Rewards Points Drive Competition Among Both Airlines and Lenders

Airlines are increasingly relying on credit card programs and rewards points for profitability, while smaller airlines fight for a way to break into this competitive market. This morning’s U.S. Department of Transportation and Consumer Financial Protection Bureau hearing on airline rewards credit cards focused on the roadblocks consumers face in navigating their points programs, including difficulties in redeeming rewards and programs with changing rules. “Credit card companies promise upfront benefits for signing up and using their rewards card, but often bury complex terms in the fine print for using the rewards,” said CFPB Director Rohit Chopra. “The CFPB will be looking for ways to protect people’s points, stop bait-and-switch scams, and promote a fair and competitive market for credit card rewards.” The hearing highlighted the intense competition in this area. Sara Nelson, International President of the Association of Flight Attendants, noted that operating costs exceed passenger revenue for every major airline except Delta, indicating that profits largely stem from credit cards and reward points. “Airline rewards programs are a major component of the economics of air travel and are a strong driver for customer retention,” said Ben Danner, Senior Analyst, Credit and Commercial for Javelin Strategy & Research. This landscape presents both opportunities and obstacles for smaller airlines, who see a chance to attract disgruntled passengers dissatisfied with their current airline rewards programs. During the hearing, Scott D’Angelo, Chief Marketing Officer for Allegiant Airlines, said that a passenger survey found that 95% of respondents wanted to participate in a frequent flier program. But 85% also said that they never got any benefits from other airlines’ frequent flier programs.

Competition on the Lender Side

Leaders from smaller financial institutions echoed the notion that they have to adapt to compete against larger lenders. “The larger players can do things much more efficiently,” said Andrew Grimm, President and CEO of Apple Credit Union. “They have relationships with more partners and retailers, and that’s something we can’t do.” Grimm said credit unions like his have ramped up their customer service, especially in areas of stability, as a means of competing with larger institutions. “Our competitors are giving rewards that they can’t sustain if there are changes in the economy,” he said. “We do not change what we promise.”

Chasing Elusive Points

Ever-changing rules and rewards were among the primary concerns noted by the CFPB. “Consumers tell the CFPB that rewards are often devalued or denied even after program terms are met,” the agency stated in a press release accompanying the hearings. “Credit card companies often use rewards programs as a ‘bait and switch’ by burying terms in vague language or fine print and changing the value of rewards after people sign up and earn them.” “Issuers must take control of their digital footprint for rewards programs,” said Javelin’s Danner. “Several third-party websites provide card information to consumers that may be outdated, with current plans and intro offers leading to confusion and frustration down the road. Through our own efforts of building a card benchmarking tool, we’ve seen how difficult it can be for the consumer to compare programs, especially when key components such as redemption values are constantly changing.” While there were no immediate changes resulting from the hearing, lenders and airlines should be aware that their programs are under heavy scrutiny. “Points systems like frequent flyer programs have become an increasingly significant part of our economy,” said Secretary of Transportation Pete Buttigieg in his introduction. “It’s clear that these programs have a great deal of value. And like anything of value, it’s important they be treated fairly.”