New Legislation May Limit Co-Brand Issuers from Devaluing Airline Loyalty Currency
There has long been debate over whether points and miles earned in loyalty programs can be considered real currency. As loyalty practitioners, we know that a significant segment of members are hyper-aware of their points or miles balances, carefully maximizing their currency for the greatest returns.
Airlines, in particular, have some of the most loyal members – individuals who go to great lengths to preserve their status each year and who are determined to get maximum value from their earnings. However, as profits and travel dynamics have shifted, some airlines have introduced changes to their loyalty programs, often sparking strong reactions from members. Delta’s 2023 devaluation of the SkyMiles program is a prime example of the backlash that can occur when such changes are implemented. In fact, within a month of that decision, Delta CEO Ed Bastian publicly acknowledged that “the changes went too far.” In the days following, negative sentiment on X (formerly Twitter) spiked by 352%, prompting Delta to reverse some of the changes to the SkyMiles program.
Recently, Secretary of Transportation Pete Buttigieg, began pressuring the airline co-brand credit card industry to maintain the value of loyalty currency. Specifically, he advocates for protections that would prevent airline co-brand cards from devaluing miles, ensuring that consumers receive the value they were promised. Buttigieg’s stance is that credit card holders rely on these miles as a form of currency to help fund vacations.
To put things into perspective, approximately 1 in 4 U.S. households has a travel rewards credit card. In a December 2023 survey, 81% of respondents said that earning points or miles is very important, and 73% actively track their points or miles balances. The redemption rate for travel rewards credit cards is notably high, with 77% of cardholders redeeming their points or miles within a year of earning them. Furthermore, it’s estimated that 15 million domestic trips (or $23 billion in economic activity) in 2022 were funded by points or miles earned through travel rewards credit cards. These figures underscore the high engagement levels and the scrutiny issuers and airlines face when considering changes to the value of loyalty currency [Source: Airlines for America, Dec 2023].
The question remains: Are loyalty miles equivalent to cash? Technically, no. The terms and conditions of most airline loyalty programs state that miles or points have no cash value. However, this doesn’t change members’ perceptions. Many continue to view their loyalty currency as having cash-like value. If the government passes legislation preventing miles or points from being devalued, members could face other, potentially more concerning, impacts. New regulations might prompt airline co-brand credit card programs to implement restrictive changes to protect their liability and profitability. This could mean more stringent rules around how points and miles are used, reduced availability of seats for redemption, or even caps on the number of points that can be redeemed annually. It’s a slippery slope. While government intervention may seem like a win for consumers on the surface, it could ultimately lead to unintended consequences for credit card holders who rely on their points or miles to fund vacations.
Devaluations are always challenging for loyalty members and often result in significant customer backlash. Co-branded credit card programs will need to navigate new regulations that could result in increased frustration for their customers. What may initially appear as a consumer-friendly measure to preserve value could have ripple effects, leading to other changes that undermine the perceived benefits of these loyalty programs. Moreover, changes to airline co-brands could influence how other types of loyalty co-brand cards operate as well.
This potential change serves as a reminder for loyalty program managers to routinely evaluate the overall health of their programs. Proactively developing strategies that protect the business while maintaining value for members is much easier than responding after changes have been forced upon the program. At Kobie, we design loyalty strategies grounded in financial rigor, with a strong emphasis on customer value and experience. As you consider the potential implications of upcoming regulations, our expertise can help ensure your program continues to thrive for both your members and your business.
Written by: Julie Gerola
As Kobie’s VP of Consulting, Julie is a data-driven marketing leader, passionate about leveraging customer insights for sustainable business growth. She has deep experience advising leading brands, focusing on how to harness the power of loyalty data to create hyper-personalized experiences and drive customer lifetime value.
