Frequent Flyer Bill of Rights

Frequent Flyer Bill of Rights

Frequent flyer programs came a long way since 1979, when a small Texas airline created the first frequent flyer program. Today if you ask American, United or Delta what is their single most valuable client retention and recruitment asset, their single valuable core asset and most important part of their corporate identity - the answer will inevitably be their respective frequent flyer programs. On at least one occasion American Express saved Delta from bankruptcy by pre-purchasing billions of their Delta Sky miles points. The Canadian Government recently accepted Air Canada’s loyalty program as collateral to guarantee the loans as part of the government bailout of the airline. Today, as much as 40 percent of airline revenue comes through their frequent flyer program partnerships with banks and other merchants. This makes frequent flyer programs BIG BUSINESS by any measure with tens of billions of dollars at stake.

Both banking and airlines are highly regulated industries. However, loyalty programs are completely unregulated.  Banks have to follow all sorts of laws and regulations on disclosures when advising and communicating to consumers on APR and fees they charge. However, there are no rules or laws  when it comes to the usinge reward points they advertise. According to bank statistics, the number of credit cards in the US has been shrinking as of late but the credit card rewards cards are on the rise. It is now the main vehicle for growth in the credit card industry.

Airlines are regulated by the Department of Transportation when it comes to how they advertise their pricing online,  A few years ago, they were mandated to always display prices, including taxes and fees since some airlines were showing pricing in misleading ways. There are no laws or even guidelines on how they should advertise and administer their frequent flyer programs.

The charity myth

You can often hear rhetoric coming from the airlines that somehow what you are getting on points is FREE. They even designed a whole vocabulary to drive that message. The tickets are called “awards”, most “award” tickets show the word “FREE” in the place where the airfare should be. Under the Terms and Conditions consumers have to agree to when signing up, consumers have absolutely no rights when it comes to their miles. Miles are not consumers property even once they are accrued into their account through eligible means, they officially have no value, they can be taken away, devalued or cancelled at any time with no notice.)

For decades, airlines have been successful at keeping regulators and courts away by claiming they are protected by the Airline Deregulation Act.

It’s time to reevaluate

The original mission of the programs was to make the members of the program loyal to a particular program. Today, the majority of points are transferred from credit card partners not accrued by flying on a particular airline. Many people do not care or even remember which airline they fly on, they just care that they can pay for their travel using their points. The airlines often hid behind that “free” label to allow themselves to treat people on award tickets differently than those “paid” paid tickets.

It is no longer about just building loyalty with your customer.  It is now also a major sales channel for the airlines.  It is a well known fact that for the marketplace to prosper, clear rules and guidelines need to be established. The consumers receive adequate information to make informed choices about which frequent flyer to transfer their valuable points. Consumers rights in the marketplace need to be protected. When signing up for frequent flyer programs, consumers have no choice but to agree to all sorts of confusing rules and regulations that few understand orand bother to read. Consumers have no real input and airlines' lawyers are able to hide all sorts of things in fine prints that tilts all the benefits to the airlines.  

One could argue that consumers could vote with feet or their money by going to the airlines who protect consumer’s rights. But there is no airline today which lays out those protections in that fine-print. Even if the consumer read the fine print and objected, there is nowhere else to go. This happened in many industries and regulations had to be established to protect consumers in this kind of market environment.  I think the airline loyalty industry is now big and important enough that certain principles need to be established to protect the consumers.

I see two main components to the Consumer Bill of Rights: transparency and protection of consumer protection.

Transparency

In order for consumers to make informed choices, I call for frequent flyer programs to publish certain metrics about the programs. Today’s airlines are data driven organizations and the metrics proposed can easily be derived from their data. It would cause no hardship for them to gather and publish. On the consumer side, it would allow for the creation of consumer labels for each program and potentially portals with side-by-side comparisons of metrics for competing programs.

The current system creates perverse incentives for airlines by rewarding marketing trickery and misleading claims. I am certainly not saying that all or even most airlines resort to this, but it is a well established fact that perverse incentives distort the market in favor of bad actors. Publishing these metrics would reward the best programs, hence encouraging airlines to improve their programs rather than engage in marketing ploys. It will contribute to a healthier loyalty industry and allow it to continue to grow and prosper with the new found confidence.

I suggest establishing 8 official metrics for the Loyalty Program Consumer label.

• Availability Index - would measure the percentage of flights available for redemption in the rewards program out of all flights offered in the network.This is the only measurement which looks at offerings rather than completed redemptions.
• Point Value Index - would measure the monetary value of points on completed redemptions by comparing the number of miles paid for the award just redeemed and its published price at the time of redemption.
• Usability Index - would measure what percentage of points accrued were used within 3 years of accrual or transfer into the program.
• Taxes/fees Index - would measure the amount of taxes and fees in pennies charged by the program per each mile redeemed.  So if someone redeemed a 10,000 miles reward and paid $10 in taxes in fees on it, the index would be 0.1.

The next 4 measurements would remain more or less static through the year and do not need to be measured at the time of redemption.  They are designed to give the customer general idea on the redemption opportunities offered by the program

• Number of destinations available on the network covered by the mileage programs
• Number of flights offered annually in the program
• Number of airlines available 
• Number of transfer partners available

Consumer Rights

This would be a set of principles that the airlines would agree to in order to give consumer confidence that the airlines would treat them fairly.

Up to 1 year to opt-in existing balances to the program changes.

They should allow consumers up to one year to redeem their existing miles balances under the terms to which they agreed to when transferred/earned those balances. The airlines would still be able to make instant changes to the program, but any past balances should be honored by the redemption rules at the time of accrual.

Re-accomodations under regular IRROP procedures.

In case of a schedule change and or a flight cancellation, passengers holding frequent flyer tickets should be afforded the same accommodation options as “paid ticket” passengers.  Too often, airlines are able to hide behind the “free travel” label to deny people fair treatment when their flights are delayed or cancelled by the airline.  Any travel booked through frequent flyer programs is also paid travel and needs to be to be treated the same way.

Miles Balance protection

Airlines reserve the right to close any user’s account and confiscate miles for any reason they see fit.  Under existing terms and conditions, in most programs’ consumers forfeit all of their rights to any recourse.  I would not suggest making airlines do business with anyone they do not want to do business with.  At the same time, they should not have the right to confiscate someone’s miles.  Take the example of the Supreme Court case of Rabbi Ginsburg vs. Northwest Airlines. I believe Northwest Airlines had the right to expel Rabbi Ginsburg from the program if they felt his complaining was “abuse” of their program.  However, they should not have the right to confiscate miles without giving him fair compensation as he already prepaid those miles by purchasing previous travel or by transferring those form his credit card account.

Data Protection 

Airlines collect a significant amount of data about consumers: their legal names, birthdays, passport information, destinations they travel to, and who they travel with. Consumers should be entitled to safeguarding this information. They should be able to opt in and opt out to various ways of how this information may be used. We already do this for website usage. But given frequent flyer programs have the ability to track us in much more personal ways, (airlines actually get to check consumer’s’ documents at the airport) some strict standards of care for this information are necessary. Airlines should be barred from collecting and selling personal information they collect from the clients at different stages of the trip.  Some countries already have legislatures protecting this sort of information, however the United States is not one of them.

I know this is a long wish list and a long shot. I am hoping that sooner or later, airlines will adopt some of these principles. The way it could start is that the best ones could proudly publish their metrics to show how their program is better than others. I am hoping eventually it would become industry standard as we the travelers demand it.

Looking ahead

As the technology is evolving, the nature of loyalty programs are going to change.  The information that is being collected by loyalty programs today is going to be used to deliver customized pricing to each individual traveler based on everything the airline knows about that traveler.  Currently, the airlines are using a yield management strategy to maximize revenue. The goal of that strategy is to make every traveler pay the absolute highest price they would bear to maximize the airline's revenue. There will be absolutely no transparency in pricing so the airline would “negotiate” with each traveler individually. Complicated bundles will be used to make comparison difficult at best. This data will be the most valuable commodity of the future. The playing field will be more unequal than ever as airlines will have a tremendous amount of information collected on each traveler, their travel patterns, preferences, family and travel companions.  Consumers on the other hand would not have any of the same tools. How do we protect the traveler then?

I don’t have the answers. I am hoping travelers will have a way to “unionize” against the airlines by creating Costco style buying clubs or perhaps by holding certain credit cards. I also think the information and disclosures will become paramount. Competition only works when we can give consumers sufficient information to make well informed decisions. We need to have a debate on how we design the air travel marketplace of the future that is fair and works for everyone. I look forward to hearing comments and ideas from WikiMiles readers on this.