Frequent flyer points are one of the most mind-bendingly complicated marketing ploys a consumer can face, but here are a few simple facts to bear in mind.
- The airlines control the value of the points, and when and where they can be redeemed. Case in point: if you've finally saved up a zillion points and managed to not let any of them expire and you want to upgrade from economy to business class, the airline is under no obligation to make a frequent flyer seat available on any given flight. They can simply say, "Sorry, we prefer to have all passengers pay full fare on that flight." In short, the airlines don't have to offer redeemable rewards in proportion to the amount of frequent flyer points they've sold. It's hit or miss – especially when it comes to upgrades.
- You have to fly a whole lot to earn enough points to be of any value – and you have to fly often enough (or earn points through your credit card or other linked service) to avoid losing points, since their days are numbered.
- Airlines make a profit by selling frequent flyer points to credit card companies, telcos and other "partners" for more than it costs the airline to redeem them – that's why the airlines love the whole frequent flyer point thing!
The real purpose of frequent flyer programs
Over the years CHOICE has received considerable consumer input about the questionable value of frequent flyer points. One consumer summed it up: "I used to care a lot, but over the past three or four years really cheap fares have become available with the discount carriers and the bigger airlines got stingy and made their points worth less in real terms. Plus they stopped awarding miles on the cheaper tickets."
An industry insider we spoke to, Clifford Reichlin, agrees. His online forum, The Australian Frequent Flyer, has been a busy stopover for travellers since 2002. Reichlin argues that frequent flyer points are a "promotional and marketing currency" designed to get consumers to fly more, not help them save money.
"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 points. In recent years Qantas has generated more revenue from points than from original ticket sales, and it recently revamped its frequent flyer program in favour of business and first class passengers – presumably to increase the revenue-per-point ratio. With the change, passengers will earn points based on ticket class rather than how many miles they fly. More expensive flexi-saver seats, for instance, will receive double the points of the cheaper discount economy seats.
Reichlin, a former Ansett executive 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 you would notice.
"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.
What are frequent flyer points worth?
Reichlin 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 the forum about how to get value from your points, because there are so many variables [and] 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."
Frequent flyer status credits
How many frequent flyer points you get depends on:
- whether you're flying on the member airline or its discount brand or partner airline,
- whether you're sitting in economy, business or first class,
- whether you're in a silver, gold or platinum program, and
- how many points you earn by using your credit card on other transactions.
But it's not just points you're after. You also need status credits. The more you fly, the more status credits you get, and it's the status credits that pave the way to silver, gold or platinum status.
As you move up, your point-earning power increases, but only if you buy tickets often enough – and fly far enough – to maintain your status. Status credits can only be earned by flying – and they disappear if you don't fly often enough.
Redeeming frequent flyer points for retail goods
Of course, there are many ways to collect points other than flying. Qantas, for instance, has more than 400 retail partners. But whether the points are worth the price is another question.
Among the special offers in the Qantas Frequent Flyer store when we checked was an LG 32'' LCD TV for 86,500 points and a Coleman 58L Xtreme Cooler for 19,700.
If you flew Qantas Sydney-LA return five times as an entry-level bronze member you'd still be 11,590 points short of the TV, and 4718 points short of the cooler after a single round trip. (We found the products for $439 and $139 respectively at retailers.)
It was the same story with Virgin. We found an Akai DAB digital radio going for 15,900 points in the Velocity store, and you could throw in a Breville 34L microwave for another 34,900 points. If you flew Virgin Australia Sydney-LA return twice (discount economy) you'd still be 910 points away from the radio and could only get the microwave if you made the return trip four times. (CHOICE found the same products for $72 and $129.)
Nevertheless, Qantas Head of Airline Loyalty, Stephanie Tully, told us the flying kangaroo "benchmarks goods sold versus other loyalty programs in the market, and we believe we have a competitive offering".
Virgin Manager of Corporate Communications Emma Copeman argues "our redemption pricing is competitive and represents real value".
Credit card rewards points
As our investigations into credit card-based frequent flyer miles have shown, you'd have to spend big dollars on your credit card every month and pay the balance in full without fail to make it worthwhile.
Our calculations showed that a $5000-per-month spend on your credit card would earn you a maximum of about $1000 worth of points a year on either Qantas or Virgin in the best-case scenarios.
If you spend less than $1000 a month with your card, in many cases the net value of any frequent flyer points will be eaten up by fees.
Frequent flyer points won't buy you much unless you fly a lot. And with stiff competition for passengers, you may save more money than what the points are worth simply by buying the cheapest ticket. Unless you fly often and are prepared to get your head around a very complicated (and ever-changing) system, don't let the pursuit of frequent flyer points dictate your itinerary.