Frequent Flyer failure

Unless you fly often, frequent flyer points won’t get you very far.
 
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02.Insider's view

Clifford Reichlin, whose online forum The Australian Frequent Flyer has been a busy stopover for travellers since 2002, says frequent flyer points are a “promotional and marketing currency” designed to get consumers to fly more, not help them save money.

Profit motive

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“What they really want to do is convert the occasional traveller into a frequent traveller,” Reichlin says.

“It’s not a loyalty program and has nothing to do with loyalty. The airlines aren’t rewarding you for flying with them, they’re trying to get you [to] buy more airline tickets, preferably the pricier ones. If it were a straight-up loyalty program, your points wouldn’t expire and the programs wouldn’t be so difficult to figure out.”

Due to the complexity involved in accumulating points, many casual travellers understandably don’t know what to make of frequent flyer points.

But what is clear is that the major airlines care a lot about them. Last year, Qantas generated more revenue from points than from original ticket sales, or about 60% of its net profit. In 2011 Macquarie Transport analyst Russell Shaw told us Qantas’ frequent flyer program is worth about $2 billion.

Given its success, the frequent flyer business seems to be fuelled by basic maths. So long as Qantas charges its many partners more to buy points – and thus to be able to add them as customer incentives – than it costs the airline to redeem those points, they come out on top.

Reichlin, a former Ansett employee and industry consultant, confirms that the airlines have continually reduced the value of their frequent flyer points over the past decade or so, but not in ways that would be obvious to consumers.

“It’s done quite subtly – the cash component of each point has increased with things such as fuel charges and other added costs. The point per mile or dollar may look the same on paper, but the overall cost of each point for consumers has increased dramatically,” he says.

ToasterElusive value

He also argues convoluted programs are a deliberate strategy. “A simple system would be much easier to understand for everyone, but that wouldn’t really push the right buttons for the airlines. There are never-ending discussions on my forum about how to get value from your points, because there are so many variables, so many ways of doing it.”

Reichlin points out that airlines draw considerable revenue from banks whose payment cards are linked with frequent flyer programs, yet there’s no link between the profits and the availability of seats purchased with points.

“How the seats are allocated is entirely up to the airlines, and there’s no transparency for the consumer at all.”

He estimates frequent flyer points to be worth about one cent a point on average – consistent with our estimate for domestic flights – but can also drop well below that value. “They will be worth a lot less than one cent if you buy a voucher or pay for goods and services. But if you manage to get the timing right and use your points for an upgrade from economy to business, the value can jump to three or four cents per point. The problem is, it’s very hard to pull that off.”

(Reichlin’s forum has also become an advertising and communication outlet for the airlines, but he insists there’s a firm dividing line between posts from consumers and commercial content. “We maintain strict editorial independence.”)

 

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