Why Are Airline Loyalty Programs Decreasing In Value?

Customer loyalty

to airlines used to be a worthwhile thing: points or air miles earned by repeatedly flying on the same airline would feasibly earn passengers free flights with that carrier, with seats being purchased through the balance. However, a study by IdeaWorksCompany has shown that since 2019, the average price of a loyalty seat on six major airlines has increased by 36%, making it less and less worth the inconvenience of flying on one airline exclusively.

It is always refreshing to see politicians doing what they have been appointed to do. Former Transportation Secretary Pete Buttigieg sent a letter to the four largest US airlines requesting reports about their loyalty programs, practices, and policies.

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The recent probe into frequent flyer programs

The Department of Transportation (DOT) has said that its probe will focus on how frequent flyer programs are affected by airline practices, such as the devaluation of miles, hidden and dynamic pricing, extra fees, and reduced competition and choice. Buttgieg has sent a letter to the big four, including a lengthy questionnaire requesting them to provide records and reports about their loyalty programs, practices, and policies.

The questionnaire is tailored for each airline in order to get relevant information about the real value provided by their loyalty programs. For example, one question asks the airline to detail each change the airline has made to its loyalty programs since 2018, and another asks how the dollar value of a mile has changed in the last six years. The airlines that have received such questionnaires are listed below:

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This probe being launched shows that the DOT no longer believes it can trust the airlines in question to be able to decide the value of their rewards. For customers who have banked their saved points or miles and saved them for a long time, it can be a dirty trick for the airline to change the value after the fact, something that Buttigieg previously commented on.

“These programs bring real value to consumers, with families often counting on airline rewards to fund a vacation or to pay for a trip to visit loved ones, but unlike a traditional savings account, these rewards are controlled by a company that can unilaterally change their value.”

The DOT has also expressed concern that mergers within the industry may have led to less competition and choice among loyalty program customers. They expanded on this, explaining that when two airlines merge, a combined loyalty program could create issues for customers if they lose rewards, value, or status. As a result, there is little recourse, and the customer must largely abide by the airline’s new policies.

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Who benefits from loyalty programs?

Airlines have previously rewarded regular customers by allowing access to exclusive benefits, such as the ability to skip queues, access to exclusive lounges, and cheap upgrades to first class. Doing so benefited the airlines as well as passengers, since the they could experience luxury at a lower cost, while the airline was able to make lucrative deals with credit card companies and luxury brands, functioning as advertising and incentivizing customers to use their services.

For example, Delta received $1.9 billion in the second quarter from its deal with American Express, which includes a co-branded credit card. This deal may have been responsible for up to eight percent of the airline’s revenue during that quarter. Airlines for America estimates that around 16 million people in the US book domestic travel with points from airline credit cards. Furthermore, there are an estimated 31 million cardholders, with 63% of frequent flyer miles issued through credit card spending.

Airlines for America is lobbying against the Durbin-Marshall Credit Card Competition Act, which aims to break up the monopoly on electronic credit transaction processing by large companies like Visa and Mastercard. According to the Bank Policy Institute, such credit companies strongly oppose this bill, arguing that it would reduce the value of rewards programs.

“Millions of people enjoy being a part of various loyalty programs, which allow them to accumulate rewards to apply toward travel or other benefits,” A4A said in a statement. “U.S. carriers are transparent about these programs, and policymakers should ensure that consumers can continue to be offered these important benefits.”

While it may be all well and good to be transparent about the value of loyalty programs and points, it does not do the customer much good when that value changes, short-changing the customer out of benefits they had been eligible for previously.

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How has value decreased in recent years?

The business model of loyalty programs incentivizes customers to forgo cheaper or more convenient flights from other airlines so they can earn points and perks with their preferred brand. The commercial aviation industry has notoriously small margins, often around five to seven percent, and the increased traffic due to frequent flyers picking a specific airline can swing its operation from loss to profit, not to mention the money an airline can make through other credit and brand-based loyalty deals.

The change that has occurred in recent years is that many airlines have altered how benefits are earned. Previously, a segment-based system was used, in which flying air miles racks up a balance, which can then be used to obtain more flights. Many airlines have moved to a spend-based system that awards benefits based on the amount of cash spent. This benefits high-rollers more, making it harder for the average frequent flyer to achieve them.

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Additionally, simply owning a loyalty program card used to be enough to qualify customers for access to lounges and other benefits, but increasingly, airlines are restricting benefits to higher tiers of their loyalty programs, and raising the monetary requirements to achieve such status.

When combined with practices like Dynamic Pricing, which means that airlines can change the cost of a seat at a moment’s notice to benefit themselves, loyalty programs begin to look less and less realistic as a way of earning rewards. According to Business Insider, American switched to dynamic pricing for loyalty programs in 2023.

For Buttgieg, who led the investigation of airlines on this matter, devaluation and hidden costs are more things on the long list of items causing concern, according to Business Insider.

“One of the biggest concerns is devaluation. So the points are worth something one day and something else,” Buttigieg said. “Another is some of the hidden pricing where the value of rewards is unpredictable or is concealed.”

Loyalty customers are becoming increasingly dissatisfied

One particular reaction came from Sean Brown, a 46-year-old IT healthcare executive who has logged close to two million Delta SkyMiles miles.

“Unfortunately, there’s been a pretty seismic shift in the industry. That has really not sat well with me. I’ll just tell you, the sentiment in the plane — doesn’t matter where you sit if you’re in the front, the middle, or the back,” Brown said, “everyone is pretty pissed off at the fact that they’re getting gouged left and right.”

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According to CNN, Delta switched to a spend-based system in 2023, making it more difficult to earn status and cutting down on lounge access for credit card holders. The Points Guy also reported that the carrier removed its loyalty program awards chart from its website in 2015, making it more difficult for travelers to plan around future purchases using their accrued rewards. However, the move, in turn, made it easier for the airline to change prices as they pleased.

After the 2023 change, there was such outrage that CEO Ed Bastian admitted that they “probably went too far.” Delta then lowered the proposed thresholds required to achieve status by about 16-20%. However, the tiers remained significantly higher than they were previously. Thanks to dynamic pricing, a flight might cost 500,000 points on some days and 50,000 on others, depending on demand and timing. However, on the whole, prices are going up.

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Another example was from British Airways

, which switched from segment to spend-based for its rewards program this year. Despite taking advantage of incentives such as double air miles promotions, frequent flyers were suddenly going to have to pay a lot more to achieve Silver and Gold status with the program, as shown below:

It is worth noting that American’s AAdvantage program offers better value. According to IdeaWorksCompany, the cost of a seat earned by rewards has dropped by 21% on average since 2019. For the average value, the Fort Worth, Texas-based airline currently beats out its competitors, Alaska Airlines, Delta, JetBlue Airways, Southwest, and United.