When frequent flyers get taken for a ride

Discounts and rewards dealt out in loyalty schemes are a tempting incentive but it's worth considering who reaps the biggest benefits.

WHEN Qantas announced profit results last month, it revealed it had earned $328 million, before tax, from its frequent-flyer program.

The program was one of the standout performers for the airline group, raising the question: for whose benefit is it designed?

Are frequent-flyer programs really about loyalty and benefits for travellers or just another money-spinner for airlines?

And if the airlines are making so much money from them, who is ultimately paying?

Clifford Reichlin, who runs the popular online forum frequentflyer.com.au, says frequent-flyer programs have little to do with loyalty - or even flying.

"It's nothing to do with flying, it's a promotional and marketing currency," Reichlin says. "You can earn points without flying and you can spend points without flying.

"It's a promotional currency which is linked to the whole aspirational quality of flying."

Reichlin says frequent-flyer programs are hugely profitable for airlines due to a combination of "enormous demand" and having control over supply.

"They get cash for the points [from banks] and then they control the supply of seats," he says.

Reichlin says while the benefits of frequent-flyer programs are clear for the airlines, the benefits for consumers can be patchy.

While some do very well out of the programs, for others it may not be worth the bother. "It depends on how much you travel and how much you spend," he says.

Reichlin says there are two "currencies" attached to frequent-flyer programs: points and status credits.

Status credits are the true measure of loyalty because they can be earned only by flying, while most points are earned through credit card use.

Reichlin says credit cards that offer frequent-flyer points tend to have high annual fees; for some, the fee will outweigh the benefits.

"If you spend less than $1000 a month on your credit card, don't bother," he says. "Just go for a cheaper credit card."

The chief executive of the Qantas frequent-flyer program, Simon Hickey, agrees it can be hard to earn enough points to make it worthwhile if you are "just doing one activity".

The key to getting benefits is leveraging a "coalition" of points-earning activities, such as shopping at a particular supermarket and using a particular credit card.

"If you're a member of five different programs and you are splitting your spending ... it can be difficult to get rewards," he says.

Hickey says about 35 per cent of Qantas frequent-flyer points are earned by flying, with the remainder earned through credit cards and other program partners.

The Qantas program now has 7.2 million members, a big percentage of which joined up last year through the Woolworths Everyday Rewards program, which provides free membership of the Qantas program.

Clifford Reichlin says travellers who take part in frequent-flyer programs should not let it influence either their spending patterns or their choice of airline.

With so many cheap fares on offer, travellers should just book the best available fare and consider any points they collect as a bonus.

The exception is those who travel frequently and value status credits, which afford privileges such as lounge access or upgrades.

"Once you've got status credits, you get a whole lot more benefits," he says.

"If you're just looking for a cheap flight, buy a ticket."

When it comes to who is ultimately paying for frequent-flyer programs, Reichlin says the answer is clear: consumers.

While such schemes may help keep airfares down, by contributing so much to airlines' profits, consumers need to remember there is no such thing as a free lunch.

"When you redeem a seat for travel, somebody has to pay for that seat," he says.

Reichlin says consumers end up paying via banking fees because the banks have to buy the points from the airlines.

"They [banks] are not doing it for nothing, so they charge higher fees to the consumer," he says.

Reichlin's comments are echoed by Tiger Airways' managing director for Australia, Crawford Rix, who says frequent-flyer programs come at considerable expense.

"I know how costly frequent-flyer programs are to develop and manage," Rix told a recent aviation summit. "Just ask yourself, who pays?"

Pointing in the right direction

IF YOU don't know what to do with your frequent-flyer points, a charity might be able to put them to good use. Qantas does not have a regular charity option in its program but Virgin Blue's Velocity Rewards allows for donations to Green Cross Australia. Some hotel loyalty schemes allow points to be given to charity. The Thakral property group has been giving most of its Accor Vacation Club points to charity since 2004.

Charities that have benefited from the donations have included Ronald McDonald House and the Smith Family.