FTC to adjust terms and conditions of airlines’ mileage programs

Posted on : 2019-09-17 17:30 KST Modified on : 2019-10-19 20:29 KST
Under current terms, frequent-flyer miles expire automatically after 10 years
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“Frequent-flyer miles expire automatically after 10 years, but it’s just so hard to use your miles to buy an award ticket.”

“There aren’t enough ways to use frequent flyer miles other than on airfare.”

These are some of the complaints that customers frequently raise about airlines’ frequent-flyer programs. In an attempt to address these issues, South Korea’s Fair Trade Commission (FTC), under Chairperson Joh Sung-wook, has decided to adjust the terms and conditions currently used in airlines’ mileage programs.

According to sources at the FTC and in the airline industry who spoke with the Hankyoreh on Sept. 16, the FTC is currently investigating claims that airlines violated the Act on the Regulation of Terms and Conditions when they adjusted their mileage terms to have points expire after 10 years.

In 2010, the airlines had tried to set the expiration period at five years but eventually extended that to 10, with the result that accumulated points started to expire this year. The FTC explained that it’s “working on improving this system given the potential for legal violations.”

Check-in and flight information at Incheon International Airport. (Park Jong-shik
Check-in and flight information at Incheon International Airport. (Park Jong-shik

With frequent-flyer programs, airline customers accumulate miles, or points, by boarding airlines or using affiliate programs, such as specially designated credit cards, and the points can later be used to purchase seats on airplanes. The first South Korean airline to introduce such a program was Korean Air, in 1984.

The FTC recently received an external study it commissioned about ways to substantially improve airlines’ frequent flyer programs. Some of the problems identified by the report are that airlines don’t provide any information about the situations in which miles can be suspended in their terms of service, the 10-year period of validity notwithstanding, and that all miles are assumed to expire after 10 years. The report also pointed out that users are often unable to put their miles to good use because of limited usage options.

Civic groups argue that the terms and conditions for airlines’ frequent-flyer programs run afoul of civil law in Korea, which states that the period of validity must be calculated from the time at which customers can exercise their rights. According to these groups, the period of validity should begin not when the points are accrued but from the time when customers could reasonably be expected to use those points. Practically speaking, customers have to stack up a certain number of miles before they can use them, and those miles are liable to expire before that level is reached.

Potential solution in mixed payment system

One of the improvements recommended by the report is the introduction of a mixed payment system in which customers could purchase tickets more affordably by mixing miles and cash. The idea is for customers to have more latitude in using their miles, which could also be accomplished if airlines allowed customers to use their miles to purchase tickets freely instead of setting aside a certain number of seats for that purpose.

The report further suggested that airlines increase the number of seats that can be purchased with miles from the current level of 5% and to allow customers to convert miles they’ve earned through credit card purchases back to points on their card. Another issue raised in the report is that points aren’t given enough value when they’re used to buy things other than plane tickets, such as hotel stays, car rental, and items at duty free stores.

“We’re reviewing a range of options, including those in the report,” said an official at the FTC.

While the FTC has the authority to file a criminal complaint about violations of the Act on the Regulation of Terms and Conditions and to order necessary corrections, it would prefer to persuade the airlines to adjust their terms and conditions on a voluntary basis.

But the airlines complain that it’s unfair for the FTC to be relitigating the illegality of the period of validity for frequent flyer miles, considering that that period was decided with the FTC’s consent back in 2010.

“The section of our terms of service that’s related to the period of validity for frequent flyer miles was already accepted as valid during a previous review by the FTC,” a spokesperson for one airline said.

At the end of 2002, South Korean airlines had a total of 156.1 billion outstanding miles. Usage increased after the 10-year period of validity was instituted, which has reportedly brought that total down to about 100 billion miles today. Since one mile is regarded as being worth about 20 won on average, the total outstanding miles are estimated to have an economic value of about 2 trillion won (US$1.68 billion).

By Kwack Jung-soo, business correspondent

Please direct comments or questions to [english@hani.co.kr]

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