Revealed: The true value of your airline loyalty points
With recent rankings naming and shaming airlines for the value they offer, we ask the question on the lips of all frequent flyers.
There is no doubting the allure of airline loyalty programs. Schemes such as Qantas Frequent Flyer, Virgin Australia Velocity and Singapore Airlines’ KrisFlyer have a combined membership of 40 million, and points so desirable customers change their behaviour to acquire them (see fact box below). Their formula is relatively simple: customers accumulate points and status credits predominantly from booking and taking flights, which can then be used for redemption on reward seats.
Developed to foster loyalty to a particular airline, the schemes have also become profitable businesses in their own right, with Qantas Frequent Flyer targeting $1bn in earnings by 2030. That’s largely achieved through partners such as big retailers and financial institutions, energy companies and hotel chains, which are willing to buy points from the airline to “reward” their own customers.
Status credits are a slightly different matter, with airlines relying on customers to pursue higher tiers within the scheme by taking more flights and/or booking more expensive fares.
The challenge for the airline is to ensure points, or miles and status credits, remain a desirable commodity for customers. The points earned from a flight may represent as little as 10 per cent of what’s needed for a reward seat, putting their true value at about 2c or less. Recent analysis by Australian Frequent Flyer found significant differences in redemption values per point, with $50 gift cards equivalent to 0.46c a point, and business class upgrades giving Qantas members a return of about 3.6c a point.
The values differ from program to program, and some are rated as giving a better return than others. In the AFF analysis, Virgin Atlantic Flying Club came top, with an average value per point of 2.1c across a range of redemption items, and Air New Zealand Airpoints the worst at 1c per point. Qantas and Velocity ranked somewhere in the middle, at 1.8c and 1.7c a point respectively.
The true value is a closely guarded secret by airlines, which know such a poor return could risk members becoming disengaged. And once they stop caring about chasing points and status, the scheme falters.
Two questions are bringing the value of loyalty programs into sharp focus. Has Virgin Australia’s overhaul of how status credits are earned reduced the program’s worth in consumers’ eyes? And how will customers react to Qantas’s devaluation of points, which will mean up to 20 per cent more Classic Reward points being needed for a premium seat, taking effect from August 5?
Loyalty expert Evert De Boer says it’s crucial for the success of such programs that customers feel rewards are attainable and worth the effort.
“You can’t erode the value proposition with impunity because people will ultimately walk. We’ve seen it in the past,” he says. “Air Miles Canada removed pieces of the value proposition and ultimately the partners of the program walked, culminating in bankruptcy.”
In Virgin’s case, a shift from earning status credits based on routes flown to dollars spent has resulted in the average “cost” of a credit doubling from about $6 to $12. It’s a bold move, given the “rewards” for achieving higher-status tiers in the Velocity program do not necessarily carry the same appeal as those in the Qantas Frequent Flyer scheme. For one, Virgin Australia offers only eight business class seats in its aircraft, providing limited opportunities for upgrades and rewards. The airline’s lounge network is restricted to seven domestic airports, and its partner network is much smaller than that of its competitor.
On the other hand, Virgin now has a closer relationship with Qatar Airways, rated the world’s best airline, reward seats tend to be much easier to find on Virgin flights, and previously it was almost too easy to achieve gold status, resulting in very crowded lounges.
Velocity chief executive Nick Rohrlach says reward-flight availability is what members of the program value most, and it’s what Velocity aims to deliver.
“To that end, we recently tripled the number of reward seats available on our new long-haul international services to Doha with Qatar and have already seen an incredibly positive response from members booking their next European summer holiday,” Rohrlach says.
“People really appreciate the flexibility Velocity provides in points transfers from their credit cards or Flybuys and the ability to earn points on everyday activities.”
For now, Qantas is sticking with its approach to status credits, but the changes coming from August 5 are significant. It means frequent flyer points will be worth a bit less than they have been and members will have to work harder and spend more to achieve the same result.
Adele Eliseo, of The Champagne Mile, says with carrier charges also going up, some frequent flyers will face a “double hit”.
“On some routes, members are paying up to 20 per cent more in points along with higher carrier charges,” Eliseo says. “While this pushes the true cost of a reward flight significantly higher, international reward seats in business and first class still deliver excellent value – if you can find them.”
Reward seat availability remains one of the biggest frustrations for Qantas Frequent Flyers, many of whom bought into the program to achieve their dream of a long-haul flight up the pointy end of the plane, only to discover their hard-earned points alone aren’t enough.
De Boer says there’s no question that, as airline loyalty programs have grown their membership, it’s become harder to maintain the appeal of such schemes.
“I think the crux of the matter is that these programs are getting more economical and more selective in who they give that ultimate reward to. Going back 20 or 30 years, those rewards would have been given to any member on a first come, first served basis,” De Boer says.
“But today I suspect what the programs are doing is much more pointed in matching customer value with the rewards that you get. For instance, if you’re a top-tier member you get a very different offering than a basic-tier member, and that’s something that’s changed over time.”
It comes back to the question of whether airline loyalty programs are worth it for members. Frequent flyer experts, perhaps predictably, say yes – but a bit of effort goes a long way.
“Members who will continue to extract high value from loyalty programs, such as Qantas Frequent Flyer, are those who understand the mechanics of finding the most sought-after seats,” Eliseo says. “That includes tracking release patterns, searching often and staying flexible on dates or routes.”
“Points whisperer” Steve Hui of iflyflat.com.au says credit cards that allow users to accumulate points from purchases and then direct them to any airline loyalty program make more sense for many travellers.
There is also anecdotal evidence of travellers forgoing the pursuit of points and status with one airline and simply flying on whichever carrier offers the best schedule and price.
“It feels to me that what airlines are doing is focusing more on their profits and cutting back on rewards, but they still want customers to behave the same and be loyal,” Hui says.
“But if you’re cutting the number of points you can earn by flying and then also charging more points for a flight on the other side, what do they expect customers will do?”
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