buyer's market

Disloyalty Programs: What Happens If You Break the Frequent-Flier Rules

Keep climbing — as long you mind the terms in the contract. Photo: Bruce Bennett/Getty Images

Last week, Gennady Podolsky was indicted by the Feds for wire fraud. His alleged fraudulent act? Stealing 42 million frequent-flier points from Delta Air Lines.

Podolsky’s alleged fraud involves SkyBonus, the lesser-known companion to Delta’s SkyMiles rewards program. While SkyMiles rewards you for flying Delta, SkyBonus is supposed to reward your employer for your business travel on Delta. Note that I said employer. Podolsky was a partner in a travel agency, and federal prosecutors allege he fictitiously credited his clients’ travel to a SkyBonus account he controlled as though they were his employees, then redeemed the accrued points for “free air travel and other valuable benefits.” You are not supposed to do that.

If you end up in court for points fraud, you may need to argue with the government’s valuation of the points you’re accused of stealing, because the size of a fraud or attempted fraud is a key driver of the sentencing guideline that a judge is supposed to follow if you are convicted. Ken White, a criminal-defense lawyer at Brown, White & Osborn in Los Angeles, told me that valuing 42 million fraudulently obtained SkyBonus points at $1.75 million could, depending on other factors, lead to a guideline sentence range about twice as high as what would be associated with a valuation of $175,000. (Ken is also my co-host on the KCRW podcast All the President’s Lawyers.)

I cite those value figures because prosecutors say Podolsky’s alleged fraud cost Delta $1.75 million, pegging the value of SkyBonus points at more than four cents apiece. This estimate made its way into the subhead of a New York Times article about the case, but I think it’s likely five to ten times too high. Based on the SkyBonus award chart, a SkyBonus point appears to be less valuable than a SkyMile, and The Points Guy pegs the value of a SkyMile at just 1.2 cents. In a previous instance when someone got tried for SkyBonus fraud (yes, this has happened before; more on that in a minute), points blogger Ben Schlappig estimated that SkyBonus points were worth no more than half a cent each.

Gary Leff, who writes the View From the Wing blog on air travel and is a frequent source for my stories on airlines, served in 2014 as an expert witness at the sentencing of a woman who had been accused of stealing SkyBonus points from her employer. Leff, who was a witness for the defense, argued the points in question were much less valuable than the prosecution had claimed. She wasn’t sentenced to any jail time.

But though you might succeed in arguing down the size of your fraud, these cases serve as a stark reminder that airline tickets are contracts and airline loyalty programs have rules that you agree to abide by when you join. These are agreements that go two ways: The airlines have obligations and so do we. If we break the rules, we may face consequences.

Most violations are on a much smaller scale than the theft of 42 million points and are not the sort of thing that is likely to draw the interest of federal prosecutors. Most violations are not crimes at all. But there are lots of consequences available short of criminal prosecution. Here, for example, is what Delta says it might do if you break the SkyMiles program rules:

Delta reserves the right to terminate your membership in the SkyMiles program at any time if you violate the SkyMiles Membership Guide and Program Rules, any term or condition of Delta’s contract of carriage, Delta’s fare rules, or any other Delta rule and regulation that apply to your travel. Termination of your membership will result in a loss of all accumulated mileage credit in your account, the cancellation of any unused Awards or Award Certificates, and the loss of all other SkyMiles benefits. Terminated Members are not eligible to participate in any aspect of the SkyMiles program, including without limitation any special promotions or SkyMiles partnership offers.

Yes: You can lose all of your points! I don’t mean to pick on Delta. All the major carriers have provisions like this in their program terms. And they’re not monsters; just because they can doesn’t mean they’re necessarily going to throw the book at you.

“In lieu of termination, Delta may at its sole discretion deduct mileage from your account, but permit you to continue participating in the SkyMiles program,” the rules also say. If you’re a profitable customer, Delta may want you to keep buying tickets, even if you are totally guilty of breaking the rules. Still, you might want to keep the possibility of punishment in mind before using customer “tricks” that involve breaking the contract of carriage, fare rules, or loyalty-program rules.

Consider “throwaway ticketing.” This means saving money by buying a ticket with more legs than you actually intend to fly. For example, your ticket says New York-Detroit-Chicago, but you get off the plane in Detroit and never fly to Chicago. (It’s counterintuitive that two flight legs would ever be cheaper than one, but this can happen when an airline faces more competition on the connecting itinerary you booked than on the nonstop itinerary you actually wanted to travel.)

Throwaway ticketing is usually a violation of fare rules. Lufthansa recently sued one unlucky customer who used the strategy to save money flying from Oslo to Seattle. But litigation is an expensive way to recover a few hundred or even a few thousand dollars, so airlines are more likely to take remedial steps that don’t involve a court: demanding the difference between the fare you paid and the fare you should have paid; docking your points; and, if they really think you’re trouble, excommunicating you from the frequent-flier program.

What else could get you crosswise with an airline? In general, you are not allowed to sell miles, points, or award tickets to other travelers. Here is what United Airlines has to say about that:

The sale, barter or other transfer or attempted sale, barter or other transfer of any mileage, certificates, awards, benefits or status, other than as authorized and/or sponsored by United, is expressly prohibited. Any mileage, certificates, awards, benefits or status sold, bartered or otherwise transferred is in violation of the Rules and any accounts or Members involved in such sales, barters or other transfers may be subject to United’s Remedies.

Ominous though it sounds, “United’s Remedies” does not refer to what happened to David Dao. It’s just a list of possible actions similar to Delta’s: United can kick you out of the MileagePlus program, take away your miles, cancel your award tickets, and terminate any other program benefits it can think of. The airline reserves the right to bill you for the money it thinks you owe it and to take you to court. And as with Delta and SkyMiles, United says once you’re kicked out of MileagePlus, you’re never allowed back in.

I would also advise you not to book a refundable business-class ticket, go to the airport, use the complimentary lounge access that comes with your ticket, not fly, rebook the ticket for another date, use the lounge for free on your rescheduled travel date, again not fly, and rebook again and again and again until you’ve gotten 36 free lounge visits. Does anyone really like the airline lounge that much? One Lufthansa customer in Munich did, and the airline sent him a bill for €1,980 once it figured out what he’d been up to.

Depending which airline you fly, it may also be inadvisable to create a frequent-flier account for an inanimate object. Lynn Harrell got expelled from the SkyMiles program in 2012 and lost all his points after Delta determined that “Cello Harrell,” a registered member in the SkyMiles program, was not a human but a musical instrument. Lynn Herrell is a professional cellist who buys an extra seat for his cello when he flies. But the SkyMiles rules are clear: You cannot accrue miles for “tickets purchased to carry excess baggage such as musical instruments and pets.” This rule is not necessarily the same across airlines; check the fine print to see which carrier values your cello’s loyalty.

Finally, you may also wish to check your conscience. Even if you think you would get away with breaking the airline’s rules, is it ethical to do so? Few people would defend bilking an airline for hundreds of thousands of dollars’ worth of points by pretending to be an employer. But the implicit justification travelers use when committing small breaches of the rules is a sense that the airlines do not perceive a duty of ethical behavior toward us as customers. What goes around comes around, right? If they’re going to charge me a stupid bag fee, why shouldn’t I try to find a way to squeeze a little extra value out of the transaction?

People may also feel justified in breaking the rules because they feel the whole economic system is unfair to customers. Let’s look back at throwaway ticketing. Often, the reason a nonstop flight would be more expensive than a longer connecting itinerary is that the nonstop route goes into a hub city where the airline faces little competition and can charge high prices with impunity. Is that fair? Should the government even have allowed that? I might have a contractual obligation to honor the high price the airline wants to charge, and I may bear the risk of losing all my points if break the fare rules to get a lower one. But do I really have a moral obligation to pay a higher price that I think is caused by an anti-competitive practice?

I don’t have a bright-line answer to this. One thing I would note in favor of an answer of “Yes, you do” is that, while U.S. airlines have been highly profitable in recent years, their cumulative net profits were negative from 1979 through 2014. Historically, this is not a lucrative business, and the high marginal profits earned on hub flights have been necessary to support the fixed costs that exist throughout an airline’s route system and across economic cycles where travel volumes may fall faster than the number of seats available. More broadly, ad-hoc rules about when it is morally acceptable to cheat a corporation might produce bad and unexpected results, especially when the person who might do the cheating is also making the ad-hoc rules.

My personal view is that the rule that you should treat others as you would wish to be treated applies not just to individuals but also to organizations, including corporations. If you feel a corporation won’t follow the golden rule, find someone else to do business with instead of trying to get back at them.

Of course, you might not feel that’s possible in the case of air travel. Maybe the airline you hate most is the only one that flies the route you need to travel, or maybe you feel the whole industry is rotten. But I generally feel that airlines have honored their obligations to me as a customer, and so I do not have recourse to the defense that airlines will not honor a norm of reciprocity. I’m not just afraid of having my SkyMiles taken away; I feel a duty to follow the rules in part because I trust and expect that Delta will do so, too.

Disloyalty Programs: Beware Breaking Frequent-Flier Rules