In a move aimed at evaluating the fairness, transparency, predictability, and competitiveness of airlines' rewards programs, the U.S. Department of Transportation (DOT) has officially launched a formal investigation into the frequent flyer programs of the four largest domestic airlines. American Airlines, Delta Air Lines, United Airlines, and Southwest Airlines are the carriers under scrutiny.

The investigation follows a preliminary probe initiated by the DOT almost nine months ago, which focused on potential unfair or deceptive practices within the airlines' rewards programs. A joint hearing conducted by the DOT and the Consumer Financial Protection Bureau earlier this year further solidified the need for a closer examination.

Secretary of Transportation Pete Buttigieg, in a letter to the airlines, emphasized the impact of these programs on customer behavior, highlighting that many Americans consider their point balances as part of their savings. The DOT has requested comprehensive records and information from the carriers to shed light on the complete details of earning and redeeming awards, valuation methods, passenger fees, and agreements with cobranded credit card partners. The airlines have also been instructed to provide a detailed account of any changes made to their rewards programs in the past three years.

Frequent flyer programs have become instrumental in the U.S. airline business model, contributing billions of dollars annually to the bottom lines of carriers. Much of this revenue is generated by selling miles in bulk to banking partners issuing cobranded credit cards, which are then distributed as rewards to cardholders.

The attention on airline loyalty programs by federal regulators and lawmakers has been steadily increasing. Last year, requests were made by senators to the DOT and the Consumer Financial Protection Bureau to address concerns about unfair and deceptive practices by airlines in relation to these programs. These inquiries were triggered by changes made to Delta's SkyMiles program, which highlighted the power that carriers possess in controlling their rewards programs.

Legislators, including Senate Judiciary Committee chair Dick Durbin and Senator Roger Marshall, have introduced bills affecting the payment networks used by credit card issuers, a move opposed by airlines and issuers due to potential negative impacts on rewards programs.

Airlines for America, the trade organization representing U.S. carriers, defended frequent flyer programs in a statement, emphasizing their importance in rewarding customers and promoting healthy competition between airlines. Southwest Airlines also issued a statement, highlighting the flexibility and benefits provided by its Rapid Rewards program.

As the DOT investigation begins, the focus will be on assessing how these rewards programs impact consumers and ensuring that they continue to receive these valuable benefits. The outcome of the probe could have significant implications for the future of frequent flyer programs and how airlines engage with their customers.