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Qantas Frequent Flyer: the gold standard in airline loyalty programmes

Analysis

Qantas Frequent Flyer, the loyalty programme of Qantas, has been heralded by many as the gold standard in airline loyalty programmes.

Talking about the drivers for those accolades, as well the resilience of the programme during the COVID-19 crisis, plus its revised outlook, Olivia Wirth, CEO of Qantas Frequent Flyer joined Peter Harbison, Chairman Emeritus of CAPA, and Evert de Boer, Managing Partner of On Point Loyalty at the most recent CAPA Live event (Dec-09-2020) in a dialogue on loyalty.

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Qantas Frequent Flyer as the gold standard in airline loyalty

Qantas Frequent Flyer (QFF) is considered by many as the gold standard in airline loyalty programmes. Evert de Boer, who leads global airline loyalty strategy and finance firm On Point Loyalty identified three root causes for the accolades.

Firstly, Mr de Boer considered the overall strategy as innovative. According to him, Qantas Frequent Flyer successfully pushed the boundaries of the loyalty model: “They've really extended beyond just the core component and gone into the next layer and the next layer, which has helped them to push the business, and make it relevant and provide for the engagement with the members”.

Secondly, Mr de Boer identified the fairly high degree of autonomy that QFF enjoys in running its business. Qantas Frequent Flyer is run as a profit centre, and has been one of the Qantas reportable segments. This provides a number of upsides, including the ability to invest and prioritize decisions as a business, as it sees fit.

The third point, which is related to the previous point, is that Qantas Frequent Flyer is very consistently reporting its financial results. This provides a striking contrast with the majority of airlines today, who by and large have no good handle on the profitability of their loyalty segment.

Interestingly, in this context, a number of large US carriers recently started reporting segmental results for their loyalty programmes as part of debt financing projects. The question remains whether this was a one-off or a recurring theme which could lead to significant change in the industry.

Olivia Wirth: “our loyalty business is probably unlike many other airline programmes”

Olivia Wirth, CEO of Qantas Frequent Flyer, outlined the special position that QFF occupies: “We're fortunate in that our loyalty business is probably unlike many other airline programmes. Obviously at the core of our business, we have a Qantas Frequent Flyer programme, which is all about engaging our members. However, we had quite a diversified earnings strategy which is all about making sure that we can engage our members beyond flying, and so that gives us diverse revenue streams.”

Ms Wirth also provided examples of how the business is continually evolving – and addressing changing customer and market needs. Last year saw material changes to the programme, essentially in an effort to enhance the award value proposition, with a primary focus on getting more seats in the market as well as improving the ease of the redemption process (including a particular focus on the mobile experience).

Ms Wirth outlines that Qantas deploys a very sophisticated approach around how they allocate seats, including dimensions such as long term value, or the lifetime value, of a member. QFF also tweaked its elite qualification structures, including the lifetime platinum memberships. She admitted to “setting the bar rather high”, but explained the move by saying that a small group would benefit indeed; however these members were highly valuable and QFF wanted to recognise that accordingly.

Resilience of the Loyalty business in the face of COVID-19

On the topic of the current crisis in the airline industry, Ms Wirth acknowledged that QFF had been affected like so many other programmes and airlines in the world. At the same time, she identified three businesses within the Qantas Group that were able to continue to deliver very important cash to the group, with loyalty being one of them - freight and the Qantas fly-in fly-out (mining employee) business being the other two components.

The crisis impacted each partner category of the programme differently, says Ms Wirth. “Obviously we've got significant partnerships around financial services, we have seen consumer spend dip, particularly towards the beginning of the year. Other parts of our business which are closely associated with travel, so our hotels business for example, that's really been impacted, as well. However, there are other components of our business which have remained unchanged or continued to grow.”

Ms Wirth explained how part of the challenge for QFF was maintaining engagement with members, during period with limited or no travel.  With two-thirds of the points being earned on the ground, Qantas announced it would actually increase frequent flyer classic reward redemption seats available on the core domestic network routes by 50%. Ms Wirth explaine, “We want to make sure that when you can travel, you can actually choose to redeem your points on a seat. “

2020 could actually turn out to be a pivotal point for the airline loyalty industry

Mr de Boer offered that 2020 could actually turn out to be a pivot point for the airline loyalty industry. He explained that the largest capital market transactions ever witnessed in aviation took place this northern summer in the US, with carriers like United and Delta realising debt financing of USD6.8 and USD9 billion respectively by collateralising their loyalty programmes: “this novel approach realised a risk discount of between two and three and a half percent compared to conventional collateral categories”.

Ms Wirth affirmed the great ambitions for Qantas Loyalty, not only in terms of how it engages with customers and members, but also as a really important contributor to revenue and to cash. She reaffirmed the earlier communicated  EBIT target of AUD 500-600 million, but did offer a new timeline for the meeting the target: “Due to what's occurred over the last nine months with COVID, we have pushed that target back to FY 2024.”

Mr De Boer believed there was no evidence to suggest that being profitable and having great levels of customer engagement were irreconcilable. According to him, pursuing profits is in fact all about creating engagement with the members: “If the members don't care for your currency, they're going to walk away and your partners are going to walk away.”

The “core rewards offering of travel (is) definitely the most aspirational aspect of the Qantas Frequent Flyer Programme”

Ms Wirth is optimistic about the future of loyalty – and its core rewards offering of travel. “It's definitely the most aspirational aspect of the Qantas Frequent Flyer Programme. It's what people dream about.

“And all our research still says even during these last nine months, we've been researching our members every week to get a feel for how they're feeling about themselves, the world, how they're feeling about travel, and what's the interesting thing is that there's one thing that does say strong or continues to stay strong is actually the intention to travel internationally.”

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