Do the loyalty programs of the Big Four U.S. airlines play a role in stymieing competition?
The three discount airlines that participated in a May 10 joint DOT/Consumer Financial Protection Bureau hearing on airline and credit card rewards programs say yes.
And they have the ear of DOT secretary Pete Buttigieg.
"One of our concerns, of course, is what role these programs may play in affecting the ability of other players, smaller players, newer players, to compete." Buttigieg said.
Discussion about the topic was driven by Spirit chief commercial officer Matt Klein, who said that consolidation, with American, Delta, Southwest and United controlling approximately 80% of the domestic airline market, drives flyers to Big Four loyalty programs.
"Customers sort of get trapped," Klein said. "They're in cities dominated by certain airlines, which means you have to fly those airlines in those cities. That then gets you into these loyalty programs, and that gets you hooked into [thinking], 'Well, I guess I need to fly American' or 'I guess I need to fly United.'"
Control by the Big Four airlines of limited gate space and runway access at certain airports adds to a feedback loop that makes it more difficult for smaller carriers to become relevant, Klein said. He also argued that highly profitable rewards programs enable the large carriers to sell tickets at lower prices than they otherwise would, again hurting discount carriers.
Executives for Allegiant and Breeze agreed with Klein, while emphasizing measures they've taken with their loyalty and credit card programs to counter the Big Four's advantages.
Allegiant chief marketing officer Scott DeAngelo said the airline provides early check-in, early boarding and a free drink to all holders of its Allways Visa card and also has no minimum threshold for Allways point redemption. Offering those instant benefits, he said, is a strategy geared toward enticing people who are entrenched in larger airline programs in which benefits must be earned.
Larger carriers Delta, Southwest, Alaska and JetBlue were invited to be on the panel but declined, the DOT said.
What's best for consumers?
Consumer advocates on the panel agreed with Klein's premise.
Among them was Erin Witte of the Consumer Federation of America, who said the largest airlines are able to use their market position to get more favorable co-branded credit card terms from banks.
"I think it really makes sense to zero in on that and evaluate whether that's anticompetitive," she said.
But not everyone is sympathetic to such arguments.
"The notion that a frequent-flyer program is a tool to stifle competition is pretty silly," Gary Leff, who writes frequently about rewards programs on his View From the Wing blog, said in an email. "There's little barrier to entry in offering an attractive program. Not every airline is smart about doing so, however."
Spirit, Leff pointed out, has benefited heavily from its Free Spirit loyalty program, including leveraging it for $1.1 billion of borrowing.
Still, he said, Free Spirit pales in some ways to other airline rewards programs, including having points that expire after 12 months. Points don't expire at several other U.S. carriers, among them giants Delta, Southwest and United.
"Any relative disadvantage is of their own making," Leff said. "Sure, they're an undersized airline. Grow the airline, and its relevance in key markets, and they can grow the value of their loyalty program."
Along with competition, the hearing dealt with the questions of transparency and fairness in airline rewards and credit card programs, including the practice of periodically devaluing loyalty points. The two regulatory bodies are considering whether to impose new rules on rewards programs and also whether there is cause to enhance enforcement of existing rules.