Qantas adds 20 million frequent flyer seats under new Classic Plus scheme

It’s the change the Qantas frequent flyer program had to make, but will it fix widespread frustration among its 15 million-plus members?

Qantas CEO Vanessa Hudson has unveiled a major change to the airline’s frequent flyer program.

Qantas is betting on a bigger and more profitable frequent flyer program with its decision to take a short-term hit to earnings through the launch of its new Classic Plus loyalty product.

With widespread frustration among the program’s 15 million-plus members at the difficulty in using hard-earned points, Qantas realised that to grow membership and engagement it needed to act.

The result — Classic Plus — means frequent flyers will be able to redeem points more easily on over 20 million reward seats, in every cabin of most Qantas international flights from July 1, and domestic flights from later in the year.

With four times more seats than Classic Rewards, Qantas expects the new program will give frequent flyers added incentive to earn points in the knowledge they will be able to use them in the way they want.

The catch is the Classic Plus seats will typically require more points than the ongoing Classic Rewards program, with “prices” fluctuating in line with supply and demand, and sales.

It all represents a $120m investment by Qantas, including the value of displaced seat revenue and the non-cash impact to the future sale of points in the Loyalty business.

In the current financial year, that will mean a hit of between $25m and $50m to the forecast $550m in earnings for Loyalty.

But Qantas chief executive Vanessa Hudson said she was confident it would be a “no regret” investment, with Loyalty on track to clock $1bn in earnings by 2030.

“We’ve actually recommitted to that target because we believe this investment unlocks that next phase of growth which is around 10 per cent in the 2025 financial year, off this year’s earnings base,” Ms Hudson told The Australian.

“What’s needed to track to that 2030 target, is not enormous. It’s around 3 per cent growth in members, and increasing the amount of earn and burn that our members do on an annual basis, which is very much in line with what we’ve seen historically.”

Investors appeared to approve of the move, with Qantas shares climbing 5 per cent on the ASX on the back of the announcement, and closing up 4.8 per cent at $5.69, the highest in six weeks.

The bump seemed to confirm the view that the new product was just as much about growing profits as it was about appeasing frustrated frequent flyers.

“I think it’s an initiative that Qantas needed to put into place,” frequent flyer expert Adele Eliseo of The Champagne Mile said.

“It’s been getting harder for people to use their points and now there’s a valid offer there for people who are frustrated they can’t use their points, and are perhaps willing to pay a bit more than those more savvy frequent flyers who are chasing that really high value per point.”

In the longer term, the increased engagement is likely to make frequent flyer points even more valuable to the program’s many partners who paid Qantas for points to offer to their own customers.

Ms Hudson said they regularly received feedback from partners such as Woolworths and BP that Qantas frequent flyer points drove more members to choose their brand and to shop more frequently in their store.

“They’re going to think this is very positive for them, by having more of our members engaged and motivated to earn more points,” she said.

“That’s going to enable us to grow more partners.”

Ms Eliseo said on the downside it could make points earned through Qantas partners harder to come by if the airline saw greater value in them and sold them accordingly.

“There’s a $100m investment by Qantas Loyalty in this initiative, so they’re going to have to recover costs from somewhere and, potentially we might see some of these golden offers that are currently in the market becoming a bit more conservative,” Ms Eliseo said.

“If you’ve got 100,000 bonus Qantas points on a new credit card at the moment, we might see some of those offers pull back a bit because partners may be needing to pay a little bit more for those points to subsidise this initiative.”

Ms Hudson said it was up to their partners how they distributed points, to keep customers loyal to their own brand.

“The most important thing we could’ve done for our partners today is investing in the program,” she said.

The stockmarket’s positive reaction was aided by the commencement of a $448m share buyback flagged in February, and due for completion by June 30.

Qantas delivered a $1.25bn half year profit for the six months to December 31, 2023, down $183m on the previous corresponding period.

Ms Hudson attributed the result to more spending on customer initiatives and falling airfares in the face of greater competition.

Originally published as Qantas adds 20 million frequent flyer seats under new Classic Plus scheme