Wow…as if I couldn’t come up with another reason to hate the Senior Senator from New York any more (he was a strong proponent of the ETSA visitor tax, too), he has decided to wade into more travel-related policy and, again, he’s headed the wrong direction. This past weekend his office noted that the Senator is considering holding hearings regarding airline frequent flier programs and their policies towards mileage expiration and redemption.
Schumer says he suspects consumers are actually paying for frequent frier programs through air fare and fees. If so, he said rules are needed to protect consumers. He’s asking the Department of Transportation to review the complaints.
"As the holiday travel season approaches, we cannot let airlines and credit card companies continue to fly off with hard-earned frequent flier miles," Schumer said in an announcement scheduled for Sunday. "When a consumer accumulates valuable frequent flier miles, they should not have to constantly worry that they are going to expire with little or no notification from the airline."
There are so many things that are wrong with this approach that it is hard to know where to begin. Most worrisome is the implication that the points have some explicit value ascribed to them. Historically the points have not held and specific value – after all the redemption value varies based on what type of reward the consumer chooses – and having no value has been of critical significance with the earning of those points. Why? Because a gift or reward of zero value cannot be taxed. The IRS has stated that points are not taxable right now. But if the Senator manages to define a specific value that they carry the earning and redemption of those points may soon incur a tax burden as well. So much for helping the customer there, Chuck.
Don’t get me wrong – I agree that there are plenty of people out there who have no idea how the programs really work nor how to maximize their value from those programs – but that doesn’t mean that they need help from the federal government to figure it out. How would the Senator treat the programs that were established from the very beginning with an expiration policy on their points (Virgin America’s eleVAte and jetBlue’s TrueBlue were both set up that way from inception)? Are they misleading and confusing as well? Or is it just the legacy programs which have changed their rules over the 25 years they’ve been in existence? Does he really expect that the programs wouldn’t change over more than two decades? Of course they will adapt to the changing industry.
The other statistic cited in Schumer’s claim is that 20% of the estimated 10 trillion points out there right now may never be redeemed. That’s actually a very reasonable level of breakage. What’s the level for mail-in rebate programs or other schemes that actually have defined value? I’m guessing it is comparable, if not higher.
Finally, it is worth considering that the frequent flier programs seem to be the only way that the airlines consistently can generate revenue. It may prove to be a bit of the “goose laying the golden egg” problem should the airlines have to dramatically change the way the programs are handled. So instead of minting miles and selling them to credit card companies to help fund operations the airlines will no longer be able to do that and we’ll see a carrier or two likely fail. Great work, Senator!
Seriously, there are many other more significant things that our government can be doing to help its citizens. Meddling in the airline frequent flier programs simply isn’t one of them. Find something better to do with your time and our money, Senator. Please.
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