Frequent flyer points and coronavirus: What should you do with your Qantas and Virgin points?

Qantas loyalty CEO Olivia Wirth and Qantas group CEO Alan Joyce during an announcement last year.Credit: AAP

In the midst of a global travel shutdown and with questions looming over the future of the entire aviation industry, what does it mean for all those frequent flyer points you've collected?

Flying is out of the question for the foreseeable future. And Qantas and Virgin Australia have tightened the rules around redeeming points on coffee machines, iPads, Lego and other products to prevent a cash drain.

Frequent flyer points, like everything else, have been changed by the coronavirus crisis. And many people have questions. How much are they actually worth now? Should I spend them straight away? What happens if the airlines go bust?

Here's everything you need to know about these loyalty schemes.

What are frequent flyer points and how do they work?

Frequent flyer points are a consumer loyalty scheme. In Australia, the Qantas Frequent Flyer and Virgin Velocity programs are extremely popular, with about 13 million and 10 million members respectively. Any points you earn can be cashed in for flights or products.

Traditionally, airlines rewarded loyal customers by giving them points when they flew on their aircraft. But in recent years loyalty programs have become much more lucrative as airlines sold points to banks, supermarkets and insurance companies who use those points to attract customers. The result is both Qantas and Virgin earn massive profits from their loyalty schemes, with Qantas saying only a third of its points are earned from flying.

What's the best way to earn points?

It depends. The conventional answer is through actually flying on Qantas and Virgin planes (or their partner airlines such as Emirates and Singapore Airlines). But, as mentioned above, you can also rack up plenty of points on the ground by spending.

The quickest way is by accruing bonus points from banks by signing up for credit cards. For example, ANZ offers 120,000 Qantas points for an effective $150 sign up fee, so long as you spend $4000 in the first three months. Assuming you're careful and pay off the card each month, it's one way to turbo-charge your points balance. You don't earn as many points from regular spending; most credit cards offer less than one point per dollar. So if you spend $2000 a month you might only earn 20,000 points a year, compared to hundreds of thousands by cycling through various credit cards.

What's the best way to spend my points?

Value is subjective, but in short the answer is by flying. Redeeming around 50,000 Qantas or Virgin points gets you some Apple AirPods (worth $319), a Dyson V7 handheld vacuum cleaner (worth $288) or a Breville juicer (worth $189). But for 36,000 points, you could get a return economy airfare from Melbourne to Cairns (worth about $500).

But since you presumably earned the points spending money on travel and other things you were going to purchase anyway, using the points to buy the fancy juicer isn't a terrible option. Particularly when flights are grounded.

What happens if Qantas or Virgin go bust?

Bad luck. You'd be treated as an unsecured creditor and lose all your points. Many people learned this the hard way when Ansett collapsed in 2001. It seems unlikely the federal government would allow the national carrier, Qantas, to go broke and Virgin has asked Canberra to consider additional financial support to avoid collapse.

Are people nervous about this?

Yes, if internet forums are any guide, with some people saying they have redeemed hundreds of thousands of points on products. One person said they cashed out 80,000 Velocity points for about $400 worth of JB Hi-Fi gift cards. The rationale: if the airline goes under, at least the points provided some value. This kind of behaviour makes the airlines anxious, because every member who cashes in their points adds a further drain on liquidity.

Are airlines limiting points redemption?

Yes. Both airlines have now introduced measures to prevent such a run on points. Qantas is limiting product purchases to two a day, while Virgin has limited gift card purchases to one a day. Many gift card options have disappeared altogether, while the maximum value of others has dropped to $50. Virgin has also suspended the option for customers to transfer points across to Singapore Airlines' loyalty program. There is, however, no sign they have raised the price (in points) for goods so far.

What should you do?

It depends. If you think the airlines will survive this crisis, then it might be wise to hang on for the ride. You may find it easier to secure future flights - airlines are still accepting bookings for later in the year - using points as other people hold off until travel restrictions lift.

But if you think either airline will collapse or you want to save your own cash then it might be time to spend your points. Just get something better value than the juicer.