To contradict consistent record of impotence, DOT opens needed inquiry into airline miles programs

Washington, D.C.—The U.S. Transportation Department (DOT) last week opened an investigation of airline frequent-flier programs, and it's about time.

The old adage about wheels of justice turning slowly usually well describes the antitrust activities of the Justice Department (DOJ) and Federal Trade Commission (FTC). Only in recent years has the government begun to awaken to the rampant price-fixing in our economy that consumers have been accustomed to for decades. Runaway inflation shed light on how little choice Americans have in grocery stores, probably prompting FTC qualms over the Kroger-Albertson merger. Sky-high rents and a housing shortage similarly have prompted DOJ attention to rent-fixing.

Now it seems the emphasis is on the wheels part of the old adage, as DOT takes a belated interest in the airlines. Absurdly high prices, especially in domestic travel, probably stirred the agency giant. The Biden Administration and Buttigieg DOT have largely failed to deliver on infrastructure promises. So it's pleasing to see a glimmer of concern for consumer welfare vis-à-vis ever more profitable providers.

A window view sometimes makes flying a tiny bit less miserable.
RJ Peltz-Steele CC BY-NC-SA 4.0

Misery in the Air

As to domestic air travel, I remember President Obama saying the economy's great, but workers might have to move for jobs. Meanwhile we're encouraged to have multi-generational households to care for our elderly, and the great economy compels college grads to move back in with their parents. Is the whole family supposed to move to the same place at the same time? Air travel is a necessity for families in the vast geography of our national labor market, yet we continue to allow our oversized airlines, themselves products of mergers that should not have been allowed, to operate as if they're concierges of bespoke services.

Bespoke is ever less the consumer experience, even as prices soar. Six of my last six domestic flights, all on American Airlines, were hours late. I would be due a huge compensation check were I in the EU. From American Airlines? Nothing. To the contrary, I had to foot the bill out of pocket for transfers and overnights in pricey cities such as Chicago and D.C., else sleep in the airport. The Buttigieg DOT and Congress keep making noise about passenger compensation. But noise, to appease the electorate, is all it's amounted to. Don't even get me started on sticky trays, filthy seats, and cramped spaces on packed planes.

We All Fall Down

As to infrastructure promises, if you're thinking, "well, the Republican Congress": Save it. I don't want to hear it. The whole thing about Joe was his ability to reach across the aisle. And I didn't vote for either one of them, so if ever you tire of see-sawing between obstructionist opponents as an excuse for getting nothing done, stop voting for the only thing you're offered and come talk to me about how we dismantle the two-party system. Consumer choice indeed.

Yes, there was the infrastructure bill. Biden deserves credit for that, and I appreciate it. But even the Biden Administration knew that that would not even bring us level with our maintenance needs, much less make systemic investments.

Use of the infrastructure money, such as it is, raises serious doubts about the government's fiscal responsibility. My home state of Rhode Island is using federal infrastructure money to rebuild rotted wooden bike-path bridges that I use, so I'm selfishly pleased. But it wasn't the purpose of the bill to restore recreational paths for which the states should have planned anyway. Rhode Island failed to fund replacement for the decades when the bridges' inevitable expiry was well known; consequently, the bridges have been subject to dangerous detours for years since the failure. And the bridges are hardly vital infrastructure; the few people who actually commute on them are stymied by uncleared snow in the winter and an abrupt end to dedicated lanes at the ends.

I have doubts too about even the more clearly legitimate uses of the money. DOT and Amtrak plan to build out vital northeastern rail service westward in Massachusetts, a welcome initiative. But the trains will not be any better than the embarrassingly slow service we have in our rail system now; driving will still be preferable for speed and reliability. I remember "Amtrak Joe" saying something about high-speed trains, you know, like in the developed world. The best the administration seems to have managed is to ask Japan for help with high-speed rail. I guess we don't have the technology.

Round and Round

Topping it all off, there's the corruption that the government seems unable to get a handle on. Or as we call it in America, contracting. Rhode Island got caught with its pants down last year when the key Washington Bridge alongside the I-95 corridor in Providence was found to be fatally defective and was suddenly closed. A "junior engineer" spied the rusty deficiency, media reported, or as I like to say, a "former junior engineer" who didn't get the memo. Because the odds are nil that inspection contractors, who enjoy a revolving door with state government offices, somehow failed to notice the problem for years.

The bridge has to be torn down and replaced, and costs are spiraling. When the state bid the demolition project, intense media and public scrutiny compelled a realistic cost estimate of $31 million. But contractors don't emerge from their pools of money for realistic. The state ultimately awarded the work for close to $50 million. But wait, there's more. The company that was awarded the demolition contract is also a defendant in the state lawsuit over the defective bridge. You can't make this stuff up.

The overall estimate, no doubt too low, for the Washington Bridge replacement is about a half billion dollars, and we should pause a moment on that number. It can be difficult to assess the legitimacy of these big numbers, as the average consumer has little frame of reference to differentiate a million from a billion. For some reason I play the lottery only when the jackpot hits a half billion, as if I would not be content with a tenth as much.

The Massachusetts Bay Transit Authority (MBTA) recently estimated that it would take $24 billion to make the Boston T work the way it's supposed to. That's not to improve the system; that's just to bring it up to serviceable: timely trains, functional stations. The T is infamously unreliable and plagued by maintenance issues. Yes, it is an old system, but that doesn't fully explain the problems. An extension of the green line opened in 2022, for example, and saw such problems with defective tracks that trains had to be slowed to less than walking speed.

Chair: Wait, I see a hand. Rhode Island, you have an idea?

Rhode Island: Yes, Mr. Chair. We propose that the MBTA hire the contractor that built the green-line extension also to remove and replace it.

Chair: Thank you, Rhode Island.

Rhode Island (to camera): Baltimore, 🤙 <<call me>>.

In contrast, the city of Brisbane, Australia, is rebuilding its metro system, including a new fleet of electric vehicles and excavation of a new tunnel, for a price tag of only $1.4 billion. That's Australian dollars; it's about US$930 million. Brisbane's metro is a smaller system than Boston's, yet I can't help but think that the T couldn't mop up the urine in the system for a billion dollars.

I might not know millions from billions, but I know that 1 for new is a better buy than 24 for old. It's hard not to conclude that something is amiss in accountability for infrastructure spending. If only there were, I don't know, experts, or something, who don't work for contractors. Maybe they could work in the government, for the public.

Miles To Go

Well the good thing about antitrust enforcement is that it requires lawyers, but no new construction. Maybe the Buttigieg DOT has found its knack.

The ways in which airlines have innovated consumer exploitation in frequent-flier programs are sufficiently many to constitute a course in business school. Well, bad-business school. Violations of antitrust law are so painfully obvious that it's hard to believe we have antitrust enforcement at all.

The legal status of frequent-flier miles has evolved since the programs were conceived circa 1979. They started as little different from tenth-sandwich-free punch-card programs. It was the funny kicker on the news when they were first contested as property in legal contexts such as divorce. That's not an unprecedented evolution, by the way. Divorce has a way of showing us what's valuable to people. Dogs and cats are transitioning from mere chattel to intangible value in tort law by way of divorce court.

Notwithstanding limited legal exceptions, courts tended nonetheless to regard the airline mile as a purely contractual creature. Airlines urged that construction and delighted in it. The miles are thus controlled by terms of service, to which consumers bind themselves usually with neither meaningful choice nor actual knowledge. Per the law of boilerplate in the information age, the airlines reserve the right to change the terms more or less unilaterally. That's why the airlines can and do devalue miles routinely and add new redemption restrictions, such as blackout dates and transfer limits.

Corporations' concerted efforts to construct self-serving legal doctrine has not stopped miles from becoming "a virtual currency." The government has long tolerated this dichotomy of law and reality. And things might have continued swimmingly for the airlines had they not succumbed to greed, the Achilles heel of the American corporate ethos. Once the airlines understood that miles and money were interchangeable, they started making them, literally, interchangeable. Today a consumer can earn miles per dollar on credit cards, transfer cash-back rewards to mileage programs, and simply buy miles.

Devastatingly to the airlines' antitrust position, they doubled down on co-branded credit cards. Those agreements are a specific target of the DOT investigation. I have an American Airlines card and a United card; I've had Southwest and Delta cards in the past and probably will again. My cards get me earlier boarding and other perks. Most importantly, they (thankfully excepting Southwest) "save me" baggage-check fees. The annual fee on each card is $99; it costs $80 to check a bag roundtrip.

I put "save me" in quote marks because, remember, there didn't use to be baggage fees. Co-branded credit cards date to the 1980s, but they really took off, no pun intended, in the 20-aughts. Baggage fees were introduced in 2008. Coincidence much? Consumers have been coerced into having the credit cards; it would be economically irrational not to. Of course, paying the airfare with the card earns more miles. The cycle continues.

Ganesh Sitaraman aptly reported in The Atlantic last year, as the headlines put it, "Airlines are just banks now: They make more money from mileage programs than from flying planes—and it shows." 

But airlines are not regulated as banks.

And that's why federal scrutiny is long overdue.

Scribd has the DOT Template Letter on the Airline Rewards Inquiry, issued to the four largest carriers, American, Delta, United, and Southwest. HT @ TPG.

Americans chase dream of air passenger rights, while EU consumer protection reaches age of majority

Boarding a flight in Ilorin, Nigeria, in December 2022.
RJ Peltz-Steele CC BY-NC-SA 4.0

A Savory Tort Investigation

The Christmastime Southwest meltdown has prompted tongue wagging in Congress over a "Passenger Bill of Rights" to redress the radical imbalance of market power that has left Americans at the mercy of an oligopolist airline industry for decades.

Don't get your hopes up. In the United States, airlines have been playing cat and mouse with regulators since the mail took to the air in the 1920s. And the cat has never been enthusiastic about the chase. 

Passenger protection from exploitative practices in the airline industry has been a congressional dog whistle since overbooking became a business model in the 1960s. Ralph Nader took on the issue, along with so many others, in the 1970s. We've swung back and forth between transparent pricing and the piling on of surprise fees enough times to make you use your sick bag. Over the years, more passenger bills of rights have died in Congress than we have airlines. Well, that's a low bar, but you take my point.

As in all things when corporatocracy clashes with simple equity in the marketplace, the European Union is doing a better job than the United States to level the playing field. The crown jewel of more robust European consumer protection is Regulation 261/2004, which has been on the job for almost twenty years. When flights are delayed or canceled, EU 261 requires compensation to customers in cold, hard cash.

The circumstances that lead to an EU 261 payout are well circumscribed. But when it happens, an airline feels the pinch. The regulation pertains upon delay or cancellation, EU guidance explains (bold in original), when:

• the flight is within the EU and is operated either by an EU or a non-EU airline;
• the flight arrives in the EU from outside the EU and is operated by an EU airline; or
• the flight departs from the EU to a non-EU country operated by an EU or a non-EU airline.

Here is the compensation schedule, per passenger:

• Type 1: €250 for a delay of two-plus hours, or €125 if re-routed to arrive fewer than four hours late, for flights of 1,500 kilometers or less.
• Type 2: €400 for a delay of three-plus hours, or €200 if re-routed to arrive fewer than four hours late, for intra-EU flights of more than 1,500 kilometers and for all other flights between 1,500 and 3,000 kilometers.
• Type 3: €600 for a delay of four-plus hours, or €300 if re-routed to arrive fewer than four hours late, for all other flights.

There need be no compensation when the delay can be attributed to a cause extrinsic to the carrier, such as weather. A passenger's receipt of compensation, including non-monetary assistance, pursuant to the law of a non-EU country precludes an EU claim.

Cash compensation is a welcome recognition that airline passengers suffer real costs when flights are delayed or cancelled—more than what is covered by a meal voucher or even, when necessary, an overnight stay. Ours is now a world of nonrefundable reservations for hotels, cars, and tours. Travel insurance is becoming a must, and yet another expense. Vacation time meanwhile is increasingly scarce, especially for Americans.

Meaningful compensation incentivizes airlines to work smarter. For example, scheduling departures too tightly, failing to anticipate mechanical needs, or simply de-prioritizing the correction of problems all become decisions with bottom-line consequences.

The outer jurisdictional limits of EU 261 are not spelled out on the face of the regulation, but European regulators and courts largely have construed silence expansively. EU 261 claims are not limited to EU citizens and airlines, as long as an EU country can exercise jurisdiction. EU 261 has an exception for "extraordinary circumstances," but courts have construed the exception narrowly, excluding technical problems. Court rulings in the late 2010s led to the application of EU 261 to U.S. carriers operating international connections to and from the EU.

At the same time, compliance has been a mixed bag. The fuzziness at the margins of EU 261 application, along with the reality that not all domestic authorities have been prepared to invest fully in enforcement, has afforded airlines room to fudge fulfillment of their obligations.

In the event of a maloccurrence, airlines are obliged to make passengers aware of their EU 261 rights, and passengers file claims with the airlines, not with regulators. The airlines can be less or more forthcoming with notifications and the ease with which consumers can file claims. There are reports, moreover, of airlines simply not paying what's owed. As a result, a cottage industry has arisen of intermediary companies that facilitate consumer claims in exchange for significant contingency fees.

As an American citizen traveling to, from, and through the EU, I’ve made some EU 261 claims in recent years, since the regulation expanded to reach foreign flight legs. I tested different options to make my claims, and I promised to share some outcomes.

No-Coverage Cases

It’s first important to articulate unfortunately ever more common passenger experiences that are not covered by EU 261—and, needless to say, precipitate no consumer protection in U.S. law.

My fellow Lagos-bound passengers and I wait in Paris.
RJ Peltz-Steele CC BY-NC-SA 4.0

CLAIM DENIED by Air France: EU transit.  In December 2022, I traveled from Boston, Massachusetts, to Lagos, Nigeria, via New York and Paris.  Because of a mechanical problem, after several hours’ delay, the connection from Paris to Lagos was canceled and rescheduled for the following day.  My booking was with Delta; KLM owned the itinerary; and the canceled connection was operated by Air France. EU 261 charges the operator with responsibility. Air France provided a €15 meal voucher and overnight accommodation, including a shuttle after quite a long wait. Such intermediate compensations do not preclude EU 261 awards.

Air France denied the type-3 compensation claim I filed directly with the airline. An Air France agent wrote:

I am really sorry to have to inform you that the EU Regulation 261/2004 does not apply when flight departs from a point outside the EU or EEA and travels to a final destination outside EU or EEA, via a connection in an airport in the EU or EEA.

Since your flight departs from Boston and arrives in Lagos via New York and Paris, we regret our inability to accede to your request for compensation on this occasion.

To be clear, every leg of this journey was a different "flight," with its own flight number; this was not a continuation "flight." My itinerary originated and terminated outside the EU. At the same time, Air France's interpretation of "flight" in EU 261 seems consistent with my other claim experiences. I suppose Air France was obliged to pay compensation to passengers who originated in Paris; I don’t know. I was not given any particular notice of EU 261 rights; maybe passengers originating in Paris were.

NO CLAIM against Air France: Advance cancellation. In November 2022, I traveled from Boston, Massachusetts, to Kraków, Poland, via Amsterdam.  I booked through Egencia; Air France owned the itinerary; KLM operated the connection to Kraków.

A month after my purchase, but still a month before the departure, KLM canceled the connection to Kraków. KLM rebooked me on another flight, lengthening my layover by five hours and putting me late into Kraków. Air France offered a full refund, in the alternative, but refused to book me on another carrier that would arrive earlier into Kraków.

Patriotic illumination aboard an Air France flight.
RJ Peltz-Steele CC BY-NC-SA 4.0

The problem here was that I had paid more for a morning arrival in Kraków, because I had to work there that day. I could have booked for the midday or later arrival with another carrier for less money at the time I purchased, had I wanted to. I chose the SkyTeam Alliance specifically for the early arrival. In the month since the purchase, the alternatives had risen exorbitantly in price as international itineraries. I could still buy a replacement connection to Kraków for midday arrival from another carrier, but Air France also refused to release me from the KLM connection. If I failed to appear for the KLM connection, Air France would cancel my ticket home.  I had no choice but to accept the change and miss most of my work day.

KLM claimed that it canceled the morning connection—a month in advance—because of a "mechanical problem." Apparently, no regulation requires an airline to tell the truth. I rather believe that KLM canceled the flight because SkyTeam's multiple flights to Kraków were undersold.

I could not make an EU 261 claim, because airlines are permitted to make whatever changes they please more than seven days before departure. This is a big gap in consumer protection, because passengers have no ability to rebook with another carrier so close to the departure date.

I did complain to the U.S. Department of Transportation (DOT), because it is impermissible, even under U.S. regulations, for a carrier to cancel a flight merely because it's undersold. Unfortunately, this rule is rarely enforced, because it's so easy for a carrier to point to another reason for the cancellation. KLM continued to claim mechanical failure, never explaining how that hurdle could not be overcome with a month's advance notice.

DOT took no action, but entered my complaint in its "industry monitoring system." I suppose this is the same system through which, a mere 16 years after Southwest began A-B-C boarding, it seems finally to have dawned on federal regulators that maybe children should not be forced to sit next to strangers. That would have been a nice policy change to have had when my daughter was growing up.

NO CLAIM against Turkish Airlines: Airport change.  This is an older matter, but I’m throwing it in here because it's a variation on the problem of advance cancellation that might well happen to other people in today's tight market. 

In November 2020, I was to travel from Boston, Massachusetts, to Khartoum, Sudan, via Istanbul, on Turkish Airlines.  Within a week of departure, Turkish canceled my Boston flight and rebooked me on a departure from New York JFK. That’s not an easy or costless transit, from my home to JFK: a four- to five-hour drive each way, or a slow train with multiple transfers. Turkish refused any compensation, offering only complete cancellation as an alternative, and that only when I asked.

This was not an EU 261 matter, because there was no point of contact with Europe.  If the same thing happened, though, with a transit in Europe, EU 261 would not have applied, at least according to the reasoning of Air France in the above-described claim denial. If Turkish made such a change for an EU-bound flight, I hope that EU 261 would apply. I wonder what would happen if Turkish changed the airport, but not the flight number; that's not a delay or a cancellation.

I'll never find out, because I now exclude Turkish Airlines from my fare searches. I suggest you do the same.

Coverage Cases

CLAIM SETTLED with SATA Air Açores: Delayed flight within EU. In July 2022, I traveled within Portugal, from Lisbon to Terceira Island, on SATA Air Açores. Because of a mechanical failure, my 4:15 p.m. departure was delayed to 9:55 p.m. SATA gave me a €10 food voucher. I incurred some additional expense having to get a nighttime transfer on the island, and I lost some daylight leisure time.

My SATA rights notice.

Lisbon to Terceira maps out at 1,555 kilometers, so just over the threshold for a type-2 claim. When I received the voucher at the airport, the agent also gave me a well copied notice of rights in paper. The notice was in Portuguese with no translation.  In Portuguese, the notice accurately described the three types of EU 261 events, but conspicuously omitted any numerical amounts of compensation. In late July, I filed a €400 claim directly with SATA via email.

In September, SATA responded via email with a counteroffer: €300. I accepted. SATA sent me a form to provide my banking information for a wire transfer. I did so, but SATA wrote subsequently to say that it couldn't get the transfer to go through—foreign payers often struggle to align their parameters with U.S. bank data—and that it would send a check. In November, I received a paper check in the mail for US$322.

I accepted the SATA offer because I thought it was more than fair, even though I was entitled to €400 under EU 261. SATA implicitly acknowledged as much by offering more than €250. But my roundtrip ticket with SATA had cost me only €255. And I didn't feel there was any misfeasance on SATA's part. There was no indication that the mechanical failure could have been anticipated; airport agents acted quickly and efficiently to reschedule; and SATA tasked the flight to another plane the same day, if later. Overall, I remained happy with SATA service, despite my lost time. I don't know what SATA would have done had I refused the offer and insisted on €400.

CLAIM PAID by American Airlines: Delayed flight in United States. Also in July 2022, I traveled from Lisbon, Portugal, to Boston, Massachusetts, via Philadelphia, Pennsylvania. I booked on Egencia, and American Airlines operated all flights. The connection from Philadelphia to Boston was delayed more than three hours, but less than four.

Had American Airlines not made such a mess of this delay, I probably would not have thought to apply for EU 261 compensation. This was the kind of straightforward poor customer service that, sadly, Americans have simply come to expect. The delay seemed to have resulted from the unavailability of crew. Passengers actually boarded the plane, and then we were ordered to deboard and return to the terminal. Gate agents offered conflicting explanations. They seemed to be arguing with each other. The tension was contagious, and information was scarce. Space around the gate was overcrowded. The scene was chaotic, ugly, and frustrating.

It's not immediately apparent that EU 261 applies. The flight was a domestic connection; there were passengers on board with no passports. This was the inverse of the Air France claim-denial situation I described above. My point of origin in the EU was dispositive, even when the problem arose on a domestic connection in the United States. My American citizenship was immaterial. The relevant facts under EU 261 were that my itinerary started in the EU, and I arrived more than three hours late to my final destination.

Even insofar as EU 261 applied, I wasn't sure what type of claim mine was. The overall travel distance, the "flight," defined by itinerary, was more than 5,000 kilometers. But the "flight," defined by a leg with unique flight number, from Philadelphia to Boston was less than 500 kilometers. 

Under the circumstances, I expected that if I made a claim, American would deny it. After all, I might notionally be entitled to make a claim under European law, but where would I enforce? The U.S. DOT barely enforces U.S. regulations; it's not likely to expend resources to enforce foreign law. The relevant EU jurisdiction was Portugal. But would I, a non-European, have standing before a Portuguese regulatory authority? 

With so much uncertainty, I was inclined to let the matter drop. But over the next couple of days, I became angry again that American never reached out with any kind of apology for its mess. What the heck, I thought. At least filing a 261 claim would let me vent.

At the same time, because I seriously doubted that I would see a dime, I decided to try using an intermediary. After reading some reviews, I chose AirHelp, a 10-year-old startup from Berlin that is now global. AirHelp promises to make the claims process easy, and it did. In late July, I uploaded my documents and provided a short description of what happened. I got to vent.

AirHelp kept me apprised of my claim status. It sent me an email saying it had determined that I had a valid claim for €300. That seems right, using the itinerary as the measuring stick to reach type 3, and acknowledging that the delay in the end was under four hours. AirHelp said that it would make that demand of American Airlines. Thereafter, AirHelp periodically let me know that it was still waiting to hear back.

To my surprise, in mid-November, AirHelp told me that American had agreed to pay €300. AirHelp sent me an invoice showing that it was deducting its 35% contingency fee of €105. AirHelp sent me a check for the difference in U.S. dollars, $201.38. The fee was hefty, but maybe not bad for a claim I never thought would be honored.

✈     ✈     ✈

In sum, EU 261 is a powerful accountability tool, even if, 18 years on, it leaves some wide gaps in consumer protection. Americans should have at least as good a mechanism at their disposal. Our airlines meanwhile are fighting against accountability, trotting out the usual "be careful what you ask for" warning that our mere expectation of market equity will make air travel unaffordable. Seems to me that if American consumers are going to lose either way, misery loves company.

Sponsored in the present U.S. Congress by Senators Richard Blumenthal (D-Conn.) and Ed Markey (D-Mass.), the "Passenger Bill of Rights" now pending as S. 178 calls for a ticket refund and re-routing, even on another carrier, for delays of one to four hours, and, additionally, $1,350 cash compensation for delays of more than four hours.

I'm sure the check's in the mail.