Frequent Flyer Programs: Empirically Assessing Consumers' Reasonable Expectations

• Author: Dan Sarel,Ann Morales Olazábal,Howard Marmorstein
• Published date: 01 March 2014
• DOI: http://doi.org/10.1111/ablj.12026
• Date: 01 March 2014

Frequent Flyer Programs:

Empirically Assessing Consumers’

Reasonable Expectations

Ann Morales Olazábal,* Howard Marmorstein,** and

Dan Sarel***

INTRODUCTION

Never in the history of commercial flight have airline passengers been so

disgruntled. Instances of significant delay, frequent flight cancellation, and

lost or delayed baggage have reached such a crescendo that passengers are

being described as “mutinous.”1Indeed, amendments to the airline Passen-

ger Bill of Rights that became effective in August 20112were not enough to

quell customer dissatisfaction with perceived mistreatment by the airlines.

*Professor of Business Law, University of Miami School of Business Administration. J.D.,

University of Notre Dame, 1987; M.B.A., University of Miami, 1997.

**Associate Professor of Marketing, University of Miami School of Business Administration.

Ph.D., University of Florida 1989; M.B.A., University of Pennsylvania (Wharton School),

1982.

***Associate Professor of Marketing, University of Miami School of Business Administration.

D.B.A., Harvard University, 1978; M.B.A., Hebrew University of Jerusalem, 1974.

The authors wish to acknowledge the research assistance of Miguel San Pedro and Kaity

Schueller.

1Scott McCartney, Sly Ways to Beat Delayed Flights,WALL ST. J., Oct. 3, 2012, at D1 (reporting

on stranded passenger experiences and attributing the latest wave of travel disruptions and

customer unrest to “wage and schedule restructurings and job losses prompted by post-

recession revamps and high oil prices”).

2Kelly Chen, New “Passenger Bill of Rights” Limits Tarmac Time, Reimburses L ost Bags, PBS

NEWSHOUR (Apr. 20, 2011, 5:20 PM), http://www.pbs.org/newshour/rundown/2011/04/

passenger-bill-of-rights.html (“The additional passenger protections we’re announcing today

will help make sure air travelers are treated with the respect they deserve.”) (quoting

Secretary of Transportation Ray LaHood) (internal quotation marks omitted). For an addi-

tional history of the Passenger Bill of Rights, see Timothy M. Ravich, Re-Regulation and Airline

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American Business Law Journal

Volume 51, Issue 1, 175–250, Spring 2014

© 2014 The Authors

American Business Law Journal © 2014 Academy of Legal Studies in Business

175

In February 2012, as part of the FAA Modernization and Reform Act,3

Congress amplified passenger rights further4and expressly established the

Secretary of Transportation’sauthority to investigate consumer complaints

in a laundry list of other areas in which the airlines chronically fall short,

including “the rights of passengers who hold frequent flyer miles or equi-

valent redeemable awards earned through customer loyalty programs.”5

It is this latter matter—that of flyers’ discontent with their inability to

redeem accumulated frequent flyer miles or points for free travel as and

when they wish to fly—on which this article focuses.6Indeed, a common

complaint against frequent flyer programs is that they “promise the incen-

tive of free travel in exchange for loyalty, and yet they make it very difficult

to actually get the free seats.”7At the heart of this widespread contract

Passengers’ Rights,67J.AIR L.&COM. 935, 939–45 (2002) (describing early legislative efforts

to establish the Bill, and arguing that if enacted, it will not secure better service for

passengers).

3Pub. L. No. 112-95, 126 Stat. 11 (2012).

4Id. §§ 403–412.

5Id. § 408(6) (emphasis added).

6Gary Stoller, Delta Frequent Fliers Fume About Award Availability, USA TODAY (Mar. 5, 2013,

11:35 AM), http://www.usatoday.com/story/travel/flights/2013/03/04/delta-frequent-fliers

-fume-about-redeeming-miles/1963057/ (“Elite fliers say it’s nearly impossible to get a free

seat for 25,000 miles [the minimum award level on Delta and most other airlines].”); Scott

McCartney, Best Airlines for Redeeming Miles,W

ALL ST. J., May 17, 2012, at D1 (describing the

frustration of many customers when reward tickets are unavailable at the basic award level).

7Chris Elliott, Consultants Help Turn Frequent-Flyer Awards into Tickets—For a Price,ORLANDO

SENTINEL (Feb. 29, 2012), http://www.orlandosentinel.com/travel/orl-travel-troubleshooter-2

-022912,0,314080.column (reporting stories of a number of “irked” frequent flyers, and

noting “[t]hat these points are hard to redeem, a long-standing reality of air travel, is bad

enough. That some airlines now charge fees and taxes on top of that is offensiveto some loyal

air travelers, who expect a ‘free’ award ticket to actually be, you know, free.”); Scott

McCartney, Can’t Use Your Miles? The Importance of Ranking Airlines by Award Seat Availability,

WALL ST.J.MIDDLE SEAT TERMINAL BLOG (May 17, 2012, 12:07 PM), http://blogs.wsj.com/

middleseat/2012/05/17/cant-use-your-miles-the-importance-of-ranking-airlines-by-award

-seat-availability/. According to McCartney, who regularly blogs for the Wall Street Journal on

topics of interest to air travelers:

You’vegot frequent-flier miles but you can never seem to use them when you want to go.

Seats aren’t available at the basic redemption level. Maybe there are seats at the more-

expensive mileage levels, but you don’t have enough miles or it just makes more sense

to buy the ticket with cash instead of an inflated number of miles.

Sound familiar? It’s a common complaint with frequent-flier programs ....

....

176 Vol. 51 / American Business Law Journal

enforcement issue is the language of the agreements that establish the

passenger’s and airline’s respective rights in connection with the relevant

frequent flyer program. While the lengthy constitutive terms and condi-

tions of these programs vary, nearly all of them use language limiting the

availability of award travel, stating simply that redemption of mileage for

award tickets is “subject to limitations” or “may not be available on all

flights.”8

That free seats are limited is most certainly an obvious proposition.

Even a passenger seeking to purchase a ticket will not find seats available

on every flight. But what, exactly, does this limitation on reward tickets

mean for the average consumer trying to redeem his accrued mileage or

points? Put otherwise, to what—if anything—has a given airline bound

itself contractually when holding out the promise of free travel?

The larger context of the question we pose is twofold. First is exten-

sive case law in the area of federal preemption under the Airline Deregu-

lation Act of 1978 (“Deregulation Act,” or § 1305(a)(1)), which protects the

airlines from consumer protection legislation and lawsuits. So substantial is

the precedent in this area that the U.S. Supreme Court has spoken about

frequent flyer programs not once, but twice9—both times leaving room for

proconsumer arguments based on contract enforcement.

The other legal area that is implicated is consumer contracts of

adhesion and their enforceability.The vast majority of the rich literature in

this area is focused on contract theory, economic arguments, or public

policy questions associated with enforcing a standardized agreement

against the consumer, who may not have read and therefore actually assented

to each of its provisions. The debate over objective and subjective views of

consent, the economic efficiency arguments maintaining, inter alia, that

enforcement of standardized contracts by their express terms inures

. . . Some [airline managers] make it relatively easy to find award seats; some are quite

stingy, at least at the bottom mileage rung. That’s the level—typically 25,000 miles for a

round trip domestic coach ticket—that is both the most popular with travelers, when

they can find it, and the most advertised by the airlines.

Id. See also sources cited infra note 63.

8See infra note 25 and accompanying text.

9In early 2013, the Court granted the petitioner’s certiorari application in Northwest Inc. v.

Ginsberg, No. 12-462, 2013 U.S. LEXIS 3919 (May 20, 2013), in a context very similar to one

of the previously decided cases. See infra note 203 and accompanying text.

2014 / Frequent Flyer Program 177