Airlines are extracting huge value from their programs and you can play too
Photo: Qantas.com
It’s been no secret that Frequent Flyer programs are cash-cows for airlines but Covid-19 has now stamped a real value on them, worth $billions.
While these loyalty programs are primarily designed to benefit the airline, they know it has to be rewarding for the consumers as well.
How can you get your share in this value?
Let’s look at the numbers…
Qantas Frequent Flyer
In FY-2019 Qantas Domestic reported an EBIT of $740 million. Qantas Loyalty comparatively reported EBIT $374 million profit, about half of Domestic. Qantas International arm reported just $285 million, which seems small for such a big high profile operation.
When you consider it, Qantas Loyalty is making about the same money as the whole Jetstar operation and more than Qantas International without the headache of dealing with the aircraft, flying schedules, lost baggage, bad weather or delays.
Around 60% of all Qantas Frequent Flyer points issued are sold to third parties (meaning banks, credit cards, supermarkets, online shopping partners etc).
Qantas has a huge partner base and growing business rewards program. The main points driver is credit cards, with almost 1 in 3 reward credit cards in Australia earning Qantas points.
This shows that points are no longer the domain of the ‘frequent flyer’ but are shifting to the benefit of the ‘frequent spender’.
Photo: Velocity.
Velocity
In FY-2019, the Domestic arm of Virgin Australia reported an EBIT of $133 million. Velocity in the same period reported an EBIT of $122 million.
A very close return for much less effort.
With Virgin Australia, their fast growing Velocity program is making nearly the same money as their Domestic operation.
GLOBALLY
Frequent Flyer programs are also highly profitable in Europe and the US. According to the Financial Times, American's AAdvantage program is valued at between $18 billion and $30 billion, while the airline itself is worth less than $7 billion.
In fact, loyalty programs are so profitable in the US, American Airlines, United and Delta all ‘self-financed’ debt through them.
Delta used their frequent flyer program, SkyMiles, to back US$6.5 billion in new debt. United raised US$7 billion borrowing through their own program, Milage Plus, and American Airlines followed the trend borrowing US$5 billion from AAdvantage.
YOU CAN SHARE IN THIS VALUE TOO
Reward programs are sprinkled with lots of gems throughout, but not everyone can win because someone has to pay for it all.
Luckily the gems are not based on a quota system, if you engage in the right way - you can enjoy the gems everytime.
But if you do nothing or don’t learn to understand the system, then you are literally making bread for the airline and everyone else.
Our discovery - Using your points to fly Business Class is the best way to get value from your points.
If you could repeatedly fly Business Class for the price of Economy, why wouldn’t you?
Steve Hui is the founder and CEO of iFLYFLAT - Australia’s leading reward travel advisory and booking concierge.
Connect with Steve: asksteve@iflyflat.com.au
Run a business? Learn about our points advisory service.
Sources and further reading:
Qantas report: https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2019-Annual-Report-ASX.pdf
Virgin report: https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/fy19-annual-report.pdf