Thu, 12 Jul, 2018
The REAL winner of frequent flyer programs – and it’s not loyal customers
They were originally designed to give back to loyal passengers but frequent flyer programs reward airlines more than customers, analyists say.
The immense popularity of frequent flyer programs prompted airlines to start making money off them.
"About 10 years ago Qantas realised that there was an opportunity for them to commercialise this more widely and it was largely because of how consumers value those points both as a status symbol and as the opportunity to get flights," Credit Suisse director of equity research, Paul Butler, told ABC.
Qantas, the most popular rewards program in the country, has 12 million members that earned more than 120 billion points last year.
Its frequent flyer program brings in more than $400 million a year in profit, which is more than it makes flying people overseas.
Credit Suisse calculates the frequent flyer business is worth about $4 billion to Qantas.
Tony Webber, the chief executive of Airline Intelligence and Research, said airlines are the big benefiters of rewards programs as they control the entire process – airlines determine the value of points, what the points are redeemed for, when the points are redeemed, how many points are needed for an upgrade, and can add additional fees the customers must pay.
"The dominant reason it's exceptionally good for the airlines' cash flow is that they're really getting a revenue stream for a very little cost stream," Tony Webber told ABC.
Dr Webber also point out that airlines wants customers’ points to expire.
"They really want the points to expire, they have a strong incentive to expire the points. As soon as the points expire there is no cost associated to the airlines with these points being earned," Dr Webber said.