Ari Goldfine | 77 Vand. L. Rev. 233

Airlines’ frequent flyer programs operate more like a monetary system, with points as a form of currency, than a typical discount or rewards plan. In fact, airlines’ power over points is even more extensive than that of a central bank over currency—beyond simply determining how many points are in circulation, airlines also control the value of points at redemption, how many points consumers can accumulate, and when points expire. This financialized form of frequent flyer programs has proven to be lucrative. For the Big Four airlines, frequent flyer programs are worth markedly more than the business of providing air travel itself. Much of this profit stems from selling points to third parties, like banks, which use the promise of points to incentivize consumers’ credit card spending.

The very structure of frequent flyer programs presents a problem for consumer protection. The value of these programs relies on consumers’ belief in the value of points. At the same time, the value of these programs also depends on preventing consumers from efficiently redeeming their outstanding points, which would present an unsustainable cost for the airlines. In other words, the value of these programs stems from ensuring consumers believe that points are highly valuable, while limiting the points’ actual value. This market structure relies on keeping consumers in the dark.

Because the structure of frequent flyer programs depends on consumer deception, regulatory action is necessary. To that end, this Note analyzes the sometimes-overlapping regulatory mandates of the Federal Trade Commission, Department of Transportation, and Consumer Financial Protection Bureau. It then proposes that the agencies act to provide much-needed transparency in the market for frequent flyer points. These proposals aim to prevent the airline industry from subsidizing the provision of air travel with profit driven by consumer mistake and misrepresentation.

PDF Download Link

AUTHOR:

Ari Goldfine