are deceptive and unfair.
U.S. Rep. Alan Grayson
Over the summer, Grayson asked the Department of Transportation’s Office of the Inspector General to evaluate frequent flier programs. Citing changes at Southwest, American, United, Delta, British Airways and Virgin America, Grayson said the airlines are “making complex alterations in the number of miles awarded for flights, and shifting the number of points or miles required to redeem awards.”
Grayson pointed out that economists have said that miles function as a virtual currency, noting that banks pay big money to buy miles they provide to credit card customers. But, he argued, airlines capriciously devalue that currency at a cost to the consumer.
In September, the department’s inspector general — a watchdog institution that conducts audits — said it would launch an inquiry.
Asked by CreditCards.com for a reply, industry group Airlines for America said: “Airlines offer frequent flier benefits as a way to thank passengers for their repeated business and loyalty. Carriers are completely transparent regarding loyalty programs both on their websites and in direct communication with their customers.”
Grayson, 56, is a Democrat from Orlando who is serving his second term in Congress. Before his election to Congress, he worked as a lawyer and co-founded a telecommunications company.
He spoke to CreditCards.com by phone from Washington, D.C. Remarks have been edited for brevity and clarity:
Q: Where did you get the idea to take a closer look at some of these frequent flier programs?
A: I was reading one of our appropriations bills, one having to do with transportation and housing. In going through the bill, I found that the inspector general had the authority to do this. It’s something that needed to be done, and when I read the bill, I thought we should be doing it.
Q: What specifically needs changing?
A: One element is the frequent devaluations. The programs went in some cases for decades without devaluing. Now, they do it once or twice a year. Another element is the lack of availability at the touted award levels. In some areas, you can look almost a year in advance and you don’t see a single seat available at the award level that the airlines claim is available when they are advertising these programs. Another element of it is changes without notice. Historically, airlines gave changes with a year’s notice. The National Association of Attorneys General recommended that be the standard, and now we’re seeing in some cases changes with no notice whatsoever. All of those activities are deceptive.
Q: What is it you would like to have done? Simply an investigation or are you looking for particular policy changes?
A: There is clear evidence at this point that there is misleading and deceptive activity on the part of the airlines. The frequent flier programs need to be reformed, either voluntarily or through regulation. The best case scenario is that everyone realizes — either voluntarily or through regulation — that there should be one year’s notice to changes in these programs, that there should be availability on every flight at the advertised levels and that the devaluations either stop or occur at very lengthy intervals, with some kind of business justification.
Q: These aren’t mandatory programs. Nobody is forcing people into frequent flier programs. If people don’t like the terms of them, can’t they just refuse to join?
A: The statute in question gave authority to the inspector general and specifically used the word “deceptive” and gave the inspector general the ability to oversee practices that are deceptive. My proposition is that, that language applies to the functions of the industry, not simply flying, and that includes frequent flier programs. People can conduct all sorts of business in all sorts of ways without resorting to deception. Here, they’re failing to do that. I suppose it’s always the case that if you’re being cheated, you can refrain from that particular transaction. But you’re still being cheated.
Q: Is there a role for other agencies? The Federal Trade Commission usually has jurisdiction over fraudulent business activities. There’s the Consumer Financial Protection Bureau. Would you like to see those or other agencies take a more active role?
A: I don’t think that’s happened up to this point. I think it could happen, under their statutory authority. The Consumer Financial Protection Bureau is limited to regulating the bank elements of these arrangements, not the transportation elements. The FTC would have authority to try to reform the practices in the whole industry. That hasn’t happened. What’s interesting about this particular legal authority is it is specific to the airlines and specific to these programs. If we can’t make any progress this way, then I will be engaging my colleagues and potentially trying to pass legislation that will mandate these changes.
Q: The majority of frequent flier miles are actually earned not by flying, but through credit card partnerships or other partnerships. Is part of the scope of this looking into other forms of miles and point currencies created by credit cards or hotel programs?
A: By far the largest of the loyalty programs that involve these kinds of arrangements are airline programs. This is the focus of activity. In recognition of that, the banks have paid literally billions of dollars to try to hook up with airlines to promote their frequent flier programs to credit card holders. Although credit cards are a very large part of the program, they aren’t the focus of the deceptive elements of the programs. The deception comes from the fact that they’ve essentially created a private currency, and the airlines are cheating their customers by devaluing it.
Q: So what you find objectionable is occurring more on the spending-the-miles side, not so much on the accumulating side?
A: By corrupting the ability to spend, ultimately, the airlines are corrupting the ability to earn.
Q: Do you sense that the airlines are starting to get the message?
I don’t know. That’s a better question to ask the airlines than to ask me. I hope so.