1 billion points and counting — Qantas frequent flyers splash out on Classic Plus seats

Qantas frequent flyers have splashed out on new Classic Plus reward seats but do the numbers add up?

Qantas CEO Vanessa Hudson said new frequent flyer changes are in response to feedback. Picture: David Gray/AFP

Qantas frequent flyers have splashed out on the new Classic Plus option, redeeming more than a billion points for international flights on Monday, three times more than typical for that day of the week.

London, Singapore, Tokyo, Queenstown, and Los Angeles were the most popular destinations booked, and Qantas data revealed almost 50 per cent of total Classic Plus reward seat redemptions were for travel in premium cabins.

Launched by CEO Vanessa Hudson on Monday as a $120m investment by Qantas, Classic Plus is intended to give frequent flyers a better chance of using their points on the flight and cabin of their choice, after growing frustration with hard-to-find Classic Rewards’ seats.

Although Classic Plus seats required significantly more points than Classic Rewards, their much wider availability on 20 million international and domestic seats was expected to engage frequent flyers.

Qantas Loyalty CEO Andrew Glance said they were pleased to see such a strong uptake of the new product after spending “a lot of time listening to members about how we can better reward them”.

“The combination of Classic and Classic Plus flight rewards will give members more options to fly where they want, when they want and more often, using points,” said Mr Glance.

But doubts have been raised about such a large number of seats being offered for redemption, with Citi analyst Samuel Seow suggesting only a fraction were likely to be taken up.

His analysis pointed out that prior to Covid-19, the Qantas (red tail) airline carried 31 million passengers and offered about 40 million seats for sale.

He said given that 20 million seats represented 50 per cent of Qantas’ capacity, the airline “could not be expecting redemptions anywhere close to this number”.

“It appears the 20 million seats may be priced so only a low percentage are redeemed,” wrote Mr Seow.

“We estimate $70m is the actual investment in the change (and) our back of the envelope equation suggests this equates to potentially 10 per cent of 20 million seats being expected to be redeemed.”

Mr Seow’s report surmised that the downward adjustment Qantas made in its forecast earnings for the Loyalty sector in the 2024 financial year, from $550m to around $500m to $525m, was largely an accounting change, given that Classic Plus seats were not available until July 1.

“Overall, we largely see the actual cash investment as small,” he said.

“Subsequently, we estimate only modest increases in engagement, but similarly limited risks of cost increases.”

Qantas CEO Vanessa Hudson at the airline’s Sydney hangar. Picture: David Gray/AFP

As a result, his valuation of Qantas shares increased to $5.85, while UBS analyst Andre Fromyhr was targeting $7.50.

“We think the overall impact (of Classic Plus) is likely to be relatively immaterial to earnings and cash flow, notwithstanding uncertainties around the customer response,” Mr Fromyhr said.

Jefferies analyst Anthony Moulder called Classic Plus “an important reset of the frequent flyer program for future growth”.

He said the increased redemption potential of the program was expected to drive an increased earn level, as well as greater stickiness to the Qantas ecosystem encompassing flights, hotels, car rental, wine, insurance, credit cards and so on.

“While we will have to await the reaction from partners to the changes, they are expected to be positive for members and positive for Qantas,” said Mr Moulder.

Qantas’ share price continued to climb on Tuesday, closing up 2 per cent at $5.81, within striking distance of its $5.83 high for the 2024 calendar year.

Originally published as 1 billion points and counting — Qantas frequent flyers splash out on Classic Plus seats