This was published 10 years ago
Why Qantas frequent flyer changes are spot on
Changes will reward the loyalty of those buying full price or near-full price seats.Credit: Peter Braig
Changes to Australia’s biggest frequent flyer program were not only inevitable, but the professional points hunters saw it coming.
That hasn’t stopped people lashing out at Qantas – that’s what social media is for. The question is how many of Qantas’s nine million frequent flyers will cross the road and join the four million frequent flyers at Virgin Australia’s Velocity program.
At sites like australianfrequentflyer.com.au, a common criticism since Qantas dropped its bomb on QFF members in a mailout last Thursday is that it was poor timing. But when is a good time to announce you’re reining in decades of increasingly unmanageable contingent liabilities – the fancy name for potential accounting losses that most airlines, especially “legacy” airlines like Qantas, have been madly accumulating to lock in the loyalty of big-spending business travellers?
In fact, much of the criticism in the past four days has been from those aggrieved about the winding back of benefits for those flying in the cheapest seats, indicating that the changes are spot on target in doing more to reward the loyalty of those buying full price or near-full price seats in economy, business and first class.
And those who haven’t read the fine print need to get with the program: it isn’t fraudulent to offer benefits with a specific set of conditions if one of the conditions is that the conditions can be changed anytime the airline likes.
Then there are added problems of how airlines account for frequent flyer rewards. It costs Qantas about $120 in real money to fly one seat one-way between Melbourne and Sydney. If the seat flies empty, that’s money that can never be recovered: that’s why airline seats are termed “highly perishable”.
Yet, in the past decade or so, Qantas has been selling those seats for a fraction of the real cost to other retailers to onsell as frequent flyer benefits.
However, in the past decade, with real fares continuing their relentless historic reductions – why that is the case is a whole other story – the number of seats per flights that airlines need to sell to break even has jumped from around 65 per cent of total seating capacity (load factor) to 75 to 80 per cent.
The frequent flyer “inventory” is the “unsold” seats on any given flight and there are fewer of those than ever.
Airline accountants have become very skilfull at juggling frequent flyer contingent liabilities.
But travellers don’t yet appear to understand that, when the liability keeps growing as new frequent flyers join the program and start flying, it is inevitable that frequent flyer benefits must periodically be reduced, either continuously in small increments, or with less frequent, larger jolts, like last week’s changes at QFF.
It is also inevitable that a number of Qantas frequent flyers will switch to the Virgin Velocity program, which is only nine years old and doesn’t have Qantas’s legacy issues. Anecdotally, Velocity members don’t face the same restrictions on travel dates and destinations as the Qantas program.
However, Velocity’s membership has roughly doubled since 2011 when Virgin got serious about the Australian business travel market and it, too, will eventually face the same liability issues.
Meanwhile, Qantas frequent flyers are lamenting the closing of loopholes such as Marginal Any Seat Awards (MASAs), which enabled the practice of “status runs” – flights designed to boost coveted status awards.
Qantas is also now encouraging frequent flyers to travel on its own planes by cutting status credits on flights with alliance partners like Cathay Pacific, British Airways and American Airlines.
But it’s not a “fairer, more simplified program”, as the Qantas spin-doctors have spun. It was designed increase the sale of premium seats and discourage bargain hunters.
If you’re a QFF member, how does it affect you? Do you feel so strongly that you will change airlines as a result of these changes? Who to?
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